10 Apr 2018

Mueller raids anger Trump

President Trump expressed his anger yesterday at raids made against his personal attorney Michael Cohen.


The FBI’s seized communications between Trump and Cohen — as well as documents related to a $130,000 payment to Stormy Daniels, the adult-film actress. The raids were said to be part of the long running Mueller investigation into Russian meddling into the 2016 election. Worryingly for markets, digesting what this means for Trump’s future and for the stability of his administration, President Trump also repeated his attacks on Jeff Sessions, attorney general, who recused himself from the Mueller investigation last year. Furthermore, when asked why he had not fired Mueller, Trump left the door open saying “we’ll see what happens” and that “many people have said, you should fire him”.

Xi Jinping speech

President Xi Jinping, in a major speech at the Bo’ao Forum for Asia, has promised to further open up Chinese sectors to foreign investors and to lower import tariffs on goods including cars. Given the recent barrage of tariff threats from the US, President Xi’s speech struck a somewhat conciliatory/welcoming tone, promising that China “will enter a new phase of opening up.” Though this was a repeat of previous pledges, Beijing's willingness to push ahead with reforms, despite the current trade standoff with the US has nevertheless helped to soothe market concerns of growing protectionism. Indeed, Chinese restrictions on foreign automobiles has been one of the major gripes of the incumbent US administration, with President Donald Trump tweeting yesterday how China's 25% tariff on US cars was not free trade but "stupid trade".  However for those looking for further detail on the Chinese administration’s new reform agenda and a potential implementation timetable, including financial sector reforms, the speech was thin on detail.

BRC retail sales monitor

The British Retail Consortium (BRC) reported that on a like-for-like basis, the value of retail sales were up 1.4% (yoy) after having risen 0.6% in February. Meanwhile, total retail sales values were up 2.3% (yoy) in March, following February's 1.6% increase. However this improvement in the figures is down to the timing of Easter with the Easter shopping weekend falling partly into March this year whilst it stood fully in April last year. Indeed the BRC said that the positive distortion from the timing of Easter pushed sales up by “over 15 per cent during the holiday week” compared with the rest of the month “only just making up for a sub-zero performance at the start of the month”. The poor weather as the ‘Beast from the East’ struck was the driver of the poorer performance across the earlier part of the month. Stripping out weather and Easter timings (which will plague the April numbers too), it is likely that, with the household cash squeeze set to ease over the coming months, we will see an improvement in consumer spending momentum.

IRES REIT: In the driving seat to acquire 128 apartments in North Dublin

Yesterday IRES said that, after its selection as preferred bidder by the vendor, it has entered into non-binding heads of terms to acquire 128 apartments at The Square, Hampton Wood, in Dublin 11 (North Dublin). Completion of the acquisition is subject to, amongst other things, completion of due diligence, board approval and exchange of contracts. The asset is a new development of 82 two bed (average size 719 sq ft) and 46 one bedroom (average size 485 sq ft) apartments, with 128 car parking spaces. Of the apartments, 24 have been fully furnished, with the remainder complete with white goods and flooring. The apartments have been finished to a very high standard, with energy ratings ranging from A2 to A3. The apartments are very well located, close to Dublin’s M50 orbital motorway, the airport and a range of major employers including PayPal, Ebay, Dublin City University and IKEA. They are also c. 1.5km away from Charlestown, where IRES owns 235 apartments.

Irish Banks: Strong interest in State subsidised mortgage scheme

Initial take up of the Irish government’s Rebuilding Ireland Home Loan (RIHL) scheme appears to have been stronger than expected, according to The Irish Times this morning, with (at least) 263 applications for the low cost mortgage scheme in the first two months since it opened. Although there is not yet any exhaustive source of information on total applications for the scheme, three Dublin councils (Fingal, Dublin City Council, and Dun Laoghaire Rathdown) say that they already have received 263 applications. With the average loan application size being around €200k, this would imply that the €100m budget set aside to fund the scheme is likely to be used up before the end of 2018, although the initial wave of applications may include some pent up demand for the scheme not unlike the initial flurry of applications for the government’s Help To Buy (HTB) scheme last year. The RIHL mortgage scheme is aimed at first-time buyers with low and middle incomes, with annual salaries of up to €75,000 for a couple, and €50,000 for a single buyer. Applicants have either been turned down for a mortgage, or were offered “insufficient” finance to purchase a home, by two lenders. A key attraction of the scheme is the subsidised low-cost interest rates, starting at just 2% and fixed for 25 years, which supports higher levels of borrowing as well. Critics have suggested the scheme may be a form of sub-prime lending given the need for borrowers to have been denied financing under a standard bank mortgage application.

