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BOV Market Watch - Week Ending 30 Nov 2018
30 Nov 2018

Eurozone  Gradual Economic Recovery   European Central Bank President Mario Draghi said that Eurozone's gradual economic slowdown is normal and temporary to some extent. Underlying inflation is expected to rise in the coming months, making policymakers confident that the massive asset purchase program could be ended in December. He also acknowledged that economic data since September have been somewhat weaker than expected and that the loss in growth momentum mainly reflected weaker trade growth. Eurozone growth halved to 0.2 percent in the third quarter.He reiterated that risks relating to protectionism, vulnerabilities in emerging markets and financial market volatility remain prominent.The ECB Chief also views the underlying strength of domestic demand and wages continue to support the bank's confidence and that the sustained convergence of inflation to its aim of "below, but close to 2 percent" will proceed. However he added that at the same time, “prevailing uncertainties still call for patience, prudence and persistence in calibrating our monetary policy stance".

Eurozone sentiment falls for the 11th month in a row The montly  Economic Sentiment Indicator for the Eurozone dropped from 109.7 in October to 109.5 in November, as industrial sentiment improved for the first time since April. Service sector sentiment stabilized in November, after a large drop in October. The latest industrial sentiment revealed a slightly brighter picture of the manufacturing environment than in October. The concerning drop in the export orders' indicator and the very modest pickup in total new orders after a large decline in October indicate there remains enough to worry about for Eurozone industry in the winter months. A bounce back seemed in the making as growth was hindered by one-off factors like hiccups in German car production, but it looks like the recovery from recent weakness will be spread out over a few quarters. Growth expectations are therefore modest for Q4 and the coming quarters. GDP growth for Q4 is generally forcasted at just 0.3% QoQ and the annual growth for 2018 at 1.9%.

A report from the UK’s National Institute of Economic and Social Research (NIESR) warned that Brexit has hit the UK economy hard and the impact would be greater in the long run if the proposed deal is implemented. NIESR said that if the “proposed Brexit deal is implemented, then GDP in the longer term will be around 4 percent lower than it would have been had the UK stayed in the EU". The NIESR expects the uncertainty about the precise shape of the future relationship to continue beyond the transition period ending on December 31, 2020. It also reported the the "Recent estimates, based on the UK's performance relative to other similar economies, suggest that Brexit uncertainty has already reduced UK GDP by about 2 per cent relative to what it would have been if the UK had stayed in the EU".

Finally, the U.S.  Commerce Department confirmed that  real gross domestic product jumped by 3.5 percent in the third quarter, unrevised from the initial estimate. It  said that consumer spending, which accounts for about 70 percent of the economy, surged up by 3.6 percent compared to the previously reported 4.0 percent spike. Overall GDP growth also slowed from the 4.2 percent increase in the second quarter, reflecting the slowdown in consumer spending growth as well as a downturn in exports and a deceleration in non-residential fixed investment. A rebound in imports, which are a subtraction in the calculation of GDP, also contributed to the slowdown, while private inventory investment turned higher.

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).