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BOV Market Watch - Week Ending 1 February 2019
01 Feb 2019

Eurozone growth remains lacklustre in the fourth quarter. The eurozone economy failed to gear up its growth momentum in the final three months of 2018, as a number of downside risks served to dampen activity across the 19-nation economy. The flash estimate from Eurostat, the European Commission’s statistics bureau, shows that economic growth in the currency bloc remained at 0.2 percent in the final quarter of 2018 compared to the previous quarter, when the economy expanded at an equal pace. Compared to the same period the previous year, the region’s gross domestic product rose by 1.2 percent in the fourth quarter after a 1.6 percent increase in the prior three months. During the second half of last year, the eurozone saw the culmination of a plethora of risks, including trade tensions, the Chinese economic slowdown, troubles in the German automobile industry, violent protests in France, and the threat posed by uncertainties surrounding Brexit.

Fed eliminates tightening bias. After raising interest rates by a quarter of a percentage point last month, the Federal Reserve (Fed) announced its widely expected decision to leave interest rates unchanged on Wednesday. Following a two-day meeting, the Fed said that it has decided to maintain the target range for the federal funds rate at 2.25 to 2.50 percent. The accompanying statement included some notable changes from the previous meeting, including dropping a reference to the Fed's plan for further gradual rate increases. The Fed said it still sees a sustained expansion of economic activity, strong labour market conditions, and inflation near its two percent objective as the most likely outcomes, but also pointed to global economic and financial developments and muted inflation pressures.

UK house prices stall on Brexit concerns. Annual house price growth in the UK almost ground to a halt in January as concerns over Brexit deterred buyers, according to Nationwide, Britain’s largest building society. According to Nationwide, during January, the average price of a home rose by 0.1 percent from a year earlier to £211,966. This was the smallest annual gain since February 2013, when house price growth was zero. Property values were 0.3 percent higher in January compared to December, when they grew by 0.7 percent. A lack of clarity over the nation’s exit from the European Union is leaving households worried about Britain’s prospects. Separately, Bank of England figures show that mortgage approvals fell in December and consumer credit is the weakest in four years.

Italy slips into recession. The Italian economy slipped into recession in the final three months of last year, weighing on the wider eurozone’s growth, official figures showed this week. According to the Italian statistics agency, Italy contracted by a quarterly rate of 0.2 percent in the fourth quarter. Following a 0.1 percent drop in the previous three-month period, this means that the eurozone’s third largest economy is in a technical recession, defined as two consecutive quarters of negative growth. The statistics office attributed this decline to a negative contribution from domestic demand, mainly the change in inventories, while the net export component made a positive contribution. Italy is battling a host of economic troubles such as a banking crisis and high debt.

Manufacturing activity in China contracted for the second-straight month in January. This is another sign that growth in the world’s second-largest economy is slowing. The official manufacturing purchasing managers’ index (PMI) came in at 49.5 amid domestic headwinds and the ongoing trade dispute with the US. China's services sector posted stronger figures, recording a PMI of 54.7, helping cushion the impact of decelerating factory activity.

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).