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BOV Market Watch - Week ending 6th January 2023
06 Jan 2023

Fed minutes signal central bank’s resolve to continue tightening. The minutes of the December meeting of the Federal Reserve (Fed), that were published on Wednesday, showed that policymakers affirmed their resolve to tame inflation and, in an unusually blunt warning to financial markets, cautioned investors against underestimating the Fed’s determination to keep interest rates high until inflation is clearly in a decline. The minutes put an emphasis on explaining that the decision to move to smaller interest rate increases should not be interpreted by investors or the general public as a weakening of the Fed's commitment to bring inflation back to its two percent target. "Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to two percent, which was likely to take some time," the minutes said.

Eurozone producer price inflation slows on easing energy costs. Eurozone producer price inflation cooled for the third month in a row in November, albeit remaining elevated, as energy prices rose at a slower pace, offering some solace to the European Central Bank that is likely to continue raising interest rates in the first quarter. Eurozone producer prices rose just over 27 percent annually in November, down from October's 31 percent increase. The November figure is lower than the forecast that producer prices would rise by 28 percent. On a monthly basis, producer prices fell by 0.9 percent in November compared to October, when they were down three percent. Said this, energy prices were still 55.7 percent higher in November than a year earlier. They accounted for most of the year-on-year rise of the overall producer price index, which is an early indicator of inflation trends at consumer level.

German inflation drops more than expected. Lower oil and gasoline prices and the first phase of the government's gas price cap have pushed down Germany’s headline inflation in December. However, at current levels, inflation remains a major headache in 2023. At 8.6 percent, year-on-year inflation in December marks a fall from the ten percent reading in November, which itself was slightly lower than the record rate of 10.4 percent seen in October. The figures, however, are still at uncomfortably high level that far exceeds the European Central Banks’s goal of just two percent inflation. Rising prices reduce consumers’ spending power. Many German unions have successfully campaigned for higher-than-average wage increases in recent months to offset the impact of inflation, which in themselves put further upward pressure on inflation.

UK mortgage approvals plummet as house prices falter. UK mortgage approvals fell to their lowest level in two years in November as interest rate rises discouraged buyers, new Bank of England figures suggest. According to these figures, the number of mortgages approved by lenders sank from 58,000 in October to 46,000 in November – the lowest monthly total for mortgage approvals since June 2020. The slump in mortgage approvals is evidence of a weakening property market due to rising borrowing costs, falling property prices and the negative consequence of last September’s mini-Budget under then-Chancellor Kwasi Kwarteng.

China services activity logs fourth consecutive contraction. A private index that measures the health of China's service sector rose in December but remained in contraction territory, as Covid-19 infections swept the country after an abrupt turnaround in the government’s zero-tolerance to Covid-19 policy. At 48.0, the Caixin services Purchasing Managers' Index rose from November’s six-month low of 46.7, survey results from S&P Global showed on Thursday. Since the reading is below 50.0, the sector remains in contraction mode. However, surveyed firms seemed bullish about recovery prospects for the next 12 months thanks to the lifting of Covid restrictions that could led to increased consumption as the confidence index rose to a 17-month high.

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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).