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BOV Market Watch - Week Ending 19 Ocotober 2018
19 Oct 2018

Eurozone inflation rises in September.  Latest data from Eurostat showed that Eurozone consumer price inflation quickened in September to exceed the European Central Bank's (ECB) target of "below, but close to two percent". The consumer price index (CPI) rose by 2.1 percent year-on-year in September, following a two percent increase in previous month. In July, inflation in the currency bloc stood at 2.1 percent. Core inflation, which outstrips food, energy, alcohol and tobacco, declined slightly to 0.9 percent in September, after August's reading of one percent. Compared to the previous month, the CPI rose 0.5 percent in September. The ECB meets next week and is expected to keep interest rates on hold.

Fed maintains hawkish tone despite Trump’s demands. The majority of top Federal Reserve (Fed) policymakers believe that interest rates will have to continue to rise until the economy slows down from the increased cost of borrowing, according to the minutes of the central bank’s September monetary policy meeting. Just how long monetary policy will remain restrictive is an open question, the minutes showed. Furthermore, the minutes make no mention of any discussion of President Trump’s demands that the Fed should stop raising interest rates. The minutes also said that members judged that information received since the last Fed meeting in August indicated that the labour market had continued to strengthen and that economic activity had been rising at a strong rate.

UK unemployment rate holds at 43-year low.  Unemployment in the UK fell by 47,000 to 1.36 million in the three months to August, official data released this week showed. Meanwhile the jobless rate remained at four percent, the lowest levels since 1975. In the meantime, pay rose by 3.1 percent in the three months to August, compared to the same period last year, while inflation for the same period stood at 2.5 percent. Before the financial crisis, the average rate of wage growth was four percent. David Freeman, the Office for National Statistic's (ONS) head of labour market, said: "People's regular monthly wage packets grew at their strongest rate in almost a decade, but, allowing for inflation, the growth was much more subdued. Economists have been puzzled why wage growth has been stagnant even as unemployment has fallen sharply.

US housing starts fell in September, continuing the weak stretch. House construction in the US fell in September, continuing a soft patch for the housing market driven by rising borrowing costs and expensive properties that are out of reach for most potential buyers. Housing starts fell by 5.3 percent to a seasonally adjusted annual rate of 1.201 million units last month, the Commerce Department said this week. The weakness may also reflect the effects of Hurricane Florence. Data for August was revised down to that show housing starts rose to a rate of 1.268 million units instead of the previously reported rate of 1.282 million units. The housing market has been a weak spot in an otherwise growing economy. Economists blame this weakness on rising mortgage rates which, in conjunction with higher house prices, are making home purchasing out of reach for some first-time buyers.

China's third quarter growth misses expectations.  China’s gross domestic growth figure for the July to September quarter came in at 6.5 percent compared to a year earlier, the National Bureau of Statistics said. This fell short of analyst forecasts of 6.6 percent. Growth in the review quarter was the slowest quarterly expansion since the first quarter of 2009 - the height of the global financial crisis. The result was also a drop from the 6.7 percent rate in the prior quarter, but remains in line with the government's full-year target of about 6.5 percent. The Chinese government has moved to support the cooling economy in recent months, as the country faces rising economic challenges including higher debt levels and an intensifying trade battle with the US.

Australia reaches “full employment”.  Australia’s unemployment rate fell faster than expected, dropping sharply to five percent last month. The larger than anticipated decline means that the labour market is now meeting the Reserve Bank of Australia’s definition of “full employment”, though economists say it may still not be enough to spark noticeable wage rises. Figures show that the unemployment rate fell to five percent in September, from 5.3 percent in August, hitting the lowest level in six-and-a-half years. In seasonally adjusted terms, the number of employed persons increased by 5,600 last month, which was much weaker than the 45,000 new jobs in August.

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).