20 Mar 2019
Dalata: Mixed market data in February
The latest data from STR paint a mixed picture for the hotel industry in Ireland. RevPAR in Dublin declined by 1.6% y/y in February with occupancy -1pp y/y and ADR -0.3% y/y
In the first two months of the year, RevPAR was marginally lower in Dublin at -0.4% y/y with higher rates partially offsetting lower occupancy. In the wider Irish market, RevPAR was +1.5% y/y in February and +2.3% y/y in the first two months of 2019. In the UK, RevPAR was -0.9% y/y in February and close to flat YTD (+0.2%) with London outperforming (+1.8% y/y in February; +3.6% YTD).
While still too early in the year to draw strong inferences from the data, tough y/y comparisons, modest supply additions and a higher VAT rate appear to be (not unexpectedly) weighing on the Dublin market at present following four years of strong growth.
No change FOMC
With the FOMC now very clearly in “patient” mode and happy that the 2.25-2.50% Federal funds rate is appropriate for now, there are no expectations of any change in this rate at the upcoming meeting. Furthermore, it now seems likely that the new ‘dot plot’ median view of the appropriate path for rates will point to either no rises or just one further increase in 2019, when published this evening. Given how frequently we have heard from the Fed Chair of late, we would not expect many new steers on the extent of the Fed’s patience. Recent comments from the Fed chief indicated he considers the current rate to be “appropriate” and he said that the Fed is in “no hurry to change rate policy”.
It is our view that the US economy will weather the international backdrop relatively well this year and that some of the most sizeable risks will settle. Solid growth momentum (albeit less so than last year) is likely to underpin a further tightening in the US labour market and further pay growth pressures. As such we judge that the FOMC will eke out one further hike later this year. With this in mind we feel a dovish hike in September might be achievable if coupled with a strong communication campaign on the end of balance sheet shrinkage over the next few months, reinforced with the September policy communications ahead of its implementation. In his recent comments, the Fed chief has indicated the Fed has worked out the framework of a balance sheet plan that it intends to announce soon, though much like patience, no definition of soon has been given.
Balance sheet shrinkage
On the question of the terminal size of the balance sheet, Fed Chair Powell has said in recent testimony that the Fed stopping runoff later this year would leave the balance sheet at about 16% or 17% of GDP. That would amount to a size of the range of $3.3trn-$3.5trn, it’s currently in/around the $3.8trn level which is substantially down from its $4.25trn highs of just over a year ago. The Fed chief has also since indicated an intention to return to a Treasury only portfolio, with the pros and cons of holding different elements of the portfolio something that was discussed in the January FOMC meeting. We may hear more on the FOMC’s recent discussions on this in Chair Powell’s post-FOMC press conference.
The PM delayed sending a letter to the EU last night, which would have stated the nature of her request for an extension to the Article 50 negotiating process. There had been reports that Mrs May was going to ask for a 3-month delay to the UK’s EU departure, with the option of a longer (perhaps 21-month) postponement. But reports published earlier this morning indicate that Number 10 will simply request a 3-month ‘technical’ extension, seemingly because the country has been waiting ‘long enough’. The political read through is that a longer delay would be accompanied by demands by Brussels that it forges a consensus behind any deal, perhaps via a General Election or a second referendum. The PM would consider these conditions to be toxic. By taking this course, Mrs May appears to be staking everything on being able to hold (and win!) a third meaningful vote on her deal by the end of next week. Note that the EU Summit takes place tomorrow and Friday.
UK 9.30 CPI
US 18.00 FOMC announcement