11 Jun 2019

Irish Economy: NTMA to raise €1bn on Thursday

Ireland’s NTMA yesterday provided details of its scheduled bond auction on 13 June.  


Subject to market conditions, the agency will tap the 1.1% Treasury Bond 2029 (currently €5bn outstanding) to raise €1bn. The current Irish 10 year benchmark bond closed at a yield of just 33bps yesterday.


Assuming a successful execution of this auction, this will bring the proceeds from bond sales in the year to date to more than €10.5bn, which compares to the full-year funding target of €14-18bn.


The agency is due to conduct one further auction in this quarter, with a T-bill auction pencilled in to be held on 20 June.


The downward shift in Sovereign funding costs is clearly playing into the NTMA’s hands, as it is able to access long-term funding at minimal cost with which to refinance expensive legacy borrowings (note that we expect the country to run its second successive general government surplus this year). The two Irish Treasury Bonds that are scheduled to mature this year have coupons of 4.4% and 5.9% respectively. 


Sainsbury’s: New Sainsbury’s Bank CEO appointed

Sainsbury’s this morning announced the appointment of Jim Brown as CEO of Sainsbury’s Bank, subject to regulatory approval. He will join on the 19th of June as CEO designate and work with Peter Griffiths for a short handover period.


Mr Brown previously worked for Royal Bank of Scotland, where he was, among other things during his tenure, Chief Executive of Williams and Glynn (2015-17) and Chief Executive of Ulster Bank Group (2011-2015). At the time with Ulster Bank he was perceived to be a trouble-shooter parachuted into difficult situations by RBS. As such we believe he could prove a positive addition to the Sainsbury’s Bank team given that we noted in our last Sainsbury’s report (Stretched but not broken – 20 May 2019) that the bank appeared to be struggling with FY19A income and underlying profit down, the net interest margin slipping and a lower Capital 1 ratio.


Tory leadership race

Yesterday evening the final list of contenders in the Tory leadership race was unveiled with no new surprise additions, though after Sam Gyimah withdrew his hat, the list is down to 10 from 11. Boris Johnson remains the firm bookmakers favourite and he faced much criticism yesterday for ‘lying low’ in the race, presumably to avoid him scoring any own goals. He has also been widely criticised over his plan to raise the 40p threshold from £50,000 to £80,000, if he becomes PM.


The next major step in the contest will take place on Thursday when the first round of voting takes place, to whittle down the list. Today hustings in the race will take place at the following times:  1. Michael Gove (3.15 p.m.) … 2. Jeremy Hunt (3.40 p.m.) 3. Dominic Raab (4.05 p.m.) 4. Mark Harper (4.30 p.m.) 5. Andrea Leadsom (4.55 p.m.) 6. Sajid Javid (5.20 p.m.). Meanwhile this morning there will be a political and regular Cabinet meeting taking pace, under caretaker PM Theresa May.


UK GDP softens

Monthly GDP figures for the month of April, released yesterday morning, were weaker than expected with output falling 0.4% month on month - market consensus and our view had been for a 0.1% monthly fall.


Part of the reason for April’s weakness was a 24% mom fall in car output which was related to planned shutdowns in the sector, which in turn were linked to Brexit. As a result manufacturing output was much weaker than expected with a 3.9% mom fall (consensus -1.4%, Investec -2.2%), as was the broader estimate of industrial production which witnessed a -2.7% fall (consensus -1.0%, Investec -1.5%).  Whilst the extent of April’s GDP weakness was driven by manufacturing and in particular the auto sector, the report also contained broader elements of weakness, with construction output falling 0.4% (consensus +0.5%), whilst the UK’s dominant service sector failed to show any growth, with output flat on the month. Market and our own expectation had been for monthly services growth of 0.1%.


Released alongside the GDP figures were trade statistics which showed an unexpected narrowing in the goods trade deficit to £12.1bn (consensus £13.0bn). Already under the kosh, sterling weakened out further to ensure the benchmark EUR/GBP rate closed the session out above the £0.89 level for the first time in nearly five months.


Strong UK employment data

At the headline level, the last UK labour market report presented a picture of a jobs market in rude health with the unemployment rate falling from 3.9% to 3.8%, a level not seen since the three months to January 1975. However we continue to eye the possibility that firms have been adding labour amidst a reluctance to take big capital spending decisions given continuing Brexit uncertainties.


Amidst the surveys for the outlook ahead, we note that the latest KPMG and REC Report on Jobs suggested that outlook uncertainty was weighing on hiring activity a bit more in April, with permanent staff appointments falling slightly. It also highlighted the reluctance of workers to seek new roles amidst Brexit uncertainty, which is highlighted as a factor contributing to steep increases in pay for both permanent and temporary workers. That said, the report also noted that the rate of starting salary inflation was the softest seen for two years.


Our best guess is that this time we will have seen an element of treading water in the upcoming unemployment metrics, where we are pencilling in a steady 3.8% unemployment rate.


Economic Releases

09.30    UK        Unemployment (Apr)
10.00    UK        BoE’s Saunders, Broadbent at UK Treasury committee
13.30    US        PPI (May)