04 Oct 2018

May to expedite a new Brexit deal through the House of Commons

Bloomberg reports that Prime Minister Theresa May is drawing up plans to push a Brexit deal through the House of Commons within two weeks of it being agreed with Brussels.

Rushing the deal through Parliament is a gambit to try and limit the opportunity for rebellion from within the Conservative Party itself, although it is likely to expose the Prime Minister to accusations she is denying MPs adequate time to scrutinise the terms of the deal. Bloomberg also reports that government ministers are aiming for a breakthrough on the Irish backdrop - the biggest sticking point in talks – by next week in time for the next EU summit on October 17-18. Overall the report suggests that the UK government is already war gaming how to get a deal approved by the Commons, although it remains far from certain whether they will be able to successfully head off any rebels.

 

Irish REITs: Strong transactions data from JLL

 

The latest Ireland Investment Market Report from JLL show a strong pace of transactions activity. In Q318 some 47 transactions with a total value of €665m were concluded, bringing year to date volumes to €2.6bn (Q1-Q317 total: €1.3bn). To put this level of activity into context, the average annual transactions since 2003 is €1.8bn. The biggest deal in the last quarter was the €161m purchase of The Grange PRS asset in Stillorgan by Kennedy Wilson. In total, there were 7 PRS transactions with an aggregate value of €225m, or 34% of total sales volumes. The office sector saw the busiest activity, with 40% (€267m) of volumes. Of the remainder, NAMA’s €40m sale of Charlestown Shopping Centre was the most significant deal. In terms of regional trends, while Dublin continues to dominate activity, Cork was the location for €46m (7%) of deals, up from 4% in Q2 (admittedly, these data are lumpy). JLL is maintaining its forecast of FY18 volumes coming in at €3-3.5bn, so up to double the long-term annual average.

 

Bank of Ireland: S&P ugrades OpCo one notch to BBB+ (positive outlook)

 

S&P yesterday upgraded the senior unsecured credit rating of Bank of Ireland’s Operating Company by one notch, to BBB+ from BBB, with a positive outlook retained as well. At the same time, the ratings agency affirmed the BBB-/A-3 ratings for the Bank of Ireland Group Holding Company. S&P said that its decision to upgrade the OpCo rating reflected its view of the proactive progress the group is making to build up MREL regulatory buffers in recent months, via the successful completion of €750m and $500m in MREL-compliant bond issuance. S&P said that the group's positive credit rating outlook reflected the potential for a further upgrade in the future if it assessed BIRG’s “geographic and business line diversity and earnings predictability” to remain a strength when compared against their Irish banking peer group.

 

Higher US yields boost dollar

 

US Treasury yields continued their upward march yesterday and through the Asian session this morning. Since yesterday afternoon’s much stronger US economic data, benchmark 10 year yields were on an upward trajectory. It wasn’t until after the European close until things really started to move. It was just after 5pm when it broke the May 18th high of 3.1261% when it took a huge jump higher. It opens this morning at just over 3.205, the highest level since June 2011. A few things seem to be behind the move. Firstly, as mentioned previously the September ISM non-manufacturing index was much firmer than expected, rising to an all-time high of 61.6, a figure which points to buoyant growth in the US economy.  Secondly and perhaps the bigger driver are comments from various Federal Reserve officials. It was notable than a number of FOMC members such as Chair Jerome Powell and a number of the committee’s normally more dovish members, including Charles Evans have made reference to the Fed’s interest rate policy becoming restrictive at some point. The Fed’s current projections suggest that its estimate of the neutral rate is around 2.75-3.00%, but given the strong economic numbers coming out of the US of late and the recent Fed comments, markets may be beginning to readjust their expectations that the Fed Funds Target rate range may rise above 3.00%. Notably Fed Funds futures currently price in a high of 2.95% in Q2 2020.

 

Thought of the Day

 

Confident May boosts sterling: UK PM May’s keynote speech to Conservative Party conference yesterday wasn’t the car crash of last year and indeed from the PM’s perspective she is likely to be pleased. She shuffled her way on to the stage to the sound of "Dancing Queen" and strong applause, managing to maintain that positivity through much of the speech. A truly rousing, barn-storming warm up speech by UK Attorney General, Geoffrey Cox, prior to her arrival at the podium may also have helped her cause. Her speech appeared to be aimed at strengthening support at the centre of the party, whilst also biting back at Boris Johnson’s fringe speech yesterday. Indeed, she levelled strong criticism at the door of Jeremy Corbyn whilst also levelling criticism at Boris’s Brexit ideas (albeit without directly naming the former Foreign Secretary). Overall, it was a well delivered speech which might be enough to settle some of the leadership challenge talk somewhat, though not kill it off. Note on this front we have seen one new no confidence (in May) letter submitted earlier today to the Chair of the 1922 Committee before the speech, bringing those known publicly to three.

 

Importantly May, without explicitly mentioning Chequers, appears to have not changed her position on Brexit at all. How May moves forward from here, in terms of reducing opposition to Chequers (note talk of Chequers 2 is rising), uniting her Cabinet, and moving towards a deal with Brussels will remain the significant driver of support/opposition for the PM over the weeks to come. The next EU Summit on Brexit is 18/19 October and we would expect to see an evolution in the government’s Brexit position as we move to this date. An under pressure pound turned heel during her speech with the benchmark EUR/GBP rate Sterling The benchmark EUR/GBP rate closing almost 50 points lower than the earlier highs of over 0.8915.

 

Economic  Releases

 

UK      09.00 New Car Registrations
US      13.30 Weekly Jobless Claims
           15.00 Factory Orders August
           15.00 Durable Goods (final)