13 Dec 2019
Irish Economy/homebuilders: Little change in residential prices in October
The latest data on residential property prices show that there was very little change in residential prices in Ireland in October.
National prices were +0.9% y/y in October, which is the slowest pace of annual increase since price growth commenced more than six years ago. Month-on-month price growth was positive in October, the eighth successive period of monthly price growth, albeit the increase was only marginal at +0.1%. Given that a period of monthly price falls commenced in November of last year, the year-on-year comparatives become more favourable from here and we could well see annual price growth re-accelerate with the next CSO publication.
Although price stability is the overarching trend at national level, there continues to be some moderate disparity between Dublin and the rest of the country, at least in terms of y/y changes. Prices in Dublin were -1.5% y/y in October, while prices outside of the capital were +3.3% y/y. However the annual decline in Dublin prices reflects the weakness at the turn of the year and prices have been unchanged in each of the past two months, and are +0.4% in the past three months. For the same reason as is the case with the national series, October may well have been the low point for y/y price changes in Dublin. Outside of Dublin, y/y price growth slowed to +3.3% in October following a +0.1% m/m change.
Over the past six months prices are 2% higher in the country, in Dublin and outside of Dublin, which feels about right given the favourable economic conditions and the constraints imposed by the Central Bank’s mortgage measures.
Irish Economy: Inflation back above 1%
Annual inflation in Ireland was above 1% in November for the first time in five months.
The annual rate of inflation, as measured by the CPI, increased to 1.1% in November from 0.7% the previous month. However the third successive negative month-on-month change in prices suggests that price pressures remain muted. Goods prices were -1.7% in the past twelve months, while services prices were +3.0% y/y in the same period. The areas causing the most upward pressure on the annual inflation rate were Restaurants and Hotels (+2.9% y/y), reflecting higher prices for accommodation and food/drink, and Housing-related items (+3.1% y/y), reflecting higher rents, mortgage interest and electricity. In the other direction, the sectors with the greatest downward pressure on prices were Communications (-7.3% y/y) and Food (-1.0% y/y).
A 1.1% annual inflation rate is not indicative of substantial price pressures, but it is higher than we have seen for most of the past six years. Although recent monthly price movements have been negative, if the stronger trend in Sterling seen overnight is sustained this could result in higher prices for imported goods.
Boris gets mandate to get Brexit done
With only 3 seats left to declare the Tories are on track for a resounding win in the 2019 election. At present the Tories have won 362 seats, a gain of 47 and easily surpassing the 326 seats needed for an overall majority. Labour has done particularly poorly at the polls, with the count so far showing a 59 seat loss to 203, putting them on track for their worst result since 1935. The counts for the remaining parties show the SNP making big gains, increasing their number of seats by 13 to 48. The Lib Dems are down 1 seat to 11, with party leader Jo Swinson being unseated. The overarching point here is that the election result hands the Tory party a large majority with which to implement its agenda, starting with Brexit.
The Pound has so far held on to its gains from the initial exit poll at 10pm last night. GBPUSD is trading at $1.3420 up almost 3ct on the day, whilst gains have also been made against the euro with €:£ standing just above 83.0p.
At time of writing, the seats declared are as follows;
Conservative party – 362
Labour party – 203
SNP – 48
Lib Dems – 11
DUP – 8
Sinn Fein – 7
Plaid Cymru – 4
SDLP - 2
Alliance party - 1
Green Party – 1
Brexit Party – 0
UKIP – 0
High profile victims and survivors
Some of the biggest victims include Lib Dem leader Jo Swinson, and DUP parliamentary leader Nigel Dodds, while potential high profile seat losses for the Tory’s in Esher & Walton and Chingfooord & Woodford Green constituencies have been avoided with both Iain Duncan Smith and Dominic Raab holding on to seats which were believed to be at risk.
What happens next?
In terms of near term events a Queen’s speech is now expected on Thursday (19 Dec) and there is some talk that Parliament will be convened next Friday to introduce the Withdrawal Agreement Bill for its first reading, with the ultimate aim of passing all the necessary legislation for the UK to leave the EU on the 31 January. Beyond Brexit one of the bigger questions is what the scale of last night’s win means for government policy more broadly given the large number of seats taken from the Labour heartlands.
Indeed PM Boris Johnson’s speech from Uxbridge in the early hours of this morning immediately referenced a “one nation conservative government” and spending on healthcare and new hospitals suggesting that the government may have more centrist leanings than many might have thought. The margin of victory also places Boris in a stronger position to see off opposition from hard brexiteers. His own party if he feels the need to request an extension to trade talks beyond the transition period in December 2020, which is another factor supporting the pound.
US trade deal
Whilst most of the domestic attention is focused on the election, it is also worth noting that the US and China appear to have reached an initial agreement on a phase 1 trade deal, which will avert the introduction of US tariffs on $156bn of Chinese goods this weekend (15-Dec). President Trump has reportedly agreed to the terms which have been outlined, which include Chinese commitments to buy US agricultural goods. However, note that the final legal draft of the deal still needs to be agreed. Nonetheless the news represents a positive step in negotiations and removes the threat of an escalation this weekend.
Asian markets are positive on the news, the Shanghai Composite gaining 1.8%, S&P 500 futures are also up 0.5%.
Lagarde takes the helm
Also of note yesterday, was Christine Lagarde’s first meeting as ECB president. While no policy changes were announced as expected, the post meeting press conference gave the euro a boost as the incoming president recognised “initial signs of stabilisation” in growth and “mild increase in underlying inflation” in her opening statement.
Ms Lagarde also followed the opening statement with some further details of the ECB’s strategic review. Here the new President strived to make the point that the review was not unusual, but merely overdue. It will begin during January 2020, with a completion goal of the end of the year. The final framework has yet to be agreed by the GC. Ms Lagarde stated that the ECB’s inflation target will be “core”, but will also touch on issues such as climate change and even inequality. Overall the message is one of continuity.
The market’s reaction was euro positive, with EURGBP rising 0.5% after the press conference, and trading up to 1.1150 against the dollar.
UK 9.30 GDP (Q3)
US 13.30 GDP (Q3)
US 15.00 PCE inflation (Nov)