Up this week

02 Jul 2018

Up this week

The US week is set to be broken in two by the Independence Day holiday on Wednesday.

There are important data releases either side of the holiday break, with the ISM index due later today. However the more important publications are in the latter half of the week, with the monthly labour market data, as ever the highlight of the economic calendar. We suspect that the report will show non-farm payrolls gains of 185k and unemployment holding steady at 3.8%. Meanwhile the ISM non-manufacturing index will be published on Thursday ahead of the FOMC minutes at 7pm. The minutes relate to the June meeting which saw the second hike in the Federal Funds Target Rate Range of 2018 and a fourth dot introduced into the 2018 dot plot. Markets will certainly be eyeing the minutes for the level of debate on the committee, given the slightly more hawkish tone of June’s meeting.
 

UK this week
 

Brexit will continue to be a major focus across the coming week in the wake of last week’s EU Leaders’ Summit. Given the fact that the UK government has yet to outline its ‘vision for future EU arrangements, last week’s summit is set to end without an agreement. Instead the UK has received a number of warnings over the lack of progress and the shrinking timeframe. However some progress may be made at a Cabinet summit to be held at Chequers on Friday. This should pave the way for the long awaited government White Paper on the issue. Away from Brexit the PMI surveys should provide the latest update on the health of the economy, where we expect a slight firming in both the manufacturing and services PMIs. Additionally BoE Governor Carney and the BoE’s Andy Haldane are set to speak during the week.
 

Europe and ROTW this week
 

In the euro area, final June PMIs are due today and Wednesday. Meanwhile industrial production and orders data from Germany will be eyed following several months of weak data and will provide the latest insight into the health of the euro area’s largest member in Q2.
 

In China the Shanghai index is closing down close to 3% as poor PMI data and ongoing trade tensions weigh on markets. Finally, on the monetary policy front there are two decisions due, from the Reserve Bank of Australia and Sweden’s Riksbank, respectively. No policy changes are expected from either.
 

Brexit update
 

Lots of conflicting stories on Brexit over the weekend, but the main point perhaps is that PM Theresa May is set to host a summit of her own cabinet members at Chequers on Friday. Ahead of this she is set to meet senior minsters individually to agree to back the strategy contained in a draft white paper. This has not yet been published, but the BBC is reporting that it contains a third suggestion on the way that the UK aims to proceed with customs arrangements with the EU. Previously the government has put forward two other proposals – the customs partnership and maximum facilitation models. It would not be totally surprising if leaks did emerge ahead of the Chequers summit itself.
 

FBD Insurance: Investigation into internal allegations
 

FBD Insurance on Friday evening released an RNS stating that an investigation was ongoing into internal allegations made against CEO Fiona Muldoon. The FBD RNS was brief and gave no indication as to what the allegations against Ms Muldoon related to, only noting that she remained in her position as CEO of the group.
 

Irish REITs & Housebuilders: Daft.ie and CBRE comment on the property market
 

The country’s largest property website, Daft.ie, has today released its latest quarterly report on house prices. Elsewhere, CBRE has issued its latest Bi-Monthly Research Report on the commercial property market. The Daft.ie report shows that the annual rate of growth in house prices has cooled to a four year low of 5.6% (Q118: 7.3%). Daft.ie attributes this to an uptick in the number of units for sale (Q118 saw the first annual increase in availability since mid-2009), with the available stock in Dublin rising to a three year high of 4,800 units. Outside of the capital the number of units for sale has increased from 16,800 to 18,800 in the past three months.
 

In terms of regional trends, asking prices across Dublin (where all of IRES and HBRN’s rental portfolios and a substantial part of both CRN and GLV’s landbanks are located) rose by between 3.4% (West Dublin) and 11.8% (City Centre) in the year to end-March. In the Dublin commuter belt (where virtually all of CRN and GLV’s landbanks outside of the capital are located) asking prices were between 3.2% and 6.3% above year-earlier levels in Q1. Prices were generally up by mid-to-high single digit percentages on a year-on-year basis in all of the other counties, save for Donegal, which posted a marginal decrease. Turning to the CBRE report, this notes the “extremely busy” commercial property market in H118, with “impressive levels of transactional activity recorded in almost all sectors”. Occupier activity “remained strong” ahead of the traditional lull in activity in July/August. In terms of valuations, both prime rents and yields in all sectors remain relatively stable, “although further rental and capital value growth is anticipated in all sectors of the market in the second half of 2018”. Within the CBRE report we note some interesting observations, including: (i) In the Dublin office market “there is now tangible evidence of occupiers looking to move from the city centre to more cost-effective locations such as the suburbs”; (ii) Likely influenced by the growth in co-working and flexible office providers, an increasing number of organisations are introducing flexible working strategies in an effort to lower costs, improve employee engagement and increase productivity”; (iii) In the industrial space there is increased demand for ‘last mile’ fulfilment facilities, bespoke units and in terms of sectors the Food industry is a particular source of demand (we suspect that this is Brexit-related); (iv) Interestingly, there has been an uptick in planning applications from the retail sector here in recent months (which is in stark contrast to developments in other markets); and (v) In the investment segment, activity in PRS will remain brisk, with a number of assets being marketed at this time.
 

Irish Economy: Manufacturing PMI strengthens to a five month high
 

The latest Investec Manufacturing PMI Ireland report shows that the sector enjoyed a strong finish to Q2. The headline PMI rose to 56.6 in June, a five month high, from May’s 55.4 reading amid higher client demand. New Orders received were the best seen in 2018 so far, with higher growth from both domestic and overseas customers. While the rate of growth in New Export Orders was marginally slower than in the previous month, panellists reported higher demand seen from the likes of India, Russia, the US and UK. Despite these extra resources, a further rise in Backlogs of Work (the 14th in as many months) was recorded, while Stocks of Finished Goods were depleted for a fourth successive month as firms used inventories to try to meet client orders. There were indications of pressure on the margin side, with Input Costs increasing at a marked pace due in the main to higher raw materials prices (aluminium, steel, oil, plastics and timber were all cited by panellists). While firms were able to defray at least a portion of this by upping Output Prices once again, the rate of sales price inflation slipped to the weakest since January.
 

Economic releases
 

09.00 EC Markit Manufacturing PMI

09.30 UK Markit Manufacturing PMI

10.00 EC PPI + Unemployment rate

14.30 EC ECB’s Praet speaks

15.00 US Markit Manufacturing PMI