06 Apr 2018

All eyes on US Labour data

The February US labour situation report included a very robust 313k non-farm payroll gain, the most solid reading since July-16.


There is little doubt at present that the US labour market is in rude health, although the 313k probably overstates the extent of the strength. Indeed, it included a 61k rise in construction employment which looks to have been helped by the relatively benign weather over the month, following the more adverse conditions in January. Meanwhile the 50k rise in retail employment stands out and may well not be repeated, at least not to that extent in the March numbers. Note that there was also a 26k rise in public sector jobs which looks at odds with recent trends.

Headline to beat consensus

Overall, we’re expecting the solid labour market to generate further robust job gains, we are pencilling in a non-farm payroll gain of around 255k (185k consensus) in March. On the unemployment rate, the key question is whether we see a further rise in the participation rate, helping to stem any downward pressure to the unemployment rate from continuing employment gains. We have seen four consecutive monthly rises in the size of labour force and we expect to see a fifth recorded in March. As such we look for the unemployment rate to hold steady at 4.1%, with the expansion of the labour force absorbing another solid rise in employment. If the participation rate does continue to rise, this should help to reassure the Fed that it can continue its gradual approach to rate rises, with an expansion of the labour force likely to help keep pay growth pressures at bay. In February, hourly earnings growth was seen falling back from a downward revised 2.8% to 2.6% yoy.

Trade war update

Just before midnight last night (Irish time) President Trump announced that he had ordered his chief trade negotiator to consider imposing tariffs on an additional $100bn of Chinese products, in another unhelpful escalation of the trade war with China. If the recent tariff announcements made by the US administration did take effect in the form of the initial announcements, the US would now be looking at imposing tariffs on almost a third of imported Chinese goods that enter the US. Last night’s US announcement followed rapidly on the heels of China’s move to publish a list of tariffs applying to $50bn of US goods, including soybeans and small aircraft. This morning the Chinese Commerce Ministry has indicated that we can expect another tit-for-tat response from them, having said they will take comprehensive measures to safeguard their interests. The market response so far this morning has been relatively muted in the Asia session (Chinese markets are closed), with the Nikkei 225 down 0.4%. S&P futures point to a more negative session on Wall Street however. A sharper fall-out in risk sentiment for now may well have been helped by a stream of comments from White House Economic Adviser Larry Kudlow over the past two days, highlighting that the trade talks are a negotiation and that he expects, as part of the trade deal, that barriers will come down on both sides.

Bank of Ireland: BIRG says PCP loan book can cope

Bank of Ireland has said that its Personal Contract Plan (PCP) model for car financing in the Irish market remains strong, despite concerns raised by the Central Bank recently in regard to the rapid growth in the segment across the Irish banking sector. The comments were reported in The Irish Examiner this morning. The CBI last week issued an ‘economic letter’ looking at the PCP market, which has grown significantly since 2012. In simple terms, a PCP is a type of hire purchase (HP) financing agreement used for the purchase of vehicles. In a PCP contract, the consumer pays a deposit and continues to make regular payments over the life of the agreement, typically between two and five years. It differs from traditional HP agreements in that there is also a large final payment at the end of the contract if the customer wishes to purchase the car outright. Alternatively, at the end of the PCP contract, the consumer can decide to return the car to the seller (using a guaranteed minimum valuation put in place at the initiation of the PCP to ensure there is no outstanding debt at this point), or enter into a new PCP arrangement (effectively a refinancing) on another vehicle. The key findings from the publication was that there was now over 126k contracts related to PCP finance, equivalent to €1.5bn in underlying financing. This was a c.9x increase since 2012, with PCPs now one of the key drivers of growth in bank-related lending to Irish households for non-mortgage purposes. PCPs now accounted for 43% of car-related bank debt, up from 25% in 2014, according to the CBI. The CBI report found that like any type of lending, PCPs involved risks for both borrowers and lenders, with these mainly relating to falling demand for new and used cars, increasing interest rates and negative equity scenarios. The CBI found that the negative equity may be of particular concern in the Irish market, given the post-Brexit fall in the value of Sterling which has seen an increase in cheaper used car imports, potentially reducing the prices of used cars in the future and pushing existing PCP contracts towards negative equity. BIRG, which has the largest exposure to car financing in the Irish market, has said that it is “satisfied” that its approach to the PCP market, in conjunction with its motor industry partners, was “prudent enough to cope with market trends”, and that its PCP loan book was performing well and with “continuously extremely low arrears”.

GRN/HBRN: Hines invests a further €165m in Irish real estate

Hines, the real estate investment firm with significant assets in Ireland, has completed the acquisition of Chatham & King, a high-profile mix of offices and retail on South King Street in Dublin city centre, very close to the Grafton Street thoroughfare. The cost is a reported €165m and Hines is said to have fended off three competing bids, including two from German funds. Lone Star was the vendor in this transaction. Among the retail tenants are Zara and H&M, while Qualtrics, a data analytics firm, leases the office space. Included in the sale is the Chatham Court building, the second phase of the asset to be developed by Lone Star and which is currently under construction. Upon completion, the centre will incorporate 49,000 sq. ft. of retail space and 57,000 sq. ft. of office accommodation and will have a projected rent roll of €6.8m.

CRH: Shareholder proxy group advises against pay

Shareholder advisory group, Institutional Shareholder Services (ISS) has advised shareholders of CRH not to support the executive remuneration report at the upcoming AGM on the 26th April. ISS is recommending a vote against the remuneration report on several grounds including a lack of detail as regards the targets required to trigger bonus payments. CRH has said it will give details of the scheme, subject to it not being commercially sensitive when it publishes the 2018 Annual Report next year – the 2017 report was published at the end of February this year. The CEO received a performance related bonus of €3.12m in 2017 while the CFO received a bonus of €1m. ISS has said the “CRH lags the market in this respect: only a minority of companies do not disclose targets on the grounds of commercial sensitivity”. ISS also advised shareholders to vote against the scheme last year when 18% of shareholders voted against it.

Airlines: Easyjet passenger numbers and load factors impacted by weather

easyJet March traffic stats show a load factor of 93.4%, a 0.7% increase YoY. Passenger figures up 3.4% YoY to 6,549,703. There were 1,274 cancellations in March, equivalent to 3% of planned capacity with over 1,000 caused by adverse weather conditions across Europe. Weakness in load factor largely explained by the above.

Economic releases

09.10 EZ Retail PMI
13.30 US Nonfarm Payrolls
16.15 UK BoE Gov Carney speaks
18.30 US Fed Chair Powell speaks