US goes to the polls

06 November 2018

Democrat's hope to regain both houses so that they would be able to "control" Trump during the US midterm elections today.

It’s all about the U.S midterm elections today. With 35 (of 100) Senate seats, all 435 seats in the House of Representatives and 36 State Governor spots up for grabs, it’s all to play for today. Certain media outlets are labelling this the most important election “in a generation”, it’s certainly been the most divisive. In an ideal Democrat world, they would regain both houses so that they would be able to “control” Trump or maybe even find a reason to impeach him. Trump wants to spend, cut taxes and inflate the U.S economy, meaning that future generations will be left with a fiscal burden that will be extremely difficult to navigate.

While the Democrats bemoan the fact that Republicans are inclined to divest the Citizens of all their rights and that Trump and his allies lie about everything. Should the Republicans retain their majority in both houses we expect the USD to remain strong in the short to medium term. If the Democrat’s gain control of both houses we do expect some USD weakness but also some risk off sentiment to gain hold, especially in the equity markets. Polls open across the 50 states from 1pm (Irish time) today, closing from midnight onwards. We would expect a have a clearer picture of the final results this time tomorrow.

UK BRC retail sales

The UK BRC retail sales monitor for October (released overnight) showed retail sales values up by 0.1% yoy on a like-for-like basis and 1.3% higher on a total sales basis. This was an improvement on September’s reading where like-for-like sales were 0.2% down year-over-year and total sales were just 0.7% higher, although they are far from barnstorming and below the 12-month average of 1.4% yoy. 

The figures point to a relatively cautious consumer backdrop at the start of the final quarter, although the BRC does flag the possibility that consumers are holding off for Black Friday purchases, whilst brighter weather didn’t help discretionary purchases. Note that though Brexit does look to be a key factor in the psyche of household sentiment (according to the GfK consumer confidence survey), households are also receiving a foot-up from rising pay growth and more contained inflation pressures, so the story is not one-sided.

AIB Group: AIB says IFRS 9 impact on NPL disposal “de minimis”

AIB Group yesterday released a press statement in response to a story in the Financial Times which called into question some of the accounting treatment which the bank had employed on a portfolio of non-performing loans (“Project Redwood”) which was later disposed of for a significant profit. The FT story suggested that AIB may have availed of the IFRS 9 adoption on January 1st 2018 to increase the provisioning against the €1.1bn par Redwood portfolio, subsequently selling the €0.8bn and registering a €140m profit on disposal, a profit significantly larger than would otherwise have been the case without the additional provisioning, according to the story. 

The benefit to AIB from this transaction, it is alleged, would be the only partial hit to transitional capital from the additional provisioning (any IFRS 9 regulatory capital impact is spread over a number of years, though it would hit fully loaded capital straight away), and the creation of a large one off profit in H118 from the disposal. The AIB statement says that the transition to IFRS 9 had a “de minimis” impact on the portfolio in question, and that therefore the gain on the resulting transaction was unrelated the change to IFRS 9. This implies that the FT’s joining of the dots exercise was based on a false premise to begin with, and has no basis in fact.

Dalata: Confirms debt refinancing

Following yesterday’s press report, Dalata has confirmed that it has agreed a €525m refinancing of its debt facilities to include a term extension and the addition of HSBC and Banco de Sabadell to its consortium of lenders. The new facilities comprise a term loan of £176.5m and a multi-currency revolving credit facility of €325m and have a five-year term expiring in November 2023. These facilities replace a debt package of c.€490m (term debt of €300m and RCFs of €190m) that had been entered into at various times and was due to expire in February 2020. No details on costs have been disclosed other than the group noting that the move will “reduce our financing costs”.

Irish Economy: NTMA announces bond auction plans

The NTMA yesterday released the details of its final scheduled bond auction of the year. Subject to market conditions, the NTMA will raise €750m from taps of the 3.9% Treasury Bond 2023 and the 0.9% Treasury Bond 2028 on Thursday 8 November. The NTMA is scheduled to hold a T-bill auction on Thursday 13 December, details of which will be provided next month. Thursday’s auction will bring proceeds from bond sales in 2018 to €17.25bn, towards the high end of its full-year funding target range of €14-18bn. 

Brexit update - UK Cabinet meeting

According to newspaper reports, the UK Prime Minister is urging her Cabinet to back her stance on Brexit, warning that failure to conclude a deal this month would mean businesses having to begin to implement plans for a no deal Brexit. Over the weekend, Brexit Secretary Dominic Raab threw a curveball into the process, saying that the UK should be able to walk away from a temporary customs arrangement (TCA) with three or six months’ notice, to prevent Britain form being locked into a permanent customs union.  (A TCA has been suggested to enable the NI/RoI border to remain open ahead of a final trade deal and/or technological solutions being ready). 
 
Yesterday Irish PM Leo Varadkar suggested that the TCA could be subject to a joint review, with the EU also having a say in the arrangements. Overall though the current direction of travel is still that both sides are hopeful that enough progress in talks can be made this week to schedule a special Summit to endorse a formal agreement. Such a gathering, were it to take place, would now be arranged at some point between 22 and 24 November.
 
The Pound remains elevated with GBPUSD holding its positions above 1.3000, while EURGBP is within sight of a 5 month low at 0.87p.
 
Economic Forecast
 

09.00    EC        Services PMI
12.00    EC        ECB’s Lautenschlager speaking
13.00    US        Mid-term elections