09 Dec 2019

Irish Economy/homebuilders: Construction PMI highlights disconnect between surve

The Ulster Bank Construction PMI for November indicated a second successive month of contraction in the sector.

The headline PMI increased to 48.2 in November from 46.2 the previous month, although the sub-50 reading indicated that the sector remained in contractionary territory. Commercial activity increased markedly in November with the index moving from 46.9 to 51.2, although the Civil Engineering sector remained in the doldrums with an index reading of 36.4. Surprisingly, housing activity contracted for the first time since 2013 in November with the index for that segment falling from 51.3 to 47.7. This apparent retrenchment is starkly at odds with the data in the sector which have showed that housing output has continued to expand at a robust pace. Housing completions were +22% y/y in Q319, while housing commencements in the first three quarters of the year expanded at the same rate – not data that we would associate with a sector in contraction.

Is this the latest example of a disconnect in the Irish economy between sentiment measures, which suggest that all growth momentum is fast being lost, and the “hard” data that still point towards solid growth?

UK this week

We are into the final few days of campaigning, ahead of the 12 December vote. Six opinion polls published over the weekend put the Conservative Party’s lead over Labour at between eight and fifteen points, where at the upper end of this range, such polls would translate to estimates of a solid Tory majority whereas at the lower end of the range, a Tory majority looks to be a closer run thing. The average lead in the FT poll of polls is still at 10%. 

Tomorrow evening at 10pm, all eyes will be on the second and final YouGov MRP seat by seat election prediction. The results will be tracked closely because in 2017, they accurately predicted the hung parliament result which other pollsters had not expected. Their prediction two weeks ago for the upcoming election was for a Conservative majority of 68. In other scheduled events between now and the big day, Thursday, we have the BBC Question Time under-30s debate at 8.30pm tonight whilst on Wednesday the Electoral Commission publishes its final weekly report on political party donations during the election period at 2.30pm. 

In terms of data releases, UK monthly GDP figures for October are due on Tuesday; we look for a print of +0.1% (m/m) to kick off Q4. Whilst on the sectoral front we look for industrial production to partially reverse September’s 0.3% drop with a 0.2% rise. Similarly for trade figures, we forecast a smaller deficit of £2.4bn compared with a £3.4bn reading the previous month. The RICS Residential Market Survey is due in the early hours of Thursday morning; we envisage the house price balance holding steady at 5% in November. A UK sovereign debt rating review will round off the week on Friday, coming from DBRS, currently rating the UK at AAA with a stable outlook.

Europe this week

France and Spain also have sovereign debt rating reviews due on Friday 13th, they come after a flurry of European inflation and industrial data earlier in the week. Most notable of which will be the Eurozone industrial production figures on Thursday and the German ZEW survey on Tuesday. Final HICP figures for member states are not to be ignored however; German and French numbers come on Thursday morning, with Spanish inflation data on Friday. 

The biggest event of the week on the continent however, will be the ECB’s first policy decision since Mario Draghi’s departure. At 13:30 on Thursday, Christine Lagarde will host her inaugural press conference as ECB President, to outline the Governing Council’s thoughts. We suspect the Council will take no action and pause for the time being; our forecast is for the next move to be a 10bp cut in Q1 2020, which would take the deposit rate down to 0.60%. 

US this week

Across the pond, we have the Fed also deciding on monetary policy. Its decision comes on Wednesday evening. The Fed has signalled it’s in pause mode for the time being, hence Investec and consensus forecasts are for no change in the Federal funds target range (1.50-1.75%). Although, this decision comes with the FOMC’s dot-plot, which will give a clearer steer as to where rates may be heading. 

The highlight will be retail sales figures on Friday afternoon, with NFIB data, PPI figures and the routine weekly jobless claims numbers coming earlier in the week. Last week, the focus in the States has once again been on trade, with President Donald Trump announcing tariffs on Brazilian and Argentinian metals, and threatening retaliatory measures on France, if Paris moves forward with its planned digital services tax. The President upset markets last week when he said that a deal with China may not come until after the 2020 election, but a Bloomberg headline the day after lifted markets, implying a phase one deal may be close.


Economic Releases


Nothing of note.