According to Bert Colijin, senior economist, Eurozone, ING, the Italian referendum and subsequent concern about the Italian banking sector has not impacted confidence in the Eurozone and it caused a mere stagnation in sentiment in Italy itself. “Improving order books, strong employment expectations and strengthening assessments of production in recent months outweigh increased political volatility for the moment,” says Colijin.

Inflation is currently trending upwards as the oil price effect has run out, but core price pressures are building. Businesses are indicating that they are now passing on higher input prices to the consumer. The trend remains positive for both industry and services though. If this continues, core inflation could increase somewhat quicker over the coming months, although there is a lag between this survey indicator and price developments. It is therefore more likely to impact core inflation at the end of 2017, coincidentally the time when the current QE program is supposed to end.

Retail sales declined by 0.4% MoM in November but the trend in sales growth remains positive as annual growth is 2.3%. October growth was so strong that a small monthly decline was expected.

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Research firm AutoData said that US sales hit an all-time high of 17.55 million vehicles in 2016. The firm also said that December sales came in much stronger than expected, at a pace of 18.4 million vehicles. That figure is well above estimates for about 17.7 million.

Shares of General Motors Co (GM.N) rose 5.5 percent and Ford Motor Co (F.N) stock rose 4.6 percent, far outpacing the wider Dow Jones Industrial Average, which was up only 0.3 percent.

For 2016 sales, Ford reported its best year in a decade while Nissan and Honda said they sold a record number of cars in the US. Toyota and GM bucked the trend, with their total sales in 2016 down from the year earlier.

Light trucks and sport utility vehicles were up 8.3 percent compared to the year-ago period while passenger cars were down 4.7 percent.

The positive increase in auto sales is mainly attributed to strong consumer confidence coupled with low fuel prices. In December, US consumer confidence reached levels not seen in 15 years. Auto sales are an early indicator of consumer spending.

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The report followed a 10-day mission in December 2016 to Malta during which the state of Malta’s economy was evaluated in depth.

Looking ahead, the key policy challenge is to sustain the high growth and make it more inclusive in an increasingly uncertain external environment. Efforts should therefore focus on further enhancing the economy’s resilience to shocks, and addressing the remaining structural impediments:

• Robust economic activity is projected to continue, albeit at a more moderate pace
• External downside risks predominate
• Fiscal consolidation is expected in the near term
• Well-specified measures should underpin the medium-term consolidation plan
• Improving the financial health of state-owned enterprises would reduce fiscal risks
• Long-term spending pressures should be contained
• Safeguarding financial stability and improving access to finance
• The banking system appears sound and resilient, but faces a number of challenges.
• The resilience of the private sector needs to be bolstered further 
• The planned Malta Development Bank (MDB) could support the economy but fiscal risks should be contained
• Ongoing vigilance is needed to contain risks to the integrity of the financial system.  Boosting productivity and making growth more inclusive
• Steady reform implementation will support high and inclusive long-term growth

In particular, sustained efforts are needed to:

• Increase the labour force participation. Recent measures supporting female labour force participation continue to bear fruit. Further actions are needed to integrate the remaining inactive population, particularly women, into the labour market. Expanding labour activation policies, and enhancing education quality in line with the recently completed in-depth review, would reduce skill mismatch in the face of the changing labour demand. Further incentivising delayed retirement would boost labour force participation among the elderly.
• Enhance SMEs’ innovation. Higher R&D activity would boost productivity growth and competitiveness. Strengthening firms’ balance sheets and broadening SMEs’ non-bank and equity financing would alleviate financing constraints, including for innovative projects. Increased public R&D spending as a share of GDP towards the EU average, close partnerships with education institutions and improved access to foreign markets would complement these efforts.
• Streamline the legal process. Recent measures to speed up the settlement of civil and commercial cases will strengthen the business environment. Completion of ongoing work to address the shortcomings of insolvency and bankruptcy frameworks would improve contract enforcement and allow a faster resolution of balance sheets problems.

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October 6, 2016: Commodity markets are subject to the most fundamental law of economic activity: supply and demand.

