Ulster Bank Weekly Economic Commentary - Simon Barry Chief Economist Republic of Ireland Ricardo Amaro Economist 13 February 2020
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Ulster Bank Weekly Economic Commentary
Simon Barry
Chief Economist Republic of Ireland
Ricardo Amaro
Economist
13 February 2020
To subscribe or unsubscribe please contact ricardo.amaro@ulsterbank.com
Ireland: House price inflation eases, housing supply continues to pick up
The latest update from the CSO show that house prices ended a
soft year on a weak note. Prices fell by 0.6% m/m nationally in
Ireland, Housing Supply, 4Q Rolling Sum
December, marking a 2nd consecutive monthly drop. This leaves
27500 prices up just 0.9% y/y, down from 1.1% in November and the
slowest rate since mid-’13. While price growth has been broadly
25000
steady between 0.9% and 1.1% y/y since last September, the
22500 Dec. figures still reflect a sharp slowdown from the 6.3% pace
registered at the end of ‘18. In keeping with the recent trend, the
20000 weakness in Dec. was led by Dublin where prices fell by 0.8%
m/m to leave the annual rate of inflation unchanged at -0.9%.
17500 Price inflation has been negative in the capital for 5 months in a
row now, albeit that the extent of the declines has eased from the
15000 -1.5% y/y drop recorded in October. Prices also fell outside
12500 Dublin where a 0.3% m/m drop left inflation at +2.8% y/y, down
from 3.3% in November and the slowest rate of increase since
10000 February ‘14. The central bank’s lending rules have likely
contributed to the cooling in national price inflation from its 13%
7500 peak in April ’18. Meanwhile, lower growth in transaction volumes
in Q4 is consistent with Brexit uncertainty having weighed on the
5000 market late last year, with post-election policy/political
uncertainty representing a source of downside risk to the near-
2500
term outlook. But we continue to think that increased supply is
2012 2013 2014 2015 2016 2017 2018 2019 2020 also an important factor. This week’s Q4 completions data
Completions Commencements [lag 3 obs] showed there were over 21k new units built last year (up 18% on
‘18 and more than double the level built in ‘16), with figures on
Source: UB / Macrobond
housing starts pointing to further solid supply gains ahead.
Slide 2Eurozone: Industry remains in the spotlight while investor confidence holds up
reasonably well in February
The factory sector remained in the spotlight this week as the
Euro Area, Sentix Investor Confidence December industrial production figures for the Eurozone showed
the largest monthly decline in almost 4 years. Output fell by 2.1%
50
m/m in December, leaving industrial production growth in Q4 as
40 a whole at a 7-year low of -1.4% q/q or -2.7% y/y. This implies
that industry exerted an important drag on Q4 growth, though it
30 also suggests that the rest of the economy likely continued to
perform reasonably well at the end of 2019. However, it is fair to
20 note that calendar effects from the timing of Christmas are likely
exaggerating the extent of the December weakness. Combined
10 5.2 with signs of momentum improvement from the more-timely and
0 3.7 forward-looking survey-based indicators, this suggests that there
is scope for some improvement at the start of 2020. Of course,
-10 the coronavirus remains an important source of downside risk for
Q1 growth and beyond. The preliminary evidence for February, in
-20 the form of this week’s Sentix measure of investor confidence,
was broadly encouraging. The Sentix survey results did signal a
-30 slight drop in sentiment mid-way through Q1 but the headline
measure remained at a solid level above its long-run average
-40
suggesting that investors aren’t overly troubled by the outbreak
-50 of the virus for now, at least. Today’s update from the European
Commission (EC) also assumes relatively limited spillovers to the
2005 2010 2015 2020
global economy, with the EC growth forecast unchanged at 1.2%
LR average Overall Index for both this year and next. However, the newsflow remains very
Source: UB / Macrobond fluid and the EC has also warned that spread of the virus is a
source of mounting concern.
Slide 3
UK: Economy stagnates in final quarter of 2019 but growth likely to resume in
Q1
This week’s monthly GDP figures showed a slightly stronger-
than-expected rebound in December, with GDP rising by 0.3%
United Kingdom, Monthly GDP, sa, %
m/m (vs. consensus expectations for a 0.2% gain). This still left
3.5 the q/q rate pointing to stagnation in Q4 as a whole, but upward
revisions to the previous two quarters meant that the full-year
3.0
performance was a bit more solid than previously anticipated.
2.5 GDP rose by 1.4% y/y in 2019 as a whole, which was slightly
above BoE expectations for a 1¼% gain, while this outturn also
2.0 represented a slight improvement relative to the 1.3% pace
recorded in 2018. Moreover, this encouraging end to 2019 also
1.5 adds to the sense of a late-year improvement in UK growth
1.2 trends, with the details from the report showing that the
1.0 December ‘beat’ was importantly driven by healthy performance
0.5 in the ever-important dominant services sector. Some further
0.3 encouragement can also be taken from the fact that there is now
0.0 a little bit more of a pick up in the monthly pattern of GDP
heading into 2020. This helpfully provides a slightly higher
-0.5 starting point for 2020 growth calculations, which combined with
signs of a further improvement in growth momentum at the start
-1.0 of 2020, suggests that the UK economy is on track to resume
growth in the first quarter of 2020, barring any major impact from
-1.5
the ongoing Coronavirus outbreak. In that context, we eagerly
2012 2013 2014 2015 2016 2017 2018 2019 await next week’s UK PMIs which will provide important clues on
y/y m/m growth momentum and Coronavirus impacts.
