Chinese growth slows to 9 year lows

19 Oct 2018

In earlier Asian trading, the National Bureau of Statistics (NBS) reported that China's GDP growth had slowed from 6.7% (yoy) in Q2 to 6.5% in Q3. This was the weakest pace of growth recorded since Q1 2009 and also a touch softer than consensus expectations for a 6.6% outturn.

Released alongside this was the regular monthly activity indicators which provided an insight into the composition of growth at the tail-end of Q3 (and from what base Q4 enters on). These were mixed: industrial production disappointed with a gain of 5.8% (yoy), while retail sales and fixed asset investment both beat expectations by printing expansions of 9.2% (yoy) and 5.4% (ytd yoy) respectively. This morning’s release has been shrugged off in mainland Chinese equity markets, with the CSI 300 up 2.3% and the Shanghai Composite up 1.9%, while the yuan is a touch firmer at ¥6.9313. Overall we are not fazed by today’s GDP print; growth in the year-to-date is up 6.7% on the same period of 2017, allowing ample scope for a further slowdown in Q4 without risking an undershoot of the official full-year growth target of ‘around’ 6.5%. It is also important to recognise that China is now significantly bigger than it was in early 2009 after several years of strong growth. Even if growth was at risk of slipping too much, we believe the authorities would take steps to shore up the economy through fiscal and monetary stimulus (as they have pledged).
 
European Commission set to reject Italian fiscal plan
 

The European Commission sent a strongly worded letter to the Italian finance ministry yesterday, berating them in what they see as a “serious non-compliance with the budgetary policy obligations laid down in the Stability and Growth Pact." If the EC were to reject the Italian fiscal plan, it would be the first time an EU member states fiscal plan would be turned down. In a scathing fashion, the EC described the budget as an “obvious and unprecedented deviation” from previously projections. The letter went on to say that “with Italy's government debt standing at around 130 percent of GDP, our preliminary assessment also indicates that Italy's plans would not ensure compliance with the debt criterion benchmark ... which requires a steady reduction of the debt level towards the 60 percent threshold." The Italians didn’t back down after receipt of the missive, with Deputy PM, Matteo Salvini, insisting that the budget wouldn’t be changed by even “one comma”. The single currency has been on the back foot since news of the publication of the letter yesterday morning with the benchmark EUR/USD rate slipping to two month lows of just below $1.1450. Italian, Spanish, Portuguese and Greek bond yields all moved higher on the negative news. Markets now eagerly await S&P and Moody’s reaction to the whole debacle.
 
Dalata: Further solid RevPAR growth in Ireland in September   
 

The latest data from STR Global show another period of solid RevPAR growth in the Irish and Dublin markets in September. RevPAR growth in Ireland was 8.0% y/y in September and the growth YTD was 9.0% y/y. This growth has been predominantly rate driven given that occupancy remains very high and the potential for further growth in occupancy is therefore limited. Indeed, occupancy in Ireland YTD (80.7%) has been the highest amongst 27 sampled European countries and occupancy in Dublin YTD (85.0%) has been the highest amongst 35 European cities, highlighting the imbalance that persists between demand and supply. Notwithstanding the very high occupancy in Dublin, RevPAR growth tapered somewhat in September (4.1% y/y) but remained healthy in the YTD at 7.7% y/y. Looking to the UK, RevPAR was lower y/y in September (-1.4%) but remained positive YTD (+1.7%). London RevPAR was also lower y/y in the month (-3.1%) but marginally positive YTD (+0.7%).
 
Irish Banks: Finance Ireland enters residential mortgage market
 

Non-bank lender Finance Ireland, which has previously focused on SME lending and car leasing, has formally entered the Irish residential mortgage market through the acquisition of Australian lender Pepper Money’s Irish residential mortgage platform. There are no details on the consideration paid by Finance Ireland. The acquisition includes approximately €200m of mortgages originated by Pepper over the last couple of years, which will add to the c.€700m of total business, commercial real estate or auto lending which Finance Ireland has already originated itself. The move into the mortgage market by Finance Ireland has been flagged by the company in recent months, and comes amid a flurry of comments from potential challenger-type entrants into the sector as competition within the mortgage market continues to increase. The Irish state post office An Post, non-bank lender Dilosk, and the credit union sector have all suggested they intend on expanding into the mortgage market in 2019. Finance Ireland is part owned by the Irish State's Strategic Investment Fund and US investment giant Pimco, with management owning around a third of the firm as well. 
 
UK Retail sales (Sep)

The ONS figures released yesterday reported that retail sales had dropped 0.8% on the month in September, the sharpest decline for six months, after an (upwardly revised) August expansion of 0.4%. This was sharply lower than consensus estimates for a 0.4% fall, but broadly in line with our own forecast for a 0.7% decline. Excluding fuel, retail sales similarly fell 0.8% (consensus -0.4%, Investec -0.7%) from an upwardly revised 0.5% in August. Taking the biggest bite out of retail sales was food stores which saw volumes drop at the fastest pace in nearly three years. This did, however, come off of a high base after a particular warm summer encouraged consumers to indulge.
 
Economic Forecast
 

17.00 US Fed’s Bostic speaks
17.10 UK BoE’s Carney speaks