“Trump’s Demand For A Wall …”

Trump’s Demand For A Wall

President Donald Trump urged Congress to give him $5.7 billion this year to help build a wall on the US border with Mexico however he did not declare a national emergency to pay for the barrier with military funds.  Trump said in his first prime-time address from the Oval office that there was a growing security and humanitarian crisis at the US-Mexico border.  He further added that illegal immigrants and drugs flowing across the southern border pose a serious threat to American safety.  After days of hinting that he might use presidential powers to declare an emergency as a first step towards directing money for the wall without congressional approval, Trump said he would continue seeking a solution to the impasse with Congress.  Democrats and other opponents of a wall have threatened to take legal action if Trump issues an emergency order.  According to them he is manufacturing a crisis in a bid to meet his 2016 presidential campaign promise for a wall that at the time he said would be paid by Mexico.  Meanwhile, the Mexican government has refused to provide such funds.  On Wednesday, Trump stormed out of talks with Democratic congressional leaders over the funding for the border wall and complained that the meeting at the White House was a “total waste of time”.  The breakdown in talks could strengthen the possibility that Trump will declare a national emergency to build a wall on the southern border if no deal with Congress can be reached on his request for $5.7 billion for the project.  Shortly after the White House meeting broke up, the House of Representatives, which is controlled by Democrats, passed legislation to end a partial shutdown of the Treasury Department and some other agencies that have been closed since 22 December without money for the wall.   There was however no indication that the Senate which is controlled by Republicans would allow a vote on the bill.  Meanwhile, on Thursday Trump travelled to the Mexican border to rally support for his stance of the wall and threatened that he will use emergency powers to bypass Congress to pay for a wall on the US-Mexico border.  The US government shutdown tied to the issue stretched into its 20^th day with no sign of new talks to resolve the situation.

Trade Talks

Monday saw the kick-off of a meeting between counterparts in Beijing and US officials.  This was the first meeting since Trump and China’s president agreed to the 90-day truce.  Trump imposed import tariffs on hundreds of billions of dollars of Chinese goods to pressure Beijing to change its practices on issues such as industrial subsidies and hacking.  Meanwhile China retaliated with tariffs of its own. On Tuesday Trump said that talks with China were going very well.  There were signs of progress on issues including purchases of US farm and energy commodities and increased access to China’s markets.  Talks are still apart on issues about Chinese structural reforms that the Trump administration is demanding on alleged theft and forced transfer of US technology and to how to hold Beijing to its promises.  Trump is eager to reach an agreement in order to lift the markets.  If no deal is reached by 2^nd March, Trump will impose an increase in tariffs to 25 percent from 10 percent on $ 200 billion worth of Chinese imports.  Businesses are feeling the effects of the US tariffs and retaliation from China.   On Wednesday Chinese and US teams ended the trade talks in Beijing that lasted longer than expected.   China and the US made progress on “structural issues” such as forced technology transfers and intellectual property rights and more consultations are being arranged said the China’s commerce ministry on Thursday.  China said that the three days of talks had established a “foundation” to resolve differences, but gave virtually no details on the key issues at stake such as forced transfers, intellectual property rights, tariff barriers and cyber-attacks.

Fed’s Powell Comments

Federal Reserve Chairman Jerome Powell on Thursday stressed again that the US central bank can be patient in approving any further rate increases as officials gauge whether the US economy will slow this year.   With no sign of excessive inflation or outsized risk in financial markets, Powell said the Fed would be “waiting and watching” in the coming months.  This time round his appearance generated a subdued response in financial markets, whereas in contrast to his remarks in his three previous appearances since late November, moved stocks an average of 2.4 percent in either direction.  Furthermore his comments last Friday resulted in the largest market reaction yet since he took office last February.   Powell emphasized the Fed’s flexibility and patience in evaluating data, easing expectations of steady rate hikes.

US Weekly Jobless Claims

The number of Americans filing applications for jobless benefits fell more than expected last week, pointing to sustained labour market strength.  The report released on Thursday from the Labour Department, that followed data last week, showed that employers in December hired the most workers in 10 months together with increased wages.

Brexit

Citing government sources BBC reported on Monday that Prime Minister Theresa May will hold a delayed parliamentary vote on her Brexit deal on 15^th January.  She said on Sunday that Britain would be unchartered territory if her Brexit deal is rejected by parliament, despite little sign that she has won over sceptical lawmakers.  Meanwhile the UK and European officials are discussing the possibility of extending Britain’s formal notice to withdraw from the European Union amid fears a Brexit deal will not be reached by 29 March.  British Labour leader Jeremy Corbyn called on lawmakers on Thursday to help his opposition party “break the deadlock” over Brexit and support his call for a motion of no confidence in the government to trigger an election.

