“World Economic Forum In Davos, Switzerland…”

World Economic Forum In Davos, Switzerland

The annual meeting of the World Economic Forum kicked off on Tuesday till Friday in Davos, with global political and business leaders attending to discuss big issues facing the global economy and business sector amongst which are environmental issues. Trump took centre stage on Tuesday to sell out the US economy’s success.  He said that the US Federal Reserve had lowered interest rates too slowly.  At Davos, Trump warned of tariffs on automobiles if the EU did not agree to a trade deal.  Trump said that he was going to discuss a trade deal with EU in a meeting with European Commission President Ursula von der Leyen.  His address also picked up some of the themes he voiced when he first addressed the World Economic Forum two years ago.   Trump announced that the US would join an initiative to plant one trillion trees but also spoke at length about the economic importance of oil and gas and called climate change activists the “heirs of yesterday’s foolish fortune tellers.” In an apparent reprimand to Trump’s comment, activist Greta Thunberg said that planting trees was not enough to address climate change.  She called on world leaders to listen to young activists, who have followed her to Davos this year.

Call On Germany And Netherlands By The IMF

On Monday International Monetary Fund chief economist Gita Gopinath joined others stating that Germany and the Netherlands are able to spend more to boost economic growth.  Germany last year avoided a recession, however, it is expected that growth remains slow as industrial sectors struggles amid with weak exports due to change in car consumption usage.

ECB Meeting

The ECB launched a broad review of its policy on Thursday where in a statement the ECB said that “The Governing Council also decided to launch a review of the ECB’s monetary policy strategy.”    This is likely to see President Christine Lagarde redefine the main goal of the ECB and how to achieve it.  On Thursday the ECB did not change its policy and stuck to its pledge to continue buying bonds.  They expect interest rates to remain at their current or lower levels until, “the inflation outlook robustly converge to a level sufficiently close to, but below, 2 percent within our projection horizon.”

IMF Predicts Sluggish Global Growth

For this year and the next, the IMF has cut its global growth forecasts amid a more than expected slowdown in India and other emerging markets.  The global economy last year expanded by 2.9 percent its slowest pace since the financial crisis despite central bank easing that added to global growth.  Trade wars have had an impact on exports and investment.  The IMF forecasts growth at 3.3 percent this year, and 3.4 percent for 2021.

Trump’s Impeachment

On Wednesday the Republican-controlled US Senate voted on Wednesday to approve the rules for President Trump’s impeachment trial, rejecting efforts by Democratic to obtain evidence and ensure witnesses are heard.  Trump was last month impeached by the House of Representatives over charges of abuse of power and obstruction of Congress for pressuring Ukraine to investigate former Democratic Vice President Joe Biden, a political rival, and impeding the inquiry into the matter.  The president denies any wrongdoing.

Moody’s Downgrades Hong Kong’s Credit Rating

Moody’s on Monday has downgraded Hong Kong’s credit rating to “Aa3” from “Aa2” stating that it sees the strength of the Chinese-ruled city’s institutions and governance is “lower than previously estimated.” The country’s outlook was lifted from negative to stable, reflecting Hong Kong’s superior fiscal strength and consistent macroeconomic stability.

Bank Of Japan

On Tuesday, the Bank of Japan kept monetary policy stable and nudged up its economic growth forecasts to an 0.9 percent from an estimate of 0.7 percent growth made in October of last year.  The BOJ signalled cautious optimism over the global economy after the US and China agreed on the preliminary Phase 1 deal.  BOJ Governor Haruhiko Kuroda however said that continuous low inflation meant that the central bank had to maintain its expansionary monetary policy stance.  As was expected, the BOJ kept its short-term interest rate target at -0.1 percent and pledged to guide the 10-year government bond yields around 0 percent.  The BOJ also maintained a guidance that commits to keeping rates at current low levels, or even to cut them, until the risks from achieving the 2 percent inflation target subside.

