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BOV Market Watch - Week Ending 11 January 2019
11 Jan 2019

Eurozone unemployment falls to a ten-year low. The eurozone’s unemployment rate fell to its lowest rate in more than a decade during November, a sign that the currency area’s economic slowdown during the last few months is unlikely to turn into a recession. Figures from Eurostat showed this week that the seasonally-adjusted jobless rate decreased to 7.9 percent in November from a revised eight percent in October. Economists had forecasted that the rate would remain unchanged at October's original estimate of 8.1 percent. But in spite of five years of economic growth, big differences linger among members of the currency union, with the jobless rate standing at merely 3.3 percent in Germany and as high as 17.7 percent in Spain.

Fall in German industrial production raises fears of recession. Concerns over a prolonged slowdown in the eurozone grew after a sharp fall in German industrial production in November, increased the likelihood of the region’s manufacturing powerhouse entering a technical recession, defined as two consecutive quarters of negative growth. Factory production in Europe’s largest economy declined by 1.9 percent in November compared with October, following falls of 0.8 percent and 0.1 percent in the previous two months. This means that the all-important industrial sector in Germany was a considerable drag on the overall economy during the fourth quarter of last year. Germany’s economy contracted in the third quarter largely because of one-time factors related to new car emissions standards.

UK house prices rise at fastest pace in almost two years. Despite looming risks of a hard Brexit in the coming months, UK house prices unexpectedly rose at their fastest monthly pace in almost two years in December, according to mortgage lender Halifax. House prices rose by 1.3 percent year-on-year in the three months to December, which was faster than the 0.3 percent growth in the three months to November, according to Halifax. The December data exceeded forecasts by economists and is a surprising sign of strength with less than 90 days remaining for the UK’s planned departure from the EU. On a month-on-month basis, house prices grew by 2.2 percent in December, after a 1.2 percent fall in November. Economists had forecasted a 0.5 percent increase.

Fed ‘can afford to be patient’ about future rate hikes, FOMC minutes show. Minutes from the most recent US interest rate setting Federal Open Market Committee (FOMC) meeting showed that last December’s rate hike came with reluctance from a few members, who argued that the lack of inflationary pressures mitigated the need of another increase in rates. Officials acknowledged that the policy path ahead is “less clear”. The minutes noted that the low-inflationary backdrop means that the Federal Reserve can “afford to be patient about further policy firming.” The members agreed that “some further gradual increases” in the benchmark funds rate would be appropriate. It is not clear what that translates to in practical terms as, only a few months ago, the FOMC was hinting at four hikes in 2019.

China consumer and producer prices decelerated sharply last month, compounding the challenge for the government to boost sluggish demand in a deepening economic slowdown. Consumer prices rose in December at their slowest rate in six months. Consumer prices rose by 1.9 percent from a year earlier, while prices charged by producers increased by the lowest rate in two years, by 0.9 percent, according to official data released this week. More economists are now sounding the alarm about the rising risk of deflation in the Chinese economy, with weakening prices potentially eating into corporate earnings and hurting companies' ability to repay debts. In the meantime, China’s central bank cut the Required Reserve Ratio by one percentage point to spur growth.

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).