That dynamic explains why the price of commodities such as oil, agricultural products and industrial metals is inevitably cyclical, and why producers face a constant struggle to strike the right balance between overcapacity and under-investment.

Because producers often miscalculate the appropriate level of supply at any given moment – and since prices are extremely sensitive to even incremental changes to the supply-demand balance – the history of the commodities market is one of inescapable booms and busts.

Today, following five years of steady commodity price declines and significant industry consolidation, there are now signs that the cycle is starting to turn.

Consider the performance of the Bloomberg Commodity Index (BCOM) – a measure of investor returns in a weighted basket of energy, grains, industrial and precious metals, soft commodities and livestock.

Up more than 160% between 2001 and mid-2008 – a period marked by sustained global economic expansion – the BCOM then experienced a sharp decline, reflecting the broader impact of the financial crisis. After recovering slightly, the index remained on a sustained downward trajectory from mid-2011 until the end of 2015, down 55% over that period of sluggish macroeconomic growth.

Commodities were the worst performing asset class globally last year – partly due to slowing Chinese expansion and the strong dollar – leading investors to withdraw a record $850 million from US exchange-traded commodities over the 12-month period.

Since the start of 2016, prices have at last begun to recover, up 14% since hitting rock bottom in mid-January and 6% for the first eight months of the year. Over the same period and of particular importance, Brent crude oil prices recovered strongly, up more than 30%.

While it remains too early to confirm a long-term upward trend, commodities are attractively priced at current levels.

Unsurprisingly, the five-year commodity price decline led to serious cuts in capital expenditure, suggesting that a supply shortfall lies in the near future – including in the oil industry, where investment has virtually dried up and new discoveries are now running at their lowest rate in six decades, according to the International Energy Agency.

Indeed, at a time when commodity prices are supported by greater demand and limited supply, the outlook for commodity producers is likewise more favorable. Not only are raw materials prices rising, but the sector is also benefiting from five years of consolidation.

During the 2011-15 price collapse, producers reduced dividends, cut or eliminated share buybacks, implemented supplier-rated reductions and slashed staff costs.

Over those five years, M&A activity in the sector was intense, including some $650 billion in transactions last year alone. That trend has now been capped by Bayer’s recently proposed $66 billion takeover of Monsanto, which, if regulators approve the deal, would create a global agro-chemical behemoth.

Given the importance of infrastructure investment to the sector’s health, the fact that China is once again pouring billions into such projects is another positive sign for producers. Perhaps even more important is India, the world’s fastest-growing large economy. According to the country’s finance minister, the country must invest at least $1.5 trillion over the next decade to bridge its current infrastructure gap.

In this context, it’s worth noting that US public fixed investment, measured as a percentage of GDP, is now running at a 60-year low. Indeed, this is one of the rare areas where Hillary Clinton and Donald Trump are in agreement, with both calling for huge increases in infrastructure spending – although only one of them intends to build a 3,200-kilometer wall on the Mexican border.

All of this will prove supportive of natural resources – and equities linked to them. While obviously closely tied to the price of raw materials, and thus difficult to predict, such shares tend to outperform the underlying commodity linked to them.

Consider that, in real terms, oil prices have risen only slightly since the 1920s. Over the same period, oil and gas companies have generated real returns of more than 8% per year, according to GMO, a Boston-based asset management firm, which notes that industrial metal miners have outperformed the underlying metals by a similar margin.

Moving forward, global macroeconomic trends will continue to prove key for both commodity prices and the performance of producers. At the same time, interest rate policies, currency fluctuations and geopolitics will also shape the market, sometimes in unexpected ways.

Despite such volatility, investors can take comfort from the fact that commodities are inevitably cyclical. What has gone down for the past five years will, perhaps sooner rather than later, once again reach equilibrium – that sweet spot where supply meets demand.

Stefan Van Geyt is the Group Chief Investment Officer at KBL European Private Bankers. The statements and views expressed in this document are those of the author as of the date of this article and are subject to change. This article is also of a general nature and does not constitute legal, accounting, tax or investment advice

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