23 Apr 2018
Up this week
The US has public consultations underway on its recent tariff announcements, buying time for negotiators to find a more palatable outcome for the US, China and potentially other third countries, following the initial tariff announcements.
Given the more settled risk backdrop, for now, investors may choose to focus more on fundamental economic data. There is plenty to choose from this week. In the States, we have first quarter GDP figures due at the end of the week. It is worth remembering that in each of the past six years, advance first quarter GDP figures have disappointed against consensus expectations. Early consensus expectations are for 2.1% (saar) from 2.9% in Q4. Other top-tier US data releases include the Employment Cost Index figures for Q1 (Friday), a measure of pay pressures closely tracked by FOMC participants. Other data of note include the preliminary PMIs for April (Monday), which will give an early steer on economic momentum at the start of Q2. Various housing market price and activity metrics along with consumer confidence readings are due too.
UK this week
In the UK, first quarter GDP figures are due at the end of the week. We are pencilling in a slowing in the growth pace from +0.4% qoq in Q4 2017 to +0.2% in Q1. Furthermore, if anything, risks look to be to the downside of a +0.2% print. The predominant driver of any slowdown is likely to be the poor Q1 weather, which hit activity in the services and construction sectors. We suspect that Q2 GDP will not look quite as soft, especially with the household cash squeeze slowly turning around. Note on the political front, Brexit legislation is also back in the House of Lords for debate, following the government’s 18 April defeat on an amendment requiring it to make a statement to Parliament, outlining what efforts it has made to negotiate a customs union with the EU.
Europe this week
In the Euro area, the ECB’s latest monetary policy decision will be a focus for investors on Thursday lunchtime. We expect no change in the main policy rates. A key question is whether we get any further clues from the Governing Council on how it views the Q1 softening in economic data and whether it sees this as a slowing in growth momentum or a blip, and also how this might sway the policy stance going forward. In this respect, the ‘flash’ Euro area PMIs due Monday and Germany’s IfO survey due Tuesday, will be important signals of how economic momentum held up, or not, at the start of the second quarter.
ROTW this week
Finally, note that we have a Bank of Japan decision due Friday. One question is whether BoJ Governor Kuroda provides further clarity on the policy path for the next couple of years, in his first meeting of his new term at the helm of the bank.
ICG: Arrival of new ship gets delayed
Having been notified by the shipyard FSG, ICG's ferry business, Irish Ferries, has been informing customers since Friday evening of the likely delayed arrival of its new ferry, the W.B. Yeats and therefore its decision to cancel sailings from July 12th to 29th. The cancellation is likely to impact around 2,000 to 2,500 reservations. In response to this delay the company has offered affected passengers the possibility to sail on alternative dates on the Oscar Wilde or a full refund. The same passengers have also been offered a €150 voucher by the company for sailings next summer. While there is still an outside chance that the ship could be delivered on time, the company felt it was best to take a prudent approach, giving customers certainty and therefore cancelled these sailings.
AIB Group: Project Redwood size to be scaled back?
The Sunday Business Post (SBP) is reporting that the proposed Project Redwood NPL sale is set to be significantly scaled back from its original €3.77bn par loan size. The SBP is reporting that the original €3.77bn par loan portfolio offered for disposal will be scaled back to around €1.6bn. The decision to reduce the size of the loan portfolio being offloaded was made despite significant levels of interest in the original portfolio, with the process already well advanced and a Q2 completion being suggested by Irish media. No specific reason has been cited for the reason to reduce the size of the proposed transaction, though political opposition to the sale of some BTL and SME loans has been cited as a potential contributory factor. It should be noted that AIB itself has made little if any comment on the Project Redwood process, and has never confirmed any proposed size or make-up of the loans being offered for disposal.
Weekend Press Review: RYA, BIRG, ptsb, IFG, Falcon Oil & Gas, IPL Plastics
RYA: Ryanair has confirmed that all 70 of its aircraft with the same engine as the Southwest airlines flight that recently suffered from disastrous engine failure have been inspected and are in full compliance with safety requirements. (The Irish Times)
BOI: Bank of Ireland has detected that Brexit-induced investment paralysis across firms have begun to ease as they look towards fresh opportunities, according to its outgoing chairman, Archie Kane. (The Irish Times)
PTSB: European banking regulators are reportedly set to rule that 4,300 split mortgages at PTSB are non-performing, despite being successfully restructured by the bank. This would remove the possibility of the loans being removed from the €3.7bn portfolio that PTSB is preparing to sell in order to comply with regulators' demands that reduce its high levels of non-performing debt. (The Sunday Times)
Irish Banks: State postal group An Post is in advanced talks with the consumer finance specialist Avantcard (formerly MBNA) about offering personal loans and credit cards to the 1.7m weekly users of the post office network. It is also looking at entering the mortgage market, with AIB and Ulster Bank seen as its most likely partners because of existing commercial links that allow customers of both lenders to use post offices for basic banking transactions. (The Sunday Times)
IFG: It is reported that one of IFG’s largest shareholders believes that the current structure of the business does not adequately recognise the value of the financial services company assets. The comments were made as the company announced a major overhaul at boardroom and executive level as the company’s chairman steps down and the CEO is being replaced. (Sunday Independent)
Falcon Oil & Gas: The company expects serious drilling activity to begin over the next 12 months at its major prospect as the government ban on fracking was lifted last week. It will, however, take three to six months to complete the new permitting process. The company believes that it has a “very promising material gas resource”. (Sunday Independent)
IPL Plastics: Some of the existing agricultural co-op shareholders in Irish manufacturer IPL Plastics, which intends to list on the Toronto stock exchange later this year, have said they will actively participate in the IPO rather than have their shareholding diluted. (Sunday Business Post)
US-China trade spat – steps towards negotiations
The weekend’s developments on the global political stage looks to have paved the way for an improvement in risk sentiment. Trade war concerns have ebbed further after the China Commerce Ministry welcomed a possible visit by US Treasury Secretary Steve Mnuchin for trade talks in a sign that the two sides are opening the doors to negotiations getting underway. On his IMF trip, Mnuchin told reporters that “a trip is under consideration” and that he is “cautiously optimistic” about the chance of an agreement with China. Furthermore Mr Mnuchin indicated that he had met with PBOC Governor Yi Gang out in Washington and the US “appreciated” market opening measures for China’s securities and insurance sectors. The comments on trade, added to the positive mood that followed North Korea’s announcement at the weekend that it would halt missile tests and close down a nuclear site. So far this morning, equity markets in Asia are mixed whilst US stock futures point to a positive open. US Treasury yields are now up at 2.97%, well up from the low of 2.71% at the start of April.
09.00 EZ PMI
14.45 US PMI
15.00 US Existing Home Sales
15.00 EZ ECB Coeure speaks