Irish Banks: Central Bank says more than 14,000 homes in scope for repossession

The Central Bank of Ireland has this morning said that over 14,000 borrowers still in long term arrears are in danger of repossession (“potential for loss of ownership outcomes”). This analysis has been included in an economic report co-authored by the Deputy Governor of the CBI, Sharon Donnery, which highlights the risks that long term non-performing mortgages have for both borrowers and lenders in Ireland. The article “Resolving Non-performing Loans in Ireland”, identifies continuing vulnerabilities for borrowers in arrears or restructuring  including economic shocks, interest rate rises, the durability of restructurings and the ability of borrowers to sustain payments over long-duration restructurings. It notes the significant progress already made by the Irish banks and borrowers who have found themselves in arrears over the last decade, with over 120,000 restructurings of owner occupier loans and over 25,000 restructurings of BTL loan having already taken place, mainly between 2010-2015. The volume of NPLs on Irish banks’ balance sheets has fallen from over €80bn to €30bn over the period from 2013 to 2017, as a result. However, over 28,000 loans, representing 60% of all mortgage arrears cases, remain in arrears of over two years, with 39% of these borrowers having not meaningfully engaged with their lender, hindering the agreement of a sustainable solution for the arrears situation.

Irish Economy: NTMA lines up syndicated bond sale

The NTMA yesterday announced that it has mandated joint leads for a 15 year syndicated bond sale. In its funding statement for Q218 released last week the agency said that it planned to launch a new government bond sale by syndication in this quarter. The NTMA is targeting €14-18bn of bond issuance in 2018. It raised €6.25bn in Q1. Recent bond market developments have created supportive conditions for this sale, which we expect to be well-supported.

Hostelworld: Full Year 2017 results

Hostelworld has reported full year 2017 results. Adjusted EBITDA of €26.4m is +10% (+13% on constant ccy) and Revenue of €86.7m was +8% (+10% on constant ccy). Adjusted EPS was 22.73c (2016: 20.27c), +12% and Full Year Dividend of 17.1c, a distribution of 75%. The company already gave a brief trading update on 24th January indicating revenue growth for the year as well as marketing costs. Overall Group bookings were +6% (2016: +1%) with Hostelworld branded booking volumes +13% (2016: +18%). YoY bookings slowed in H2 as they lapped very strong prior year figures: +21% yoy in H1 ’17 and +21% yoy in H2 ’16. Off-setting these lower revenue trends were marketing costs of 38% of revenue for the full year, below the long-standing company guided range of 40-45%. The company says that conditions, particularly in Europe, remain uncertain and while bookings are in line with expectations, weaker exchange rates are a headwind. In addition, the company is very pleased with the pilot launch of its new free cancellation booking option with a noticeable increase in conversion and booking levels. It plans on introducing the model more widely but this will result in a deferral of revenue recognition in 2018 but with no impact on cash flow.

CRH: Dodge Momentum Index released

March’s Dodge Momentum Index surged upward 6.1%. Month-over-month commercial activity rebounded 9.6% in March making up for the 5.1% contraction in the category last month. March’s Dodge Momentum increased to a reading of 155, up from February’s downward-revised figure of 146. Month-over-month commercial activity rebounded 9.6%, Institutional momentum was up 1.6%, although it fell short of its 8.1% February surge. The report highlighted six non-residential projects valued at $100 million or more which entered the planning stages in March, including a $179 million government office in Virginia, a $155 million warehouse in California, a $210 million outpatient medical centre in Torrance, California and a $105 million federal courthouse in South Carolina. According to Dodge, planning activity dramatically increased in 2017’s last quarter and it noted the late-year push was still clear in Q1 2018. According to Dodge, planning momentum could be getting a boost from the $1.5 trillion tax overhaul passed at the end of the year.

Food Ingredients: Givaudan sales update

Givaudan issued a Q118A sales update today reporting a 5.4% increase in Group sales (5.0% LFL) to CHF1,308 comprising of a 4.9% increase in Fragrance sales to CHF604m and a 5.7% increase in Flavour sales to CHF704m. On a divisional basis, over the three month period, within the Fragrance division, Fine Fragrances grew revenue by 15.2% on a LFL basis while Consumer Products grew LFL revenue by 2.9% and Fragrance and Cosmetic Ingredients revenue increased by 7.8%. Within the Flavour division sales in Asia Pacific grew 7.7% , 4.0% in EAME, 9.2% in Latin America and 1.3% in North America. No mention was made in the release of the recent Naturex acquisition. When issuing FY17A results, management re-iterated its mid-term guidance of outpacing the market with 4-5% sales growth and a free cash flow of 12-17% of sales, averaged over the five-year period to 2020.

Economic Releases

10.30   UK   BoE MPC member Haldane speaks
13.30   US   PPI