Tuesday, June 18 2019 | ASIA TODAY INTERNATIONAL - Reporting the Business that Matters in Asia
Updated: 6 hours 7 min ago
The economy of the Balearic Islands grew by 2.4% in 2018; further growth of 2.2% is expected in 2019 followed by slower growth of 1.7% in 2020, giving a total of seven consecutive years of economic recovery with an average growth of 2.8% per annum. The islands will create 33,000 jobs between the end of 2018 and 2020 and the unemployment rate will drop to 9.5%.
Models suggest more than 50% probability of recession within the next 24 months. Global, housing and business debt represent major red flags. Fed’s strong dovish bias a response to risks. Markets digesting the balance between weaker outlook vs. lower expected interest rates. Economic fundamentals for households and financial institutions remain solid.
In January 2019 the nominal annual growth rate of traditional deposits (demand + term) of commercial banks was 7.8% (3.3% real), similar to the previous month (7.9%) and lower than the nominal growth rate registered in January 2018 (9.0%).
Financial markets remained under pressure this week amid mounting concerns over global economic outlook. A spate of weaker economic data, dovish central bank rhetoric, combined with uncertainty surrounding US-China trade talks and Brexit dragged heavily on global bond yields.
After an unprecedented crisis, Spain has overtaken pre-crisis levels of income per capita due to a favorable combination of external and domestic factors. Although it is difficult to estimate their exact contribution, behind the current economic recovery are the effects of structural reforms, in labor and product markets, the financial system and the public sector.
Highlights: BCBS issues follow-up report on Basel III implementation. ECB issues statement on securitizations, report on banking supervision, and macroprudential bulletin. EC and ESMA issue statements on adjustments for Brexit contingency plans. ESMA issues guidelines on clearing obligations under EMIR Refit. BdE maintains the CCyB
No signs that Banxico is ready to shift into easing mode. Wording stayed hawkish but had a slight dovish tweak. We continue to expect the next move in the monetary policy rate to be down, but not until 3Q.
The mood in the financial markets has not improved despite the high-level two-day trade talks between the US and China, which resumed today in Beijing. China has announced its commitment to open its financial sector to foreign business. On the growth side, fears remained alive: today, the downward revision of the US 4Q18 GDP did not help to ease fears over global slowdown
Caution prevailed in the financial markets today with sovereign yields declining further across core countries, hitting new lows amid rising concerns over global growth prospects. The latest signal coming from China’s Jan-Feb industrial profits, which saw its biggest contraction since 2009.
Recent developments warrant a less hawkish tone. Banxico is likely to remain on hold for the next three meetings. The case for a rate cut is not strong yet, but a less hawkish wording seems warranted. Banxico will likely signal patience. We expect the easing cycle to begin in August.
GDP growth to slow to 2.5% in 2019, and 2.0% in 2020. Model based recession probability reaching troubling levels, growth outlook also tilted to the downside. Probability of Fed rate hike in 2019 diminished; balance sheet normalization to end in September. Labor market signals remain mixed after government shutdown. Core inflation stable, headline below 2.0% in 2019.
The risk aversion mood among investors eased somewhat but caution remained ahead of the US-China trade talks later this week. Moving to Europe, Chinese President Xi’s visit to the bloc this week will be key as it sets the tone for bilateral discussions ahead of the EU-China summit on April 9th.
Financial markets remained in a risk-off mood at the beginning of the week as fears of a global economic slowdown resurfaced following last Friday’s release of weak confidence indicators. Also, a new round of high level US-China trade talks are expected to resume later this week, while developments in Europe, especially regarding the Brexit, will be in the spotlight.
The French and German governments have published a manifesto advocating substantial industrial policy reform in the EU based on three pillars: to strengthen innovation, ensure reciprocity and review competition laws.
Spain is not different. Just as in other developed countries, the country’s economy has shown a trend towards deindustrialisation and tertiarisation. Should this worry us? The authorities seem to be concerned.
Despite solid profitability trends, banking conditions could become somewhat more challenging. Sustainable loan growth, higher funding costs and credit risks will be the primary areas of concern. Customer service, digital tools and economies of scale are key for success.
Financial markets ended the week in a pessimistic mood amid a pickup in global growth concerns after the release of poor confidence indicators in the US and EZ. Also, the Fed’s dovish tone in its March meeting, coupled with fears regarding US-China trade negotiations, were drivers for markets. The EU summit, which took place this week, was key for discussions on Brexit
Highlights: EU Council and Parliament reach deal on ESFS. BCBS issues Basel III monitoring report. EBA updates impact of Basel III reforms, agrees template MoU for no-deal Brexit and issues updated O-SIIs list. ESMA issues several statements for a no-deal Brexit. EMMI consults on recommendations for EONIA.
Financing provided to the non-financial private sector slowed in the second half of 2018. Housing prices rose by 7.9% in the first quarter of 2018. Market players focus on concerns around the financial situation of Pemex and the "patient" stance of the FED.
As expected, yesterday’s FOMC left interest rates unchanged and intensified its dovish stance. In addition, it revised down official projections for 2019 GDP growth and inflation. Following the more dovish Fed tone, US yields declined across the curve and the USD depreciated. However equity markets fell as fears over a snag in US-China trade negotiations unnerved investors