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BOV Market Watch - Week ending 21st February 2020
21 Feb 2020
21 February 2020

Fed minutes show rates likely to stay where they are for a while
. At their most recent meeting, Federal Reserve officials expressed confidence about the state of the US economy and expect interest rates likely to remain unchanged for a while, according to minutes released on Wednesday. That comes even as financial markets are pricing in at least one cut this year and possibly two. The central bank’s rate setting committee voted at the January 28-29 meeting to keep the benchmark overnight funds rate unchanged in a range between 1.5 percent and 1.75 percent. In coming to that decision, the committee members noted that the outlook for the economy had become “stronger” since the previous forecast in December. Policymakers also made several mentions of possible dangers from the coronavirus, though the spread of the disease had just become an issue at the time of the meeting.

Rising UK inflation vindicates BOE cautious policy. UK inflation rose for the first time in six months in January, matching Bank of England expectations in what central bankers could see as vindication of a cautious approach to changing interest rates. Consumer prices in the UK rose to a six-month high of 1.8 percent in January, up from 1.3 percent in December 2019, the Office for National Statistics (ONS) said on Wednesday. Data showed that housing and household services continued to make the largest contribution to inflation in January, with transport being the second largest upward factor. However, the Consumer Price Index (CPI) remains below the Bank of England's two percent target for inflation. In the bank’s Monetary Policy Committee meeting held on January 30, members opted to hold interest rates steady at 0.75 per cent.

German investors turn gloomy on coronavirus concerns. German investor confidence fell sharply in February, as fears over the impact of the coronavirus, that has killed about 2,000 people worldwide, took hold. Investor sentiment in Germany plummeted in February because of coronavirus fears, according to a monthly survey. The ZEW economic sentiment index fell to 8.7 in February from a four-and-a-half year high of 26.70 in January, missing expectations for a far more moderate decline to 21.5. The index of current conditions fell to -15.7 from -6.2 the month before. The ZEW index is the first indication of German business confidence that has captured concern over the coronavirus. “Both the downward revision of the assessment of the economic situation and the downturn in expectations show clearly that economic development is rather fragile at the moment,” said ZEW president Achim Wambach.

China cuts interest rates as economy grapples with coronavirus shock. As widely expected China, cut the benchmark lending rate on Thursday, as the authorities move to lower financing costs for businesses and support an economy shaken by a severe coronavirus outbreak. The epidemic has interrupted global supply chains and caused widespread disruption to businesses and factory activity in China, prompting authorities to deliver a steady stream of policy measures over recent weeks to cushion the blow to growth. The one-year loan prime rate (LPR), the new benchmark lending gauge launched in August, was lowered by ten basis points to 4.05 percent from 4.15 percent at the previous monthly fixing. The LPR cut followed a similar move in the central bank’s medium-term lending rate on Monday. Investors are betting the authorities will roll out more monetary easing and fiscal stimulus in the near term to help smaller businesses that are struggling to tide over the crisis.
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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).