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BOV Market Watch - Week Ending 25 January 2019
25 Jan 2019

ECB signals that risks have moved to the downside. In its first policy session since the end of its four-year long 2.6 trillion euro asset purchase programme in December, the European Central Bank (ECB) left its key interest rates and forward guidance unchanged this week. While acknowledging that risks have moved to the downside, the ECB’s January meeting stopped short of suggesting action. The Governing Council appears to be in assessment mode, with the March projections the next key focus. The bank reiterated its pledge to keep the key interest rates at their present levels through the summer of 2019 and "longer, if necessary." This week’s decision comes amid a lack of growth in Germany, France and Italy in the fourth quarter of 2018, prompting fears of recession.

UK employment hits record high. The Office for National Statistics reported this week that the number of people in employment in the UK continued to rise following an increase of 141,000 to a record high of 32.54 million in the three months to November. The employment rate, which measures the proportion of working age people with a job, rose to 75.8 percent, up from 75.3 percent a year earlier, its highest level since the data series began in 1971. During the same period, the unemployment rate fell back down to four percent in the three months to November, the lowest level since February 1975. On the other hand, the unadjusted average weekly earnings excluding bonuses grew by 3.3 percent year-on-year, unchanged from October.

German investor confidence improves in January. Investor confidence in German’s growth outlook improved in January amid hopes that growth will stabilize after a turbulent 2018. A gauge measuring investor expectations for the next six months rose to minus 15.0 in January, beating expectations for a drop to minus 18.5. This was the highest reading since September, when the score was 10.6. However, the negative reading means that pessimists still outnumber optimists among the survey participants. ZEW President Achim Wambach said investor expectations improved partly because “potentially negative factors” such as the UK’s rejection of the Brexit deal and relatively weak growth in China were already anticipated last year.

China's economy grew at slowest pace in 28 years. China's economic growth cooled slightly in the fourth quarter from a year earlier, weighed down by weak investment and faltering consumer confidence as the US piled on trade pressure, leaving China’s 2018 growth at the weakest for 28 years. Data published by the National Bureau of Statistics showed this week that fourth-quarter gross domestic product GDP grew at the slowest pace since the financial crisis, easing to 6.4 percent in the third quarter of last year. That left full-year growth at 6.6 percent, the slowest rate of expansion China has seen since 1990.

BOJ holds interest rate steady. As widely expected, the Bank of Japan held interest rates steady, though the move showed a long-awaited exit from loose monetary policy may be a ways off yet. It kept short-term rates at minus 0.1 percent with long-term rates closer to zero, and cut its core consumer inflation forecast to 0.9 percent from 1.4 percent. That news followed weak export data showing exports dropping by 3.8 percent, the most in two years; imports grew by just 1.9 percent compared with an expected 3.7 percent.

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).