13 Aug 2019

Irish Economy: Consumer confidence at its lowest ebb since 2014

Irish consumer confidence, as captured by the KBC Bank Ireland Consumer Sentiment Index, fell to its lowest level in close to five years on the back of concerns about future economic conditions.

The main consumer sentiment index fell to 85.5 in July from 90.5 in June, in what was the lowest reading since November 2014. The decline was most marked in sub-indices that reflect consumers’ expectations rather than present situations. The General Economic Outlook index fell to 33.2 in July from 42.4 in the prior month and from 70.6 in July 2018. Similarly, the Index of Consumer Expectations fell to 67.7 in July from 75.7 in June and from 93.4 one year earlier.


Fears about Brexit (or more specifically, fears about a no-deal Brexit) are casting a shadow on a range of domestic economic indicators at present, with this dynamic reflected in the divergence in consumers’ current financial circumstances from their increasingly pessimistic outlook.


Brexit update/UK-US trade deal hopes

US national security adviser John Bolton has given hope to the prospect of a quick US trade deal after Brexit. He held talks with British officials yesterday who said the main purpose of his two day trip to London was to express Mr Trump’s desire to see a successful Brexit and his hope was that “we can have a fully comprehensive bilateral trade agreement” with the UK “as soon as possible”. He discussed taking a sector-by-sector approach to speed up the process. President Trump also spoke with PM Johnson directly yesterday. 


Sterling has continued to hold onto the recovery made from its lows yesterday morning with the pound up at $1.2059. This is despite a ComRes opinion poll which showed 54% of respondents agreed with a statement that “Boris (Johnson) needs to deliver Brexit by any means, including suspending parliament if necessary”.

 

Argy Bargy

Argentina, the third largest Latin American economy, grabbed the headlines for all the wrong reasons. Following the primary election surprise which saw the populist opponent Alberto Fernandez beat President Mauricio Macri in a landslide victory, the Argentinian markets went into meltdown mode. 


At the end of the day, Argentina’s main equity index, Merval had lost 37% of its value, the second biggest daily stock market drop in history. The Argentinian peso (ARS) had an equally torrid session, dropping by nearly 17% against the dollar. The concern now is that another Fernandez victory could push Argentina into the arms of the IMF yet again, as another bond default would look likely.

 

TOTD

Oil Market Sell off

The low point in last week’s sharp sell-off in oil prices was after the US inventory report was released showing an increase of 2.4m barrels which gave further impetus to downward momentum. Consequently, Brent hit a low of 55.88$/b and US crude reached a low of 50.52$/b. These are both close to key support levels. US crude has found support at 50.50$/b a number of times since January this year, while for Brent there is a support line coming up from the lows of 2016.


Turning to fundamentals, the International Energy Agencies monthly report was released on Friday and was very much consistent with the gloomy picture of the world economy in the wake of the trade disputes. The IEA cut its demand forecast again, down to 1.1mb/d for this year and 1.3mb/d for 2020. 


Looking ahead, 55$/b is the test for the start of another down leg in Brent. After that we would look to the lows of December at 50$/b, if the market is to recover, however, it may need to break back above 60$/b and stabilise at that level to demonstrate that last week’s move down was a blip rather than a move to a lower range.


Economic Releases

09.30 UK Average Earnings

09.30 UK Unemployment Rate

10.00 EZ ZEW Economic Sentiment

13.30 US Core CPI