Markets Wrap

Monday saw world stocks being traded just below record highs, holding back ahead of this week’s central bank meetings (ECB, Bank of Canada and Bank of Japan), economic data and earnings.  Whilst European equity markets were lower, US stock futures dropped, and trading was lower amid the holiday in the US of Martin Luther King Jr.  In Asia, the MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.25 percent on Monday after rising to highest since June 2018.  Japan’s Nikkei gained 0.2 percent to near its highest in 15 months.   On Monday European government bond yields traded neutral ahead of this week’s event, amongst them the ECB meeting and the World Economic Forum in Davos.  Italian bonds however, were down by nearly 3 basis points pursuing with the declines of last week and reached a one-week low.  US Treasury prices surged on Tuesday pushing yields lower as the risk sentiment dropped amid concerns about the virus that has broken out in China.  On the news the US yields fell to two-week lows with the 2-year (1.528 percent from 1.5969 percent on Friday), 10-year (1.7969 percent from 1.835 percent on Friday) and 30-year yields (2.229 percent down from 2.296 percent on Friday).  Wall Street shares also suffered as investors tried to make sense of this new outbreak.  Meanwhile, Germany’s 10-year government bond yield touched one-week lows on Tuesday.    Wednesday saw world stock markets heading to full strengths as updates from China about the spread of a new flu-like coronavirus raised the hopes that the outbreak can be contained.  Stocks in London, Frankfurt and Paris scored early gains of 0.1 percent to 0.2 percent. However, European shares reversed course on Wednesday and dropped lower amid threatens from US President Donald Trump to impose high tariffs on imports of cars from the EU pushing automobile stocks to a three-month low.  The tariffs threaten to increase pressure on the sector that has already been suffering from a slowdown in global demand.   Meanwhile, Italian government bond yields rose as much as 8 basis points amid reports that the leader of the Italy’s 5-Star party and foreign minister, Luigi Di Maio, will step down.  This was the biggest sell-off in a month and raised the risk of another snap election as the 5-Star is part of Italy’s coalition government.   However, Italy’s bond yields pulled back at the levels at which they started the day on Wednesday, with the benchmark 10-year Italian bond yield traded around 1.37 percent. A closely watched spread between the 10-year yields on Italian bonds and comparable German debt had hit its widest since late December at 169 bps.

Currency Roundup

Monday saw the dollar rising to its strongest level of 2020 after last week’s data affirmed that the US economy is holding well.  Last Friday data showed that US homebuilding surged to a 13 year high in December and a gauge of manufacturing activity rebounded to its highest in eight months.  The dollar edged up 0.1 percent against a basket of currencies, with the index rising as high as 97.727, the strongest since 24 December. Meanwhile, the euro was down at $1.1085.   Sterling came under selling pressure after British finance minister Sajid Javid stocked fears about weak ties with the EU after Brexit.  The Euro remained at one month low on Wednesday amid expectations that the ECB’s policymakers will take a cautious approach when they meet on Thursday.  Meanwhile, Germany’s ZEW research institute showed that on Monday investor’s mood have improved more than expected in January amid the signing of a China-US trade pact that raised hopes that Europe’s economy would recover.  Against the dollar the euro was weaker at $1.1077, its lowest since 25 December.  So far this month it has weakened more than 1 percent.  The Australian dollar which is often seen as a proxy bet on the Chinese economy, fell as low as $0.6827, a level seen last in mid-December.  Meanwhile the yuan saw its biggest decline of 0.55 percent on Tuesday, which is its biggest decline in almost five months.

Oil

Oil prices rose to their highest in more than a week on Monday after two large crude production bases in Libya started shutting down due to a military blockade.  The US Energy Information Administration (EIA) said on Tuesday that the US oil and natural gas output in major shale formations is expected to rise by the smallest in about a year in February to record highs as producers pull back on new drilling.  On Thursday oil dropped to its lowest in seven weeks, dropping more than 1 percent amid concerns that the spread of respiratory virus from China may lower the demand of oil.

Gold

Gold touched its more than one week high on Monday as investors hedged against the tensions arising from the Middle East and the impeachment trial in the US.  Investors are monitoring developments in Middle East, after Iran-aligned Houthis attacked a military training camp in Yemen on Saturday. Figures released by the industry association showed on Tuesday that China’s gold consumption fell for the first time in three years in 2019, as high prices and economic slowdown effected the world’s biggest market for the commodity.  According to the association, the drop was due to downward pressure on the Chinese economy and increased prices for the metal in the second half of last year.  Prices are currently around $1,555 an ounce after soaring to a near seven-year high of $1,610.90 earlier this month.

Malta:  Harmonised Index of Consumer Prices (HICP):  December 2019

December 2019 saw inflation as measured by the Harmonised Index of Consumer Prices (HICP) remaining at a constant rate of 1.3 percent. The factor affecting the annual inflation most was the Food and Non-Alcoholic Beverages Index, while the largest downward impact was recorded in the Clothing and Footwear Index.  The HICP measures the monthly price changes in the cost of purchasing a representative basket of consumer goods and services. HICP is based on rules specified in a series of European Union Regulations that were developed by Eurostat together with EU Member States.

Malta:  Retail Price Index – December 2019

In December 2019, the annual rate of inflation as measured by the Retail Price Index (RPI) was 1.18 percent, down from 1.36 percent in November 2019.  Whilst the largest upward impact on annual inflation was measured by the Food Index the largest downward impact was recorded in the Clothing and Footwear Index.  The Retail Price Index measures the monthly price changes in the cost of purchasing a representative basket of consumer goods and services and is closely linked with the COLA (cost-of-living adjustment) increase and periodic rent payment adjustments.

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