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BOV Market Watch - Week Ending 20 September 2018
20 Sep 2018

IMF warns against no-deal Brexit.  Britain could enter into a recession if it leaves the European Union (EU) without a formal trade deal, the International Monetary Fund (IMF) warned this week. The Fund is of the view that economic growth will slow down irrespective of any deal Britain reached over trade and tariffs with the European bloc. The strongly-worded report warned that a "more disruptive departure", in which Britain leaves the EU and trades only on the basis of World Trade Organisation rules (which would require negotiations with 63 different countries) could cause the British economy, the fifth-largest in the world, to go into recession as investment and trade flows stall in the months following a so-called "hard Brexit" in March 2019. On the other hand, the IMF is forecasting UK growth of 1.5 percent this year and next if a broad Brexit agreement is reached.

UK consumer prices hit six-month high. A report by the Office for National Statistics showed on Wednesday that UK inflation, as measured by the Consumer Price Index (CPI), unexpectedly rose to the highest level in six months during August, as it inched up to 2.7 percent from 2.5 percent in July. Economists had expected a CPI rate of 2.4 percent. Wages are still rising faster than inflation, with data last week showing that wages, excluding bonuses, grew by 2.9 percent in the three months to July. Rising prices for recreational goods, transport and clothing underpinned the August price increases. Month-on-month, consumer prices climbed by 0.7 percent, faster than the 0.5 percent forecasted by economists. Core inflation, which excludes food, energy, alcoholic beverages and tobacco, rose to 2.1 percent in August from 1.9 percent in July.

US homebuilder confidence holds steady in September.  A National Association of Home Builders/Wells Fargo monthly report showed that confidence among American homebuilders was unchanged in September, indicating that the housing market may be stabilising after signs of a slowdown in recent months. The headline sentiment index was unchanged at 67 in September and bucked analysts’ estimates for a decline to 66. Last December, confidence among new home builders peaked at 74, a 20 year high, marking the complete reversal of a 13-year cycle that began in July 2005 with the peaking of the housing bubble and its subsequent bursting.

Australia house prices fall in the second quarter. House prices in Australia were down 0.7 percent quarter-on-quarter in the second quarter of 2018, the Australian Bureau of Statistics said this week. House prices in Australia’s capital cities fell on an annual basis for the first time since 2012. However, the decline in prices, led by Sydney and Melbourne, is not considered significant, given the stratospheric heights prices had reached. These falls were in line with expectations and unchanged from the three months prior. The capital city residential property price indexes fell in Sydney (-1.2 percent), Melbourne (-0.8 percent), Perth (-0.1 percent) and Darwin (-0.9 percent), and rose in Brisbane (+0.7 percent), Hobart (+3.0 percent), Adelaide (+0.3 percent) and Canberra (+0.6 percent).

Bank of Japan maintains is massive monetary stimulus. The Bank of Japan (BOJ) maintained its ultra-loose monetary policy at its September meeting after tweaking its stance in July. The policy board voted 7-2 to purchase government bonds with the aim of maintaining the yield of the 10-year Japanese Government Bond at around zero percent, the BoJ said. The central bank retained the -0.1 percent interest rate on current accounts that financial institutions hold at the bank. The bank intends to maintain the current extremely low levels of short and long-term interest rates for an extended period of time, taking into account uncertainties regarding economic activity and prices. Regarding economic outlook, the bank said Japan's economy is likely to continue its moderate expansion.

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).