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BOV Market Watch - Week ending 23 December 2022
23 Dec 2022

Bank of Japan softens stance on ultra-loose monetary policy. The Bank of Japan (BOJ) on Tuesday widened the range for yield fluctuations in the benchmark government bonds as the country grapples with surging inflation. At the same time, it held its benchmark rate at record lows. In its policy statement, the BOJ said the move was intended to “improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions”. The BOJ’s tactic of buying government bonds to cap interest rates on longer-term debt has been the centrepiece of its effort to keep borrowing costs low to help stimulate the anaemic economy.

US homebuilders’ sentiment continues to decline. US homebuilder sentiment sank in December to a level not seen in over a decade except for the pandemic amid high mortgage rates and soaring construction costs. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell to 31 last month, dipping two points from November and below economists' average estimates. It was the lowest reading since June 2012, except for April 2020 during the onset of covid-19, and the longest series of negative results in the index's history. Readings of 50 and below indicate conditions are seen as poor, while those above 50 indicate conditions are considered good. “This year's rapid run-up in mortgage rates has sent a chill through the housing market,” Wells Fargo economists wrote.

UK economy contracts more than estimated in the third quarter. The UK economy shrank more than initially estimated in the third quarter, because of downward revisions of the industrial and construction sectors. The economy contracted by 0.3percent, compared with a previous estimate of 0.2percent, as business investment performed worse than first thought, the Office for National Statistics (ONS) said. Growth figures for the first half of 2022 have also been revised down. The UK is forecast to enter a recession in the final three months of the year as skyrocketing consumer prices hit growth. “Our revised figures show the economy performed slightly less well over the last year than we previously estimated, with manufacturing and electricity generation notably weaker” Darren Morgan, director of economic statistics at the ONS said.

German consumer sentiment edges higher. German consumer sentiment is expected to extend its recovery into the new year as government relief measures meant to relieve consumers of some of the burden of soaring energy prices seem to be having an effect, a GfK institute survey showed on Wednesday. The GfK Consumer Sentiment Index is forecasting a reading of -37.8 for January, up slightly from -40.1 in December and above the consensus of -38.0 points. This marks the third consecutive improvement, but the rise has been marginal, as consumers remain deeply pessimistic about the economic outlook. The slight uptick is due to a drop in energy prices coupled with the German government’s relief package to lower energy costs. "With the third increase in a row, the consumer climate is slowly working its way out of the low," said Rolf Burkl, a GfK consumer expert, said. "The light at the end of the tunnel is getting a little brighter."

Australia’s central bank considered pausing hikes at December meeting. Australia's central bank considered leaving interest rates unchanged at its December monetary policy meeting, citing the lagged effects of the aggressive tightening delivered so far and the benefits of prudence in an uncertain environment. Policymakers also discussed pausing interest rate hikes. Nonetheless, further rate hikes are on cards based on incoming data. However, it was the first time the Board considered pausing since it started raising interest rates in May.

 

In case of any queries, please email us on [email protected] or call 2275 3857.

 

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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).