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BOV Market Watch - Week Ending 14 September 2018
14 Sep 2018

EBC holds rates steady and reduces bond purchases despite risks. In its monetary policy session on Thursday, the European Central Bank (ECB) left its benchmark interest rates unchanged and maintained the forward guidance on monetary stimulus for a second meeting in a row. The main refinancing rate is currently at a record low of zero percent and the deposit rate at minus 0.40 percent. The marginal lending facility rate is at 0.25 percent. The ECB confirmed plans to end bond purchases at the end of this year and keep interest rates at record low levels at least through next summer. The bank also said it will halve bond purchases to 15 billion euro per month from October. With inflation rebounding and the Eurozone economy stabilising, the ECB has been gradually tapering crisis-fighting measures for the last months. The scaling back of the stimulus come despite risks ranging from global protectionism to emerging market turmoil.

UK unemployment remains at record low as BOE holds rates steady. The UK unemployment rate remained unchanged at its lowest level since 1975, data from the Office for National Statistics show. In the three months to July, the unemployment rate came in at four percent, according to a labour force survey. This was the lowest rate since February 1975. A tightening labour market prompted the Bank of England to increase interest rates last month to the highest level since 2009. However, the central bank kept interest rates on hold in its most recent monetary policy meeting held last Thursday, as it highlighted greater financial market concerns about Brexit. With inflation still well above the bank’s two percent target, strong growth could strengthen the hand of those on the monetary policy committee who are more likely to vote for rate hikes to curb inflation.

Beige Book says US economy expanded at moderate pace. According to the Federal Reserve’s latest Beige Book published this week, the overall US economy expanded at a “moderate pace but three of the 12 districts covered in the report - St. Louis, Philadelphia and Kansas City - reported weaker growth in August. The Beige Book is a compilation of anecdotal evidence on economic conditions in the twelve Federal Reserve districts. The Fed said the economy continues to expand at a moderate pace and that the tight job market has led to labour shortages across the country. There were also “some signs of a deceleration” in prices of final goods and services.

Turkish central bank hikes rates to 24 percent to curb currency freefall. In a surprise move, the Turkish central bank hiked interest rates to 24 percent, a hike of 625 basis points from the previous rate of 17.75 percent. The move, which exceeded market expectations of an increase of between 300 and 400 basis points, gave a strong boost to the Turkish currency which has fallen some 40 percent in value against the US dollar since the beginning of the year, prompting fears of contagion amid a wider emerging markets shakeup. The rate hike came alongside a pledge by the central bank to enact strong monetary tightening in order to support price stability amid recent economic turbulence. "If needed, further monetary tightening will be delivered," the bank said in a statement after the rate hike announcement.

China's trade surplus with US hit new record in August. China’s trade surplus with the United States widened by ten percent in August to US$31 billion, as the trade war between the two nations escalated with Donald Trump threatening duties on more Chinese imports. Data from China’s General Administration of Customs showed that exports to the US in August jumped by 6.9 per cent from July to US$44.38 billion. At the same time, imports dropped by 0.9 percent to US$13.3 billion. China’s trade surplus therefore grew by more than ten percent to US$31 billion. The figure surpassed June’s surplus of US$28.97 billion and July’s US$28.08 billion. The U.S. has imposed $50 billion in duties against China, with another US$200 billion in the works and an extra US$267 bill in tariffs proposed.

Important Information

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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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).