03 Dec 2018
Manufacturing PMI strengthens in November
The latest HIS Markit Manufacturing PMI, released this morning, shows an uptick in the rate of growth in the sector. The headline PMI posted 55.4 in November, up from October's 54.9. Business conditions have now strengthened for five-and-a-half years.
Analysis: Encouragingly, this latest improvement was driven by a marked increase in new orders, with overseas customers in the US and UK supporting growth in exports. Responding to this higher demand, firms added to headcounts for a 26th successive month, but inventories were needed to help meet customer orders. On the margin side, input price inflation has quickened to a nine month high, driven by higher prices of raw materials such as plastics and timber, although an element of this cost pressure has been defrayed by an acceleration in output charges to their fastest pace in six months.
The forward-looking business confidence index improved in November, with 52% of panellists expecting a rise in output from present levels in 12 months’ time.
Action: This is an encouraging release, particularly given the backdrop of so much Brexit-related uncertainty.
Irish Banks: Mortgage approvals +11.4% y/y supports our revised outlook – Analyst: Owen Callan
BPFI data released this morning show total Irish mortgage approvals for October summing to €929m, +11.4% vs October 2017 and +13% vs September 2018. The total YTD in 2018 now stands at €8.6bn, +10.3% vs the same period last year, while the 12-month running total is above €10bn for the first time since the series began in 2011. We expect the full year 2018 total for new approvals to come to €10.1-10.2bn, and this ‘pipeline’ of future demand for mortgages is in line with our recently downwardly revised expectation of just over €10bn in new drawdowns next year.
Within the data, it is interesting to note that the average value of approved mortgage applications was €218k in October, -2% vs the same month last year, and approvals values now -3% vs where they were in the middle of this year. This supports both data and anecdotal evidence around a slowdown in Irish house price growth in recent months, and suggests this will not turn around sharply in early 2019 (notwithstanding recent Central Bank of Ireland data which suggests non-mortgage buyers are having a greater impact on house prices, particularly at the lower end of the price spectrum).
Market sentiment is positive this morning, with Asian equity markets having gained over 1%, being led by a 2.5% gain in the Shanghai composite. European and US futures are also up over 1.5% this. The global gains in equity markets follow the weekend’s G20 Summit in Argentina, where a Saturday dinner between President Trump and President Xi led to a thawing of trade tensions between the two countries. The agreement reached on Saturday has seen the US and China agree not to implement any new tariffs for 90 days, whilst the US and China work on reaching a lasting agreement on trade.
That means that the proposed increase on tariffs on $200bn on Chinese imports will not rise to 25% from the previously levied 10% on 1 January 2019, 7 as had been planned. Additionally, China has agreed to buy more US farm, energy and industrial goods, as well as address US concerns over intellectual property theft. It is also being reported that China has agreed to reverse a previous tariff increase on US cars. This may well end up being a long process, but it is a positive start.
US this week
Friday’s US labour market report will as usual also be a highlight. Non-farm payrolls were recorded at 250k in October and we forecast a figure of 220k this month. Interest will also be firmly fixed on average earnings data given November’s figure is set to be the first in several months not to be impacted by hurricanes. Additionally both ISM surveys will be releases to watch as will Fed Chair Powell’s testimony to the Joint Economic Committee of Congress on Wednesday.
Europe this week
The Euro area economic calendar is interspersed with a number of economic releases and events. Monday will see Eurogroup finance ministers meet in Brussels where the subject of Italy and its disagreements with the European Commission over the 2019 Budget is top of the agenda. In terms of data, PMI and Euro area Q3 GDP figures are due but note that these are revisions to preliminary estimates. There may be more interest in the monthly industrial production numbers from member states, where a careful eye is likely to be cast on Germany and whether this reveals some signs that the downturn in car output is stabilising.
UK this week
The week looks to be yet another critical one for UK PM, Theresa May, with the House of Commons set to begin its formal debate ahead of the ‘meaningful vote’ on the Brexit deal next week (11 December). Ahead of this the parliamentary arithmetic has turned more unfavourably against May. For one, we saw the pro-remain universities minister Sam Gyimah quit the government. Today the Attorney-General Geoffrey Cox will face a Q&A in Parliament and he is expected to face continued pressure to publish his full legal advice to the government on Brexit, something which PM May has been keen to avoid. On the DUP front, there are also continued questions over the DUP’s confidence and supply agreement with the government; reports from party sources at the weekend suggested the DUP might oppose the government in a confidence vote.
Talk of a confidence vote against the government, should the first ‘meaningful vote’ yield a ‘no’, has also risen up the agenda over the weekend with Labour pushing this more forcefully. Today in Parliament, in addition to Geoffrey Cox’s appearance, PM May will give a statement following the G20 Summit and the new Brexit secretary, Stephen Barclay, will makes his first appearance before the Commons Brexit committee at 1.30 pm alongside chief Europe adviser Olly Robbins. Questions for Barclay will likely focus on the state of Britain’s no-deal preparations.
11.30 US FOMC Member Quarles Speaks
14.15 US FOMC Member Williams Speaks
15.00 US ISM Manufacturing PMI
17.30 UK BoE MPC Member Haldane Speaks
18.00 US FOMC Member Kaplan Speaks