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BOV Market Watch - Week Ending 21 December 2018
21 Dec 2018

Fed hikes rates but forecasts softer policy for next year. Despite unusual pressure from both politicians and the markets, the US Federal Reserve (Fed) raised its benchmark interest rate by a quarter of a percentage point this week. At the same time, the central bank lowered its outlook for future hikes. As the financial markets had expected, the Fed raised the target range for its benchmark funds rate to 2.25 percent to 2.5 percent. The move was the fourth increase this year and the ninth since it began normalising rates three years ago. This week’s rise came despite President Donald Trump's tweets against rate hikes. In a statement, the Fed said that more rate hikes could be in the pipeline, though it did adopt a more dovish tone.

Falling oil price causes UK inflation to drop to 2.3 percent in November. UK inflation fell from 2.4 percent to 2.3 percent in November, meeting economists’ expectations, according to latest figures from the Office for National Statistics (ONS). The move lower was driven largely by lower energy costs. Brent crude oil has fallen to $56 per barrel in recent weeks, down from over $85 per barrel last October. Apart from energy prices, the largest downward contributors to consumer prices in November were a variety of recreational and cultural goods and services. Upward contributions came "almost entirely" from tobacco, the ONS said.

German business confidence worsens. Germany is bidding farewell to a turbulent year with a fourth straight monthly decline in its business confidence, amid mounting worries within leaders of its corporate sector that the Eurozone’s largest economy is heading for a slowdown. The Ifo Institute’s gauge of corporate confidence in Germany fell to 101.0 in December from 102.0 in November, reaching its lowest level in more than two years and below the 101.8 expected by economists. The report suggests that Germany may have to overcome bigger obstacles than new emissions-testing rules, which hit its important auto industry in the third quarter of this year and led to a contraction in output.

Oil prices continue to slip. Oil prices continued to weaken to an eight-month low this week despite OPEC reportedly planning to release a table of voluntary supply cut quotas among its members and allies. OPEC’s Secretary General Mohammad Barkindo commented that Saudi Arabia, the de facto leader of the cartel, was exceeding the output cut of 1.2 million barrels per day agreed to earlier this month.

Australia's jobless rate goes up unexpectedly. Australia’s unemployment rate rose to 5.1 percent in November as the labour force grew faster than employment. Employment jumped by 37,000, almost double the level expected, although all the jobs were on part-time basis. Both labour force participation and the ratio of employment to the total population increased, showing that a robust labour market is encouraging people to work or seek employment. On a negative note, underemployment and underutilisation rose, pointing to continued softness in wage pressures.

Malta producer prices rise at a faster clip in November. Producer price inflation in Malta accelerated in November, after slowing in the previous month, data from the National Statistics Office showed. Producer prices increase by four percent year-on-year in November, quicker than the 3.44 percent increase recorded in October. In September, prices had climbed by 3.89 percent. On a monthly basis, producer prices rose by 0.54 percent in November, rebounding from a 0.35 percent fall in October. On the other hand, prices for intermediate goods rose by 8.59 percent in November, on the heels of an annualised rise in the prices of consumer goods and capital goods of 1.80 percent and 0.06 percent respectively. 

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).