08 Jun 2018

UK government publishes its backstop plan

The UK government published its technical paper on the Temporary Customs Arrangement (TCA) yesterday afternoon, which is set to be taken to Brussels today for discussion.

This sets out the government’s current proposal on a ‘backstop’ for the Irish border. It sees the whole of the UK remaining in a customs union (albeit with the ability to sign and ratify Free Trade Arrangements with the rest of the world) if an alternative solution to avoiding a so-called ‘hard border’ with Northern Ireland cannot be found until the initial Brexit implementation (transition) period ends in December 2020. Following a disagreement between Theresa May and Brexit Secretary David Davis, the Prime Minister looks to have bowed to her minister’s demand that the TCA include a specific end date (rather than run on indefinitely). However, the wording of the document says that the government “expects” the TCA to be in place by the end of December 2021 at the latest (i.e. one year at most). The phrasing of the document suggests that the government appears to have given itself some wiggle room on how long any TCA will run on for.

Sterling catches a bid on Ramsden comments

BoE MPC member and known hawk, Dave Ramsden, said in a speech yesterday that he felt “even a subdued pace of growth is enough to exceed the lower economic speed limit of around 1.5%”. He said that the BoE were correct to keep rates unchanged last month, given that the Q1 data slump was a “temporary, weather-related softening”. Keeping with his upbeat tone he also said that he felt that the “period of subdued wage growth may be ending”. Sterling didn’t really react to his comments until he pointed out that “inflation won’t return to target without rate hikes” and that an “ongoing tightening of monetary policy over the forecast period” will be appropriate, all leading to the market assumption that he may be ready to back an August rate hike.

Eurozone data round-up

This week began with a number of euro area data releases that would have been closely watched by the ECB, particularly given the disappointing start to the year – partially attributed to snow affected months. However, so far in Q2 economic indicators overall have not shown the positive dynamics that markets had expected after a lacklustre Q1. IHS Markit eurozone Composite PMI released on Tuesday came it at 54.1, representing an 18-month low. This was followed by a eurozone Q1 GDP print, which showed no revision coming in at 0.4% QoQ and 2.5% YoY. Lastly German industrial output (released yesterday) disappointed in April, falling back by 1.0% on the month (consensus +0.3%). March was revised higher to show a rise of 1.7% (previously +1.0%), but overall the report is softer than expected, and comes after the weaker than expected new orders figures on Wednesday; new German manufacturing orders plunged a further 2.5% in April, while orders in March were revised down to show a fall of 1.1% in March and were 2.2% weaker over Q1 as a whole. The convergence of inflation towards the ECB’s target may certainly be improving, however the latest data regarding economic conditions have ultimately disappointed.

Yew Grove REIT: New Irish REIT focused on high yielding commercial and industrial outside Dublin CBD

Yew Gove IPO starts trading today. Yew Grove is a €75m IPO focused on high yielding commercial and industrial outside Dublin CBD. The company has launched with a seed portfolio of €26m and an active pipeline of €48m. Management are targeting a dividend of 7c per share in 2019.

Paddy Power Betfair: Two deals signed with licence issuers in the US overnight

PPB has announced that Betfair US (a subsidiary of PPB) has reached long-term agreements for retail and online/mobile sports betting with Meadowlands Racetrack in New Jersey (10 miles from Times Square in the heart of Manhattan) and Tioga Downs in New York (Tioga Downs, located in Nichols New York, recently opened one of New York’s four commercial casino facilities featuring a hotel, entertainment centre and modern casino floor featuring slots, table games and horse racing). Under the agreements, Betfair US will provide a full suite of sports betting products to customers in New Jersey and New York pending legislative and regulatory authorisation. PPB recently announced the formation of a new US subsidiary which is expected to compete in Q318, whereby it would combine a cash injection and its US assets, with FanDuel (the 2nd largest daily fantasy sports company in the world).

Permanent TSB: Final bids on Project Glas due by 19 July

The Irish Times is this morning reporting that PTSB has set a deadline of 19 July for the final submission of bids on its €2.2bn Project Glas NPL sale. PTSB initiated the disposal process for what was originally a €3.7bn portfolio of non-performing loans back in February, but, amid significant levels of media and political criticism, has since downsized this portfolio to €2.2bn, with restructured owner occupier split mortgages in particular now excluded from the proposed disposal. The BTL portion of the portfolio is also believed to have been reduced due to a stronger than expected take-up of their Voluntary Surrender scheme being offered to BTL borrowers. As such, the underlying loans contained in the portfolio up for disposal remain mainly owner occupier in nature. The deadline for final submission of bids seems intended to allow the bank to indicate to the markets that a deal has been agreed by the time it releases its half year results on 01 August.

Irish Economy: Inflation at 0.4% in May

The latest CPI release from Ireland’s CSO shows headline inflation of 0.4% y/y in May. Prices climbed 0.6% in the month. The main items that pushed up on the CPI were Housing-related expenses; Restaurants & Hotels prices; and Transport costs. Housing-related expenses were +5.5% y/y, led by higher rents and electricity prices. Restaurants & Hotels prices were +2.4% y/y, which reflects strong domestic demand and overseas visitor numbers. Transport costs were +1.4% y/y, mainly due to higher oil prices along with rising air, bus and taxi fares. Three sub-indices that we closely monitor are Private Rents; Accommodation Services; and Insurance. Private rents rose 50bps m/m and were 7.0% above year-earlier levels (the fastest annual rate of inflation in nine months), reflecting the ongoing mismatch between supply and demand in the housing market. Accommodation services were +3.9% m/m and +2.7% y/y, reflecting strong trading conditions for Irish hotels due to a combination of a healthy tourism market and rising domestic consumer spending. Insurance rates fell 20bps m/m and were -5.9% y/y, with sharp falls in both health insurance and motor insurance.

Economic releases

09.30 UK BoE/TNS Inflation next 12 months