11 Mar 2019

Irish Economy: A February hat-trick

The Ulster Bank Construction PMI shows a sharp uptick in activity in the sector in February. This follows the similar strengthening in the AIB Manufacturing and Services PMI releases earlier this month, and suggests that the economy has picked up steam as Q1 progressed (admittedly, Brexit uncertainties may put a dampener on the results for March).

The headline PMI firmed to 60.5, a seven month high, from January’s 54.6 reading. Within that, growth was concentrated in the Housing (64.3) and Commercial (62.2) segments, while Civil Engineering (46.9) remained stuck in contractionary territory for a sixth successive month.


Panellists reported a marked pick-up in demand, with the New Orders index rising to an eight month high of 60.2, prompting a quickening (to a seven month high) in the rate of job creation. The Purchasing index advanced at its fastest rate sinc June 2018, with some panellists saying that they had deliberately built up inventories to mitigate any supply issues resulting from Brexit.


One weak spot within the survey was Confidence, which eased back to a 67 month low (albeit still in strongly positive territory), possibly due to wider macroeconomic uncertainties, notably Brexit, and what this might mean for customer demand. To tweak what we said following the publication of the Manufacturing and Services PMI reports for February, whether or not this hat-trick of improved PMI releases signals the start of an improving trend will largely be driven by short-term political developments in Ireland’s next door neighbour.


Brexit this week


In what is set to be a huge week for Brexit developments, there is much uncertainty over how events will pan out. Talks with Brussels have made little progress on the Irish backstop issue and as such Mrs. May looks set to be faced with putting a virtually unchanged Brexit deal to Parliament (as the one that was defeated by 230 votes in January), or finding a way to pull the vote. It is not clear if Mrs. May will even head to Brussels today to try and squeeze out last minute concessions. If Mrs. May does press ahead with the vote the timing would be for the “meaningful vote” to take place tomorrow. This would likely lead to a defeat and would therefore likely be followed by a vote on whether Parliament can back no deal. If that fails, it will then be a vote on whether to seek an extension to the Article 50 period from Brussels. There are numerous reports swirling around suggesting that Mrs. May will have to set a forthcoming date for her to stand down as PM for her to get the Eurosceptic ERG on board to back her in this week’s big vote. Even at that, it would remain to be seen if she would have the numbers. Needless to say, with March 29th looming ever closer, sterling is reflecting this chaos in Westminster with the benchmark EUR/GBP back up over the 0.8650 level.


US this week


Wall Street will start this week with January’s retail sales figures, which will be closely watched after having posted the sharpest fall since 2009 in December. Further notable data releases include CPI on Tuesday as well as industrial production and Michigan consumer sentiment on Friday. For London-based US watchers, note that the US clocks went forward on Sunday. Until we follow suit at the end of the month, this will result in US data releases coming out an hour earlier than usual.


Europe & ROTW this week


All eyes were on the ECB last week, who surprised markets by pushing its rate guidance out to the end of the year and unveiling a new series of quarterly targeted longer-term refinancing operations (TLTRO-III). This week is set to be quieter for European investors. The key focus is set to be German industrial production figures today, alongside that for the wider common currency area on Wednesday. Second estimates of harmonised CPI figures also sprinkle the release calendar. Looking to Asia, China’s monthly economic indicators (i.e. industrial production, retail sales and fixed asset investment) are set to be published on Thursday. However, given the Lunar New Year distortions, these will only be released on a year-to-date basis. Meanwhile, Japanese core machinery orders will be published in Tokyo on Wednesday, with a policy announcement from the Bank of Japan on Friday.


US jobs report (Feb)


Friday’s US jobs report from the Bureau of Labor Statistics was decidedly mixed. On the one hand, non-farm payrolls (NFP) were reported to have risen just 20k in February, well below that forecast by both consensus and Investec (+180k and +165k respectively). Sectoral detail showed that the construction industry had seen a fall of 31k, while the number of manufacturing jobs added was a tepid 4k. Net NFP revisions to the previous two months were modestly favourable at +12k. More positively, the headline measure of unemployment fell from 4.0% to 3.8%, beating consensus and Investec expectations for a more modest fall to 3.9%. Also, the wider U6 measure of unemployment fell to 7.3%, thereby unwinding a shutdown-related rise to 8.1% in January. Pay growth also surprised to the upside, with average hourly earnings rising by 0.4% month on-month, resulting in a pick-up in the annual rate to 3.4% from (a revised) 3.1% previously.


Economic releases


12.30 US Retail Sales

13.00 US MPC Member Haskel Speaks

23.00 US FOMC Fed Chair Powell Speaks