28 May 2019

Irish Banks: Strong mortgage approvals in April

Irish mortgage approvals data from the BPFI show that a strong pipeline of mortgage demand was approved in April, with the monthly outturn of €931m in new approvals +1.1% m/m vs March 2019 and +10.6% y/y vs April 2018, with the 12 month running total now up to €10.4bn vs €10.3bn in March.  


The average value of approved mortgages increased +1.9% m/m to €226,540, a new high for the series since it began in 2011. Of the new approvals, 53% was for first time buyers and 14% was for switching/re-mortgaging.


Mortgage approvals have a strong correlation with 12 month forward mortgage drawdowns, and the data are a welcome update after a mixed Q1 in terms of mortgage market activity, a situation which we noted last week had led us to see downside risks to our FY19 mortgage market assumptions.


Irish Economy: Wage growth running well ahead of inflation

Ireland’s CSO released preliminary earnings and labour costs for Q119 yesterday.


The release shows that average weekly earnings were +3.4% y/y in Q119. On a seasonally adjusted basis, earnings rose 0.5% in the quarter to €761.63, bringing the cumulative rise from the trough that was hit during the recession (in Q211) to 10.6%. The cumulative increase in the overall CPI since then is just 2.8%, pointing to a material increase in average real earnings. The CPI was +1.7% y/y in April, the fastest annual pace of growth for six-and-a-half years, but this is still only half the annual rise in average weekly earnings signalled in yesterday’s report.


Of the different sectors of the labour market, 11 of the 13 posted annual increases ranging from 0.6% (Public Administration, Defence and Education) to 10.0% (Administration and Support Services). The two who recorded a decrease were Financial, Insurance and Real Estate (-0.6% y/y) and Professional, Scientific and Technical (-0.7% y/y). Private sector wage inflation outpaced the public sector by 4.2% y/y to 1.2% y/y.


The release also gives details on public sector employment. This increased by 1.4% in the 12 months to Q119 although within that we note that headcounts are falling in Defence (-1.1% y/y) and Education (-0.4% y/y). There has been a series of press articles about personnel shortages in those two areas, so the latest moves are unhelpful.
As set out above, the rate of increase in average weekly earnings is outpacing headline inflation by a wide margin. For many workers this is clearly a welcome state of affairs, although we do note that such a rate of wage increase does not do a whole lot for Ireland’s competitiveness.


Donegal Investment Group: H119 in line, guidance as expected

In what is the “materially significant” half of the year given the seasonal nature of the seed potato business, Donegal this morning issued H119A numbers to 28 February 2019 in line with expectations. It reported basic EPS of 77.1c (INVe 71.0c) from a 19% increase in operating profit to €3.8m (INVe €3.8m) and 4.6% increase in revenue to €46.1m (INVe €46.3m). Following the return of €51m in capital to shareholders in FY18A, the Group had net cash of €2.7m at 28 February 2019.


On a divisional basis, Produce, which is primarily the seed potato business, grew operating profit by 19.9% to €2.7m (INVe €2.3m) from a 4.6% increase in revenue to €19.2m (INVe €19.5m). Extreme weather conditions across Europe led to the flagged (29 November 2018 announcement) reduction in seed potato supply and subsequent significant increase in the price of both seed and ware potatoes. The Food-Agri & Property division reported a 14.2% dip (€0.2m) in operating profit to €1.2m (INVe €1.4m) despite a 5.9% increase in revenue to €26.8m (INVe €26.8m). The specialty dairy business delivered good volume growth and the Smyth’s animal feeds business is reported to have “performed satisfactorily” over H119A.


Looking forward, management remains “optimistic that all businesses will remain on plan for the remainder of the year”. With H119A numbers and full year guidance in line with our expectations we see little in these numbers to move market expectations.


Final European election results

Following Theresa May’s resignation statement on Friday (she will stay on until 7 June and then act as caretaker PM until a successor is chosen), the Conservatives and Labour are both positively reeling from Thursday’s European elections. The Tories came fifth behind the Green Party, with a 9% share of the vote, their worst performance in any election in almost 200 years. Jeremy Corbyn’s Labour Party fared slightly less poorly, coming in third place after losing ten seats. The Brexit Party topped the vote with 32%. This has upped the ante on the government to leave the EU on 31 October, with a number of candidates to replace May (at the latest count there are 10 of them) stating the need to depart on that date, with or without a deal. Just to highlight the degree of political pressure on the Tories, the next scheduled major political event takes place in the shape of the parliamentary by-election in Peterborough on 6 June to replace the disgraced Labour MP Fiona Onasanya. The Brexit Party is odds on favourite to capture the seat. 


Italy could face €3.5 billion fine

The EU Commission is apparently threatening Italy with a whopping €3.5 billion fine for their refusal to cut their debt levels. The value of the single currency dropped slightly on the news that the penalties could be announced as early as next week, during the EU’s ongoing Italian budget monitoring process. Deputy Italian PM, Matteo Salvini has indicated that he will be less than receptive to any attempt from the EU to impose conditions on their next budget, saying that “Italians gave me and the government a mandate to completely, calmly and constructively re-discuss the parameters that led to unprecedented job instability, unemployment and anxiety.” This would be the first time the EU has fined a member nation for not meeting budget criteria.


US – Japan talks

US President Trump and Japanese PM Shinzō Abe continue talks today, however, Trump has already stated that no deal will be reached until after Japanese elections. Both leaders have sounded positive that a deal can be reached in due course. Trump is eyeing August as his target date, however, the two countries still have differences and Trump is known to walk away from possible deals.


Trump has also stated during his state visit that the US is not ready to make a trade deal with China. With Trump using his hard-line negotiating tactics to get China back to the table with concessions and China looking unlikely to budge at the moment, uncertainty is set to reign for the foreseeable future.


Economic Releases

10.00 EZ Consumer Inflation Expectation
15.00 US CB Consumer Confidence