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BOV Market Watch - Week Ending 14 December 2018
14 Dec 2018

ECB to stop stimulus programme despite weaker outlook. In a historic moment for the European Central Bank, President Mario Draghi announced last Thursday that the central bank will halt its €2.6 trillion stimulus programme in January despite concerns that the Eurozone is predicted to slow down over the next couple of years. Without specifically mentioning the US-China trade war, Brexit or the Italian government’s budget dispute with Brussels, Mr Draghi said that growth in the common currency area would be limited to 1.7 percent in 2019, “owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility”.

UK economic growth slows on Brexit uncertainties. The UK's economy lost momentum in the three months to October as a contraction in the manufacturing sector and falling car sales put a lid on growth, amid continuing Brexit uncertainty. Figures released by the Office for National Statistics showed that gross domestic product grew by 0.4 percent in the three months to October. This was slower than the 0.6 percent expansion seen in the September quarter. The latest rate of growth was in line with economists' expectations. Growth slowed across all the important sectors of the economy from the quarter though September. Compared to the same quarter last year, growth came in at 1.4 percent.

German investor confidence rose amid Brexit and trade war issues. German investor confidence rose for the second straight month in December, defying expectations for a mild weakening. A measure of financial analysts’ expectations for the next six months rose by 6.6 points to reach minus 17.5 in December. The negative reading means pessimists outnumber optimists and was accompanied by a worse assessment of current conditions. Economists had forecast the index to worsen further to minus 25. However, caution prevailed as analysts' assessment of the current economic situation again deteriorated sharply due to anaemic economic growth and uncertainties emanating from global trade disputes and Brexit.

US producer prices moderate in November. Producer prices in the US unexpectedly showed a minimal increase in November, as the sharp fall in the prices of crude oil limited the rise of energy costs. The headline producer price index – an indicator of insipient consumer inflation - rose by a mere 0.1 percent on a month-over-month basis last month, according to data from the Labour Department. That is a sharp decline from the 0.6 percent pace seen in October, which was the fastest rate in six years. The November print was marginally higher than analysts’ average forecast for no change. The year-on-year rate slowed to 2.5 percent from 2.9 percent. The latest producer price reading, coming after a mixed employment report last week, could support the argument for Federal Reserve policymakers to take a more cautious stance on interest rate hikes.

India’s central bank chief resigns. Citing personal reasons, Urjit Patel resigned as the Reserve Bank of India (RBI) governor last Monday. His resignation comes against the backdrop of increasing tensions between the Finance ministry and the RBI. Mr Patel, 55, who took over as the 24th Governor of the central bank on September 5, 2016, had the shortest tenure since 1992.  Although India's €2.3 trillion economy has recently been underpinned by a strong performance in consumer spending and manufacturing, the rupee has already fallen significantly against the surging dollar so far this year.

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).