Eurozone Economic Sentiment

Eurozone economic sentiment deteriorated markedly and by more than expected in December, closing a year that saw optimism falling every month, data from the European Commission showed in a sign of weakness for the bloc’s economy.  In the last quarter of the year, Eurozone economic sentiment eased to 107.3 points in December from 109.5 in November, said the European Commission, marking the indicators’ 12^th consecutive monthly drop and the lowest level since January 2017.  Sentiment in the industry fell to 1.1 points from 3.4 in November, against market expectations of a 2.9 point reading.  The mood of consumers also fell sharply to -6.2 points from -3.9 in November.  Retail shops have however, kept growing in November, showed official estimates released on Monday.  Sentiment in services, which produces two thirds of the Eurozone GDP went down by 1.4 points.  The worse than expected sentiment reading confirms economist’s expectations, that forecast slowing growth of the Eurozone in the last quarter of the year after GDP growth eased to 0.2 percent in the third quarter from 0.4 percent in the April-June period.  A separate business climate indicator, that helps to point to the phase of the business cycle also decreased in December to 0.82 from1.04 in November.

December’s ECB Minutes

The minutes of the ECB held in December show that policymakers suggested revisiting the use of cheap, multi-year loans to banks in the months ahead.  Minutes of the discussion suggested some policymakers would like Draghi to be even more cautious. Some called for a discussion on a new round of cheap credit to banks- a key source of funding for lenders in Italy, Portugal and Spain.  The ECB said in its account of the December meeting, “looking ahead, the suggestion was made to revisit the contribution of targeted longer-term refinancing operations to the monetary policy stance.” Some rate setters called for the ECB’s policy message to say that risks to economic growth in the euro area were “tilted to the downside” a phrase that has in the past signalled easier policy ahead. However, the ECB opted for a compromise solution where risks were described as being balanced but “moving to the downside”.  The ECB minutes further said that “it was underlined that the situation remained fragile and fluid, as risks could quickly regain prominence or new uncertainties could emerge.”

German Industrial Output

German Industrial output unexpectedly fell in November for the third consecutive month.   This is a sign that companies in Europe’s largest economy are being effected by risks from abroad, amongst which are the trade dispute between the US and China, the threat of the UK leaving the EU without a deal in March and weaker growth in emerging markets.  Industrial output fell by 1.9 percent on the month in November, according to data released on Tuesday by the Federal Statistics Office below the forecast of 0.3 percent increase.     According to more detailed data published by the Ministry of Economy, German factories delivered out fewer intermediate, capital and consumer goods.  Likewise the output in the construction industry and production in the energy sector decreased.  The industrial output figures followed data on Monday that showed retail sales rose more than expected in November, while industrial orders fell in the same month.  The Federal Statistics Office will publish preliminary gross domestic growth data for the fourth quarter and 2018 as a whole on Tuesday next week.  The government is hoping that the tax cuts for middle and high income earners and higher child allowances that come into effect in January will further boost consumption, which replaced exports as the main driver of growth.

Italy – State Support Options To Banca Carige

The Italian government approved a decree that aims to support the troubled Banca Carige by offering it access to a series of state-support options including recapitalization.  The decree was signed on Monday after a surprise cabinet meeting.  It will allow the bank to benefit from state-backed guarantees for new bond issues and funding form the Bank of Italy.  The lender last year failed to secure shareholder backing for a capital increase, however, it will be able to request access to state-backed precautionary recapitalization should the need arises.  In a statement, the government said, that the aim of the decree was to preserve to cut bad loans and bolster capital.

Oil

On Monday oil prices rose by more than 1.5 percent on hopes that meetings between the US and China would ease the tensions between the two biggest economies.  Meanwhile, supply cuts by major oil suppliers also supported the price for crude oil.  Prices also drew support on Tuesday from a Wall Street Journal report stating that Saudi Arabia is planning to cut crude exports to around 7.1 million barrels per day by the end of January.  Oil prices edged down on Thursday amid the lack of clear resolution to the US-China Trade talks and from official data released that indicated vast fuel stocks in the US.

