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BOV Market Watch - Week ending 18 November 2016
18 Nov 2016

Eurozone third quarter GDP rises 0.3% as expected. The Eurozone economy grew steadily in the three months following Britain's surprise vote in June to leave the European Union. Gross domestic product (GDP) estimates published this week by Eurostat showed that Eurozone economic growth stabilised in the third quarter as it expanded by 0.3% sequentially, unchanged from the rate of growth seen in the second quarter. On a yearly basis, Eurozone GDP growth remained steady at 1.6%. Higher investment in construction contributed to overall growth, suggesting that the European Central Bank’s record-low interest rates are supporting the economic recovery. In the 28 countries that make up the European Union, GDP climbed by 0.4% from the previous quarter and by 1.8% from the same period last year.

U.K. inflation slows unexpectedly; factory gate inflation picks up. Britain’s inflation rate registered a surprise fall in October, although there were signs that consumer prices will starting to nudge higher. According to the Office for National Statistics (ONS), Consumer Prices Index (CPI) inflation declined to 0.9% in the review month, from 1% in September. That was below the 1.1% forecasted by economists, who were of the opinion that sterling’s fall would underpin consumer prices. However, the ONS said factory gate prices and the costs of raw materials rose much faster in October. The prices of goods leaving factories increased by 2.1%, faster than expected and the largest increase since April 2012. On the other hand, costs incurred by producers for raw materials and oil also showed a record monthly increase of 4.6% in October.

US housing starts jump 25.5% to nine-year high. A report released this week by the Commerce Department showed that the US housing starts recovered much more than anticipated in the month of October following a sharp decline in new residential construction in September. The department said that housing starts climbed by 25.5% to an annual rate of 1.32 million in October following a fall of 9.5% from a revised of 1.05 million during the previous month. Economists had forecasted housing starts to rise by 11.6% to a rate of 1.168 million from 1.047 reported in September. Building permits increased by 0.3% from a rate of 1.225 in September to 1.229 million in October. Economists anticipated that building permits would drop by 2.9% to a rate of 1.190 million.

German economy creates more jobs, but employment growth slows. Figures from Destatis showed that more people joined the German workforce though the rate of job creation during the third quarter of this year was the lowest rate since the second quarter of 2015, when employment increased by 0.8%. The growth in employment was mainly driven by the services sector. The number of people in employment increased by 388,000 or 0.9% on an annual basis to 43.66 million. This marked a slowdown of 1.2% in the second quarter and 1.3% in the first quarter. In the third quarter, 171,000 joined the workforce increasing it by 0.4% when compared to the second quarter of 2016. On a seasonally adjusted basis, the number of employed people during the third quarter increased by 23,000 or 0.1% from the previous quarter. The government is anticipating a growth of 1.8% in 2016, decreasing to 1.4% in 2017 due to slowdown in foreign trade.

Malta HICP inflation eases further in October. Figures published this week by the National Statistics Office (NSO) showed that Malta's EU measure of inflation eased for the second consecutive month in October. The Harmonized Index of Consumer Prices (HICP), rose 0.5% year-over-year in October, slower than September’s 0.9% climb. Prices of food and non-alcoholic beverages rose by 2.2% annually in October and utility costs went up by 1.0%. At the same time, prices of clothing and footwear fell by 3.9%. Month-on-month, the HICP dropped 1.0% from September, when it decreased by 0.9%.
 
China sees massive foreign investment in first ten months. Data published by the Ministry of Commerce showed that China’s foreign direct investment (FDI) increased in the January to October period. New data suggests that China has continued in attracting increasing amounts of foreign money mainly in the services and the high-tech sectors. FDI is up by 4.2% annually in the January to October period to reach almost $97 billion. FDI in the services sector increased by 9% this year, which accounts for more than 70% of all investment. High-tech services are the main foreign investors showing a lot of interest to invest in China, according to Tang Wenhong, head of the Commerce Ministry’s Foreign Investment Division. Tang Wenhong says the US and EU are still the biggest investors in China.

BOJ first unlimited bond gets no bids after yields retreated. The Bank of Japan (BOJ) announced its first fixed-rate operation to buy unlimited amounts of Japanese government bonds in a bid to control government debt yields. The central bank said that it would carry two operations, one to buy Japanese government bonds maturing in one to three years and another for debt with three to five years maturity. Global bond yields have surged following the US presidential election on anticipations that inflation would spike. A Bank official said that no bids were received. Jun Fukashiro, a senior fund manager in Tokyo at Sumitomo Mitsui Asset Management, said, “The market is testing the BOJ’s tolerance for higher yields, but the BOJ may actually challenge the market back by letting yields rise. The reason the BOJ can allow a rise in yields above zero is that, when it needs to, it has the weapons to stop it.”

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