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BOV Market Watch - Week Ending 7 Dec 2018
07 Dec 2018

Eurozone business growth slowed in November. Output growth by firms across the Eurozone decreased in November as a manufacturing slowdown spread to its dominant services sector, while Brexit uncertainty hindered British businesses, surveys showed. The final Eurozone Composite purchasing managers' index (PMI), considered a good guide to economic health, fell to 52.7 in November from October's 53.1, survey data from IHS Markit showed this week. The figure was the lowest since September 2016. PMI readings above 50 indicate expansion in the sector while those below 50 suggest contraction. Germany's PMI print fell to a 47-month low of 52.3 in November while Britain’s reading showed that the economy was at risk of contracting. The downbeat surveys will make grim reading for policymakers at the European Central Bank and Bank of England, as well as for British Prime Minister Theresa May as she tries to push through her Brexit plan through parliament.

Federal Reserve Beige Book positive on the economy but notes headwinds. Most of the Federal Reserve’s (Fed) 12 districts saw modest to moderate growth from mid-October through late November, although at least four districts reported slower growth, a tightening labour market and uncertainty about trade among manufacturers and farmers. The Beige Book is a compilation of anecdotal evidence on economic conditions in the 12 Fed districts released shortly before the central bank makes its decision on monetary policy. On the inflation front, the Beige Book said that prices rose at a modest rate in most districts, although a few noted moderate increases. Nearly all districts reported that input costs rose faster than price of final goods.

BOE chief warns against no-deal Brexit. Responding to questions from members of parliament at a hearing last Tuesday, Bank of England (BOE) Governor Mark Carney defended the central bank's analysis that a no-deal Brexit would cause a severe recession in the UK, the kind not even seen during the global financial crisis a decade ago. Mr Carney has been one of the loudest voices warning about the dangers of the UK crashing out of the European Union without an agreement. The BOE predicts that the economy could contract by as much as eight percent next year in the event of a no deal Brexit. House prices could rise by 30 percent and inflation could reach 6.5 percent as sterling plummets. The jobless rate could sour to 7.5 percent from 4.1 percent now and interest rates could be hiked sharply, the BOE warns

India central bank holds interest rates steady amid inflation worries. In its monetary policy meeting held this week, India's central bank left its key interest rate unchanged for a second consecutive session as it saw upside risks to the inflation outlook and maintained its policy stance of "calibrated tightening". The central bank decided to keep the repo rate unchanged at 6.5 percent. The decision was in line with expectations. The reverse repo rate was retained at 6.25 percent.

Trade war truce. US President Donald Trump and Chinese President Xi Jinping agreed to hold off on additional tariffs on each other's goods at the start of the new year to allow for talks to continue, the White House said in a statement last weekends. The US agreed to leave tariffs on more than $200 billion worth of Chinese products at ten percent. If after 90 days the two countries are unable to reach an agreement, that rate will be raised to 25 percent. In return, China agreed to purchase a “very substantial” amount of US goods, including farm, energy and industrial products. This would help narrow the large trade gap between the two countries.

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).