Trade War

01 Nov 2019

Irish Economy: Manufacturing PMI back above 50

October saw a welcome return to growth in the manufacturing sector, according to the latest AIB Ireland Manufacturing report.

The headline Manufacturing PMI increased to 50.7 in October from 48.7 the previous month in what was the first above-50 reading since May. The output and new orders components of the index both returned to growth in the month. Output expanded at the fastest pace since April on foot of higher customer demand, while inflows of new orders expanded in October, albeit the expansion was marginal. However new export orders fell for the fourth consecutive month in October, although the rate of contraction was slow and eased from September. In line with the improved growth profile, employment among Irish manufacturers returned to growth in October. The rate of job creation, though modest, was the fastest since June. Sentiment regarding future output in the sector recovered in October following a sharp decline in September.

Although much of this morning’s report paints a brighter picture than the previous report did, external factors continue to weigh and a PMI reading of 50.7 points to just modest growth in the sector at present.

Yew Grove REIT: Acquires another office building at the Athlone IDA business park

Yew Grove REIT this morning announced that it has agreed to purchase another office building at the IDA Ireland Business and Technology Park in Athlone. 

The purchase price for the building will be €12m, which represents a net initial yield of 7.2% after accounting for purchase costs, and the transaction is expected to complete by 3rd January. The property is leased to an FDI tenant and the total current rent roll for the building is €0.95m p.a. with reversionary potential linked to CPI. The lease has a WAULT to break of 8.9 years and to lease expiry of 11.9 years. The building itself was constructed in 2016 and has 45,370 sq. ft. of modern office space with associated car parking. The acquisition will bring Yew Grove's total footprint at the Athlone IDA Ireland park to c.205,000 sq. ft. across five buildings which produce an annual rent of c.€2.4 million from four tenants. The group’s total rent roll will be close to €9m following the completion of this transaction.

This acquisition is in line with the group’s strategy of assembling a high-yielding, well-tenanted portfolio in attractive locations outside of Dublin’s CBD.

Irish banks: AIB Group - NPL sale to Cerberus

AIB has this morning announced the sale of a non-performing loan portfolio to Everyday Finance DAC as part of a consortium arrangement with Everyday and affiliates of Cerberus Capital Management. 

The portfolio has a gross value of c.€850m and consists of c.1,000 non-performing customer connections, 50% of which are non-performing for the past five years. The portfolio is predominantly underpinned by investment asset properties (2,800 in total) with an average customer balance of €0.9m. Recent restructuring activity and customer engagement reduced the number of in-scope customer connections by €250m during the sales process. 

This is a meaningful transaction in the context of reducing the group’s NPEs to 5% by year-end. AIB had €4.7bn of NPEs as of 30th June.

US payroll data due

September saw 136k non-farm jobs added to the US economy. This was the smallest rise since May. Survey data available over the past month has continued to raise questions over whether the weakness in the manufacturing sector is spreading to the broader economy, with the September ISM for the non-manufacturing sector sliding to its lowest level since 2016. Given these steers, we are minded to assume that service sector job gains will remain close to their lower September levels in October too and we hold out little hope of a big sudden rebound in manufacturing sector jobs or a surge in construction either. Factoring all this in, we look for a modest 85k rise in non-farm payrolls, in October. 

Looking at the unemployment rate exclusively, one might come away with a much more favourable view of the health of the jobs market. Indeed, in September the headline rate came down to 3.5% from 3.7%, with this representing a near 50-year low. Hourly earnings figures will also be published as part of the employment situation report next week; last month pay growth was flat on the month, with the year-over-year rise moderating to 2.9%. In the main, these figures have gained little attention of late, with the focus more on the dynamics of job gains, amidst little current concern of any serious threat of an inflation goal overshoot emerging.

Chinese manufacturing PMI beats forecasts

Overnight the Caixin China manufacturing PMI rose from 51.4 to 51.7 in October, above the 51.0 consensus and signalling the quickest pace of expansion since February 2017. Survey compiler IHS Markit reported that the PMI was underpinned by the first improvement in export orders for the first time in five months. This in turn drove new order growth up to a near seven-year high and saw production ramped up at the quickest pace since December 2016. Mainland Chinese equity markets have been buoyed by the strong Caixin PMI, with the Shanghai Composite up 1.0% to outperform over Asian indices. 

On the trade front, a Bloomberg article doing the rounds yesterday, reported that China is reportedly doubtful of a long-term trade deal with the US. Irrespective of how the Chinese feel, Mr. Trump was tweeting yesterday that both parties are in the throes of selecting a site for the signing of this very deal.

Economic Releases

UK 09.30 Manufacturing PMI

US 12.30 Non – farm payrolls

US 12.30 Unemployment 

US 13.45 Manufacturing PMI

US 14.00 ISM Manufacturing index