Markets Wrap

A solid start from Europe kept the world stocks at a three-week high on Tuesday after Asia knocked back by a profit warning from tech giant Samsung.  The hope of a trade deal between the US and China helped to restore the mood again and the dollar was lifted in the currency market after a weak start to the year.  The pan-European STOXX 600 rose 0.6 percent, the FTSE was up 0.5 percent amid the report of a Brexit delay and Italian banks jumped almost 1 percent as Rome stepped in to support a troubled lender.  On Wall Street, the S&P 500 gained 0.7 percent following a surge of 3.4 percent on Friday of last week, with Amazon and Netflix leading the recovery rally after a brutal end to 2018.  Meanwhile an unexpected fall in German industrial output for the third straight month helped to weaken the euro zone currency.  In the bond market, the 10 year US Treasuries yield bounced back to 2.687 percent from 2.543 percent on Friday.  This is more than 50 basis points below the October peak of 3.261 percent.  On Tuesday shares in the UK jumped on hopes of a trade deal between China and the US, whilst online grocer Ocado and supermarket chain Tesco led a revival in retailers after upbeat sales data,that offset the disappointing holiday update by Morrisons’.  On Wednesday, European shares rose further with the exported-oriented autos and tech sectors, leading the way on growing optimism over a possible trade deal between the US and China.  Meanwhile, for the same reason of the trade talks between China and the US and boosted by energy and technology sectors, US stocks on Wednesday opened higher for a fourth straight day.  Upbeat sentiment this week has sent investors back into equities and confidence seems to be returning.  On Wednesday, US Treasury yields rose to their highest this year over the optimism of the trade deal.  The stronger stock markets and risk appetite also reduced safe haven demand for bonds.  Yields have fallen from the 3.05 percent at the beginning of December, on concerns about slowing global growth and the FED rate increases that prompted a sell-off in stocks.  However, they rose from the one year lows reached last Thursday after FED Chairman Jerome Powell said on Friday that he was aware of the risks of an economic slowdown and would be patient and flexible in policy decisions this year.  Meanwhile, French and German government bond yields slipped towards recent two-year lows on Thursday as soft data from China and caution about the economic outlook, boosted demand for top-rated government debt.  US stocks looked ready to break the four day rally amid disappointing holiday-season results from Macy’s that hammered retail stocks and no clear signs of a resolution from the US-China Trade Talks.

Electric Vehicle Technology

Global automakers are planning a $300 billion surge to spend on electric vehicle technology over the next five to ten years.  Nearly half of the money is targeted at China, accelerating the transition of the industry from fossil fuels and shifting power to Asian battery and electric vehicle technology suppliers.  This level of spending which much of it is by Germany’s Volkswagen,  is driven by government policies adopted to cut carbon dioxide emissions and will extend to technological advances that have improved battery cost, range and charging time to make electric vehicles more appealing to customers according to an exclusive Reuters analysis of public data released by those companies. Whilst China and other countries are placing restrictions on conventional gasoline and diesel engines, auto companies have accelerated the shift to electrification.

China Car Sales

China has recorded the first annual slump in auto sales in more than two decades.  Sales fell 6 percent to 22.7 million units last year, said the China Passenger Car Association on Wednesday.  The demand for automotive has been hit particularly by the trade tension that has hit the China’s $12.2 trillion economy.  This has prompted the government to prepare stimulus measures.  On the announcement, Chinese automakers rose on Wednesday, while German’s BMW, Daimler AG and Volkswagen AG also gained, amid progress with the trade talks between China and the US.  The China Association of Automobile Manufacturers expects the market to be unchanged in 2019.  In its outlook issued 13 December, while demand for gasoline cars wanes, rising sales of electric cars will probably help the overall market to avoid another slump.

Company News

Ford Motor Co

Ford Motor Company announced it will cut thousands of jobs in Europe and can close some plants, as the automaker tries to return the business unit profitable.

Malta – International Trade: November 2018

Preliminary statistics show that Malta registered a trade deficit of EUR 191.7 million in November 2018, compared to a trade deficit of EUR 150.9 million in the same month of 2017.  Both imports and exports decreased by EUR 109 million and EUR 149.8 million respectively.  The decrease in the value of the imports was mainly due to machinery and transport equipment, while mineral fuels, lubricants and related materials and food accounted for the main decrease in the value of exports.

Malta – Registered Unemployed: November 2018

In November the number of persons registering for work stood at 1,808 decreasing by 19.5 percent when compared to the corresponding month of 2017.

Malta – Index of Industrial Production: November 2018

In November 2018, seasonally adjusted industrial production increased by 2.5 per cent over the previous month.  Compared to November 2017, the index of industrial production adjusted for working days increased by 1.9 per cent.

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