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BOV Market Watch - Week Ending 01 December 2017
01 Dec 2017
OECD says global growth strengthening but challenges remain. The global economy is now growing at its fastest pace since 2010, with the upturn becoming increasingly synchronised across countries, according to the latest OECD economic outlook. This long awaited lift to global growth, supported by policy stimulus, is being accompanied by strong employment gains, a moderate upturn in investment and an uptick in trade growth. However the report notes the lingering effects of prolonged sub-par growth in the aftermath of the financial crisis are still present. On emerging-markets, the report warns that growth is hampered by slowing reform efforts and financial vulnerabilities from high debt burdens, particularly in China. Financial risks are also rising in advanced economies, with the extended period of low interest rates encouraging greater risk-taking and further increases in asset valuations, including in housing markets.

Eurozone inflation still subdued as unemployment both falls. According to flash data from Eurostat, Eurozone inflation increased in November mainly due to higher energy prices. Consumer prices increased by 1.5 percent year-on-year in November, following October's 1.4 percent increase. Inflation was forecast to rise to 1.6 percent and continues to stay well below the European Central Bank's target of 'below, but close to two percent'. In the meantime, the jobless rate in the Eurozone fell to 8.8 percent in October, from 8.9 percent the previous month, its lowest level since January 2009. This is further evidence that the buoyant economic recovery across the region is being felt across the currency bloc’s labour market.

Fed Chair nominee Powell testifies before U.S. Senate. Jerome Powell, President Donald Trump’s nominee to replace Federal Reserve Chair Janet Yellen, signalled he intends to follow the same monetary-policy course that his predecessor charted if he is confirmed as the central bank’s next leader. Such continuity would be welcome in the markets, which don’t like uncertainty. Mr. Powell also told the Senate panel that he expects the central bank to continue raising interest rates gradually, indicating it is likely to raise rates in December. He also said that, eight years after Congress enacted a sweeping reform of Wall Street regulations, he believes that the rules are tough enough and it is time to take stock of those legislation.

U.S. economic growth upwardly revised in the third quarter. A report released by the U.S. commerce department shows that the U.S. economy’s growth rate during the third quarter was revised upward to the fastest pace in three years on stronger investment from businesses and government agencies than previously estimated. The report said that the real value of goods and services produced in the country surged by an upwardly revised 3.3 percent in the three months to September, compared to the originally reported three percent increase. Economists had expected the increase in gross domestic product to be upwardly revised to 3.2 percent. Analysts generally see such a growth rate as unsustainable and forecast growth to slow sometime in 2018.

U.K. Brexit divorce bill could reach €50bn. The U.K. and the EU negotiators reached an outline deal on the Brexit divorce bill, clearing a major obstacle in these tortuous negotiations. Behind-the-scenes talks have led to a broad agreement by the U.K. The Financial Times reported that Britain accepted total liabilities of as much as €100bn, but aims to pay half of that amount spread over many years. The deal still needs to be approved by the national governments. The EU leaders will decide on the package in the run-up to a summit in mid-December. The U.K. government said “intensive talks” are ongoing to “build on recent momentum.

Chinese manufacturing expanded more than expected in November. The latest official Purchasing Managers’ Index (PMI) readings suggest that growth momentum in China held up well during November. After declining from 52.4 to 51.6 in October, the official manufacturing PMI edged back up to 51.8 in November. Economists expected the official PMI to come in at 51.4. A breakdown of the data shows a broad-based pick-up in demand; the indices for imports, export orders and overall new orders all rose. The data also hint at an improvement elsewhere in the economy as the official non-manufacturing PMI rose from 54.3 to 54.8, with a pick-up in both the service sector and construction activity.

Oil producers agree on output cuts. The Organization of the Petroleum Exporting Countries (OPEC), along with a number of outside oil producers including Russia, agreed to continue to curb output for an additional nine months, extending a deal that was set to expire in March 2018. The new agreement will also cap production in Libya and Nigeria, two countries that were exempt from last year’s agreement and contributed to the uncertainty over the effectiveness of the cartel’s output cuts this year.




Disclaimer. This documents is issued by Bank of Valletta p.l.c. (the Bank) for information purposes and personal use only. This document is not and should not be construed as an offer or recommendation to sell or solicitation of an offer or recommendation to purchase or subscribe for any investment. This information may not necessarily be appropriate and suitable to your particular investments requirements and risk profile. It is therefore recommended that if you require investment advice or wish to discuss the suitability of any investment decision, including if the financial instrument being considered in this research note carries a higher risk than your risk profile, you should immediately seek financial, legal or tax advice from your professional advisers as appropriate. Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report. The Bank has obtained the information contained in this document from sources it believes to be reliable but it has not independently verified the information contained herein and therefore its accuracy cannot be guaranteed. The Bank makes no guarantees, representations or warranties and accepts no responsibility or liability as to the accuracy or completeness of the information contained in this document. The Bank has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated therein, or any opinion, projection, forecast or estimate set for the herein changes or subsequently becomes inaccurate. Income from an investment may fluctuate and the price or value of the financial instrument described in this report, either directly or indirectly, may rise or fall. Furthermore, past performance is not necessarily indicative of future results. Bank of Valletta p.l.c. is licensed to conduct investment services by the Malta Financial Services Authority.
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