Bank of England

20 Apr 2018

Carney comments and Brexit woes weigh on sterling

BoE Governor Mark Carney gave an interview to the BBC on the sidelines of the IMF/World Bank spring meetings.


Although he reiterated that a rate rise this year remained “likely”, he noted that data for Q1 had been “mixed”. He said the MPC would discuss this at its May meeting “I am sure there will be some differences of view but it is a view we will take in early May, conscious that there are other meetings over the course of this year". Dr. Carney didn't specifically write off a hike, but simply said that it isn't a "done deal". Investors took the Governor's comments as suggesting that rates may not rise in May (as markets expect), sending the benchmark EUR/GBP rate up close to the pivotal 0.88 level, nearly 100 points higher than yesterday’s closing level. This time yesterday markets were pricing in an 80% chance of a May hike, this morning it’s closer to 50%. More bad news for the pound came in the shape of some negative Brexit news. It appears the UK’s NI border plans have been ‘comprehensively rejected’ by Brussels and according to the UK’s Daily Telegraph they delivered a "detailed and forensic rebuttal", and said "none of the UK customs options will work - none of them".

UK retail sales disappoint

UK retail sales (released yesterday) figures were weaker than expected in March with headline sales falling 1.2% m/m against a consensus of -0.6% (Investec -1.2%). Meanwhile core retail sales (excluding petrol) fell 0.5% (consensus -0.4%, Investec -0.8%), as such the monthly fall in sales was the biggest since December. Whilst at first glance the figures paint a picture of gloomy consumer spending, it is worth noting that the figures this month were distorted by the severe winter weather at the start of March. Notably UK data published this week has pointed to an improving outlook for consumers with headline CPI inflation easing back to 2.5% and pay growth firming to 2.8%.

Bond sell-off

The most notable market movement in the last day or so has been the sell-off in bonds across the globe. Yesterday 10-yr US Treasury yields rose back to 2.93%, their highest level since March. However the sell-off was not limited to Treasuries, with UK gilt yields rising 10bp to 1.52% and European sovereign bonds also seeing higher yields, 10yr Bunds rose back to 0.57%. There looks to be no one single reason for the worldwide sell-off. Instead a number of factors look to be at play. Firstly the rise in commodity and oil prices this week (Brent has risen 3% this week) looks to have refocused investor interest in inflation once more. If you take the move in US Treasury yields this week, half of the 10bp increase can be attributed to a rise in market inflation expectations (the 10yr breakeven has risen 5bp). Secondly, at least from a domestic perspective, the finger is being pointed at the end of the BoE’s current £18.3bn reinvestment of a maturing QE bond, which led to a 10bp in 10yr gilt yields yesterday. Bond markets are more stable this morning with US Treasury yields holding steady at 2.91%, but any further move up toward 3% may start to spook markets once more.

Kingspan: AGM trading update

Kingspan has reported a Q1 update with Group sales of €895m, +8% v’s prior year (+1% lfl). The company highlights poor weather in many regions as a feature of the first quarter. Insulated Panels were +4% (-1% lfl) and while the UK is trailing the prior year (well flagged) they say it has improved in recent weeks. Europe was “positive overall” and while N.America has been slow, “order intake has been strong in recent months”. Boards saw sales +7% (+7% lfl) with strong early season sales being offset by easing during the quarter. They note particularly tough trading in Mainland Europe due to high levels of inventory throughout the industry, but other regions ok. Light & Air +56% (+8% lfl) was strong with acquisitions being integrated. Access Floors was down -11% (-8% lfl) with initial weakness in the UK well flagged and the US flat yoy. Environmental +6% (-3% lfl) saw a slow start to the year but again improvement was seen over the quarter. The group highlights a strong order backlog pointing towards a good second quarter and overall recent acquisitions are “performing well and to plan”. Trading margin in H1 will be lower than last year (trading, mix and acquisitions) but “the Group is well positioned for the year as a whole”.

CRH: Detailed interview with CEO Albert Manifold

The Irish Times runs a detailed interview with CRH’s CEO Albert Manifold in today’s edition. Some of the key points from the article include 1) an indication that a US listing is under review but at the same time he points out that “In my 20 years at CRH we’ve certainly looked at it a number of times, but every time we’ve looked at it, it has never made sense”, 2) a stronger hint that a share buyback could be more plausible with a reference to how “it’s under careful review” and “we’ve done it in the past and I suspect we’ll do it again at some stage” and finally 3) confirmation from CRH that it does not see significant progress on an Infrastructure stimulus before the US mid-term elections in November, which does not come as a surprise.

INM: Shareholder calls for targeted buyback

According to a report in today’s Irish Times, an unnamed top 10 shareholder in INM has suggested that the company use some of its cash pile to buy back the 29.9% stake held by Mr. Denis O’Brien. INM’s share price has taken a pounding in recent weeks amidst the uncertainty represented by the ODCE probe. Based on yesterday’s close, the market cap stands at just €111m, or c. €20m above the end-2017 net cash position. The Irish Times’ report says that the investor has asked the board to seek talks with Mr. O’Brien about the buyback of his shareholding, or alternatively seek a third party bidder for it. Separately, INM released its 2017 Annual Report yesterday. In his letter to shareholders, the Chairman said that the intended vote on the proposed capital reduction at next month’s AGM – a necessary step in order to resume dividends – has been shelved “in light of the uncertainty introduced by the ODCE’s application [for the appointment of inspectors to investigate the affairs of the company]” , which may result in INM “incurring material costs”.

Bank of Ireland: Q1 IMS in line

Bank of Ireland released a brief Q1 IMS this morning. A customarily brief release, BIRG updated investors on four key metrics: NIM came in at 222bps in Q1, marginally below the 224bps registered in H217 (which had also been given as guidance by management for FY18E), but a rebound from the c.216bps seen in Q4 (balance sheet items at play then); net customer loan volumes increased by €0.1bn q/q to just over €76.2bn, with gross new lending up 20% y/y; Irish residential market share was 28% in the first two months of the year and new mortgage volumes were +33% y/y in the quarter; and fully loaded CET1 increased by 10bps q/q to 13.7% (after adjusting for the -20bps impact of IFRS9 on Jan 1 2018), while transitional CET1 was 15.4%. Additionally, asset quality continued to improve (i.e. NPLs lower) and non-interest (fee and other) income remained in line with the trend seen in underlying/sustainable business income in H217. Cost management remains a key focus and management has guided that it continues to expect underlying operating expenses to be lower in FY18E vs FY17. On FLCET1, BIRG has said that organic capital generation of roughly c.40bps was offset by an increase in RWA (10-15bps), continued investment in its core banking platform project (10bps), and a dividend accrual (c.7bps).

Economic releases

10.30 UK BoE MPC member Saunders speaks
14.40 US Chicago Fed President Evans speaks
15.00 EZ Consumer Confidence
16.15 US FOMC Williams speaks