Sterling little changed on positive Brexit/Border news

28 Mar 2018

Sterling little changed on positive Brexit/Border news

The UK Times newspaper broke a surprisingly positive Brexit story earlier this morning. The headline states that a “fresh solution to hard border is imminent” and most importantly, that solution will be coming from the UK.

Border solution imminent

The UK Times newspaper broke a surprisingly positive Brexit story earlier this morning. The headline states that a “fresh solution to hard border is imminent” and most importantly, that solution will be coming from the UK. According to The Times, ‘sources’ have informed them that the Irish government can shortly expect solid new plans from the UK government which will go beyond the tenuous “backstop” plan which dictates that NI will remain in the customs union in the event of a no deal Brexit. The Irish Taoiseach, Leo Varadkar, remains vehement that the backstop should be as good as agreed come the crucial June EU/UK summit, he said yesterday that “It is our intention to agree the terms of the backstop by June . It has to be a good deal. It has to be the right deal. It has to be a good outcome.” The news has had little impact on the benchmark EUR/GBP rate, which this morning remains tethered to its recent 0.8735/0.8795 range.

Quarter end flows boost dollar

This time yesterday the benchmark EUR/USD rate looked poised to hit the pivotal $1.25 level but by lunchtime yesterday it had dropped almost 100 points on what appears to be some heavy month/quarter end institutional dollar demand. It may have been a smidge of relief after the Trump tariff tantrums subsided slightly and a set of weaker Eurozone sentiment data may also have added fuel to the fire but the general market consensus is that the usual month/quarter end FX rebalancing began in earnest yesterday and that was most certainly in the direction of the greenback.

Permanent TSB: Decision on split mortgages deferred

According to The Irish Times, PTSB has indicated that it will wait until it receives formal regulatory guidance on how it may be able to reclassify split mortgages into performing assets before deciding on whether to include them in the proposed Project Glas disposal. PTSB has previously proposed selling c. €900m of split mortgages (these are mortgages in arrears where a portion of the loan is warehoused with no interest accruing on it) it has on its books as part of the €3.7bn Project Glas NPL disposal. This has led to a huge amount of political and media backlash against the company for this decision. These loans are currently classified as non-performing despite borrowers meeting the new terms of their restructured loans. However, PTSB has asked the ECB/SSM if it may be able to somehow reclassify some or all of these loans as performing assets and so pull their proposed disposal. On Monday, the head of the ECB’s SSM, Daniele Nouy, indicated that the bank may be able to remove these split mortgages from non-performing classification if the bank met certain conditions.

Irish Banks: Minister for Finance says no changes to DTAs

The Irish Minister for Finance, Paschal Donohoe, yesterday stated that he had no plans to change the current treatment of deferred tax assets being held by the Irish banking sector. The comments from the Irish Minister for Finance in the Irish Dáil (parliament) were in response to a recent recommendation from the Public Accounts Committee (PAC) that a sunset clause be inserted into legislation governing the (currently open-ended) usage of deferred tax assets held by the Irish banks. The DTAs, which sum to approximately €4.3bn at the three domestically headquartered Irish banks (AIBG, BIRG, PTSB), currently have no time limit on their usage, which, given the DTAs large size relative to current/expected bank profits, mean they will likely only be fully utilised over the next 20 years, limiting the amount of cash taxes paid by the sector to the Irish government.

Dalata: Acquires a small site adjacent to the new Charlemont Hotel

Dalata has acquired a small site at 38 Charlemont Street, adjacent to its 188-room Clayton Charlemont Hotel that is currently under development according to The Irish Times. Separately, data from the CSO show that the number of overseas visitors to Ireland expanded by 7.9% y/y in the first two months of 2018. While the additional Charlemont St. property is small (a forlorn vacant retail unit of 120 sq.m. with a footprint of 0.02 acres), the ultimate value to Dalata will likely be well in excess of the €500k purchase price as it reportedly intends to add two bedrooms on the first floor of the property and a Red Bean Café on the ground floor. Turning to the overseas visitors data, all three of Ireland’s main tourist markets posted good growth in the early part of the year. Visitors from Britain were +4.0% y/y in the first two months, trips from European residents (excluding Britain) were +17.6% y/y and visitors from North America were +4.2% y/y. While still the off-season, these figures represent an increase on the 3.6% y/y growth in visitors recorded in FY17 and highlight the strong demand backdrop for accommodation in Ireland.

IPL Plastics: Plans to raise CAD$ 200m (€125m) in IPO

The Irish Times this morning is reporting that IPL Plastics, the rigid plastics manufacturer, is planning on raising CAD$200m when it floats on the Toronto stock exchange. The company’s plans to IPO later this year was announced in its annual results on the 9th March but this is the first time specific detail about the size of the IPO has been reported. The funds raised from this IPO would reportedly dilute the combined stake of original shareholders from 57% to c.45% while the two major Canadian shareholders in the company would see their stake reduced to c.33% from 43%. The company plans to set up a holding company domiciled in Canada in order to comply with Canadian listing rules.

Eurozone economic sentiment pull back

The Europeans Commission's latest Economic Sentiment Indicator (ESI) released yesterday showed elevated concerns over a trade war are beginning to weigh on confidence in the euro area and could potentially slow economic dynamics over the summer months.

In March, the ESI decreased markedly by 1.6 points to 112.60. Although this is the third consecutive drop, the indicator remains at elevated levels and significantly above the long-term average of 100 points.

Nevertheless, the decline will add to concerns at the ECB that economic momentum while still favourable, is losing some steam and increasingly uncertain. Thus, strengthening the position of those Governing Council members who argue for a cautious approach to exiting the banks extraordinary measures.

Economic Releases

13.30 US GDP
13.30 US Goods Trade Balance
15.00 US Pending Home Sales
17.00 US FOMC member Bostic speaks