Source: UB / Macrobond
Slide 4US: Fed’s assessment little changed, though coronavirus cited as a new risk;
slippage in job openings bears close watching
This week’s Congressional testimony from Fed Chairman Powell
was largely in line with the January policy statement and recent
US Job Openings vs. NFIB Hiring Plans
Fed speeches. US growth was again described as proceeding at
15 40 a “moderate” pace with business investment and exports still
seen as remaining weak. However, following the phase one
30 trade deal between the US and China, Powell noted that
10
uncertainties around trade have diminished and global growth is
20 showing signs of stabilising. Powell restated the Fed’s overall
5 assessment which remains that the current stance of policy will
10 likely remain appropriate so long as incoming data and news on
0 the economy support the Fed’s view of the outlook. Powell was
0 clear that the corona virus is seen as a new downside risk
though he said it was too soon to estimate its possible impact.
-5 -10
He made the important distinction between temporary disruptions
to and persistent effects on activity, implying that the Fed would
-20
likely need to see a sizeable and sustained drag on the economy
-10
before feeling the need to respond. So, like many others, the
-30
Fed is “closely monitoring” the situation in order to gauge its
-15 possible effects. Elsewhere, a second consecutive sizeable
-40
downside surprise in monthly job openings got our attention this
week as it leaves y/y growth in openings at a 10-year low. While
-20 -50
other indicators of labour demand (including from this week’s
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 NFIB survey of small businesses) have held up better, we will be
Job Openings, y/y%, rhs NFIB Hiring Plans, y/y, lhs keeping an even closer eye on job market developments in the
period ahead for any signs of a pullback in hiring that could
Source: UB / Macrobond
undermine prospects for US consumer spending.
Slide 5
Financial Markets: Sterling rallies to 83p on hopes for UK fiscal growth boost
Sterling has more than reversed last week’s losses as a very
strong week for the pound sees it as the best-performing of the
EUR/GBP, £, 2015 -
major currencies over the past 5 sessions. The catalyst has
0.950 been the resignation of Chancellor of the Exchequer Sajid Javid
who quit following a row with PM Johnson. It’s a bit unusual for
0.925
the resignation of a finance minister to be accompanied by
0.900 currency strength, especially when the successor is young and
inexperienced (Javid’s replacement is 39-year old Rishi Sunak
0.875 for whom this will be his first job in Cabinet). But in this case,
markets seem to be focussed on the possibility that, under a new
0.850 Chancellor, the UK may pursue a (much?) more expansionary
approach to fiscal policy in an attempt to boost growth. Sterling is
0.825
up over 1% against the dollar (to trade at $1.305) while its gains
0.800 against the euro have been particularly striking. The pound has
chalked up gains of over 2% against the single currency in a
0.775 move that has taken Eur/GBP to just above the 83p mark –
Dashed line shows avg. sterling’s highest level since its post-election rally in December.
0.750 since the UK Referendum = This sees it trading right at the bottom of the 83-93p range which
87.5p
has prevailed since the referendum. The rising risk in the short
0.725
term is that sterling rises further and breaks out of its range,
0.700 though with market expectations now relatively lofty, investor
attention is now very much on getting further detail on the theme
0.675 of fiscal expansion. The annual Budget is scheduled for March
2015 2016 2017 2018 2019
11th, though it seems that the change in political personnel
means that date is now in doubt and so there will be much focus
Source: UB / Macrobond
on any informal soundings that emerge in the days/weeks ahead.
Slide 6Currency and interest rate market trends
Slide 7
Market Monitor
Foreign Exchange Markets Interest Rate Markets
Latest weekly ∆, % Latest (%) weekly ∆, bps
EUR/GBP, £ 0.831 -2.2 EUR 3 Month Euribor -0.413 -1.3
GBP/EUR, € 1.204 2.3 2 Year Swaps -0.37 -2
EUR/USD, $ 1.084 -1.0 5 Year Swaps -0.29 -2
GBP/USD, $ 1.306 1.3 10 Year Swaps -0.04 -3
EUR/JPY, JP¥ 119.1 -0.9 GBP 3 Month Libor 0.752 0.0
GBP/JPY, JP¥ 143.4 1.3 2 Year Swaps 0.72 2
USD/JPY, JP¥ 109.8 0.1 5 Year Swaps 0.74 3
EUR/CHF, CHF 1.061 -0.8 10 Year Swaps 0.82 3
USD 3 Month Libor 1.692 -3.9
2 Year Swaps 1.47 2
Stocks & Commodities
Latest weekly ∆, % 5 Year Swaps 1.44 3
ISEQ 7,166 0.2 10 Year Swaps 1.57 3
STOXX Europe 600 431 1.6
FTSE 100 7,452 -0.2 Note: the data in the tables are indicative only and are sourced
from Bloomberg. Latest data are updated as at the time of
S&P 500 3,381 1.6 publication. “weekly ∆” refers to the change from the previous
Dow Jones 29,505 1.4 week’s closing levels.
Nasdaq 9,732 2.2
Ulster Bank Cost of Funds Rate (365 day count) = 0.36%
NIKKEI 23,828 0.0 Euro rates are quoted in 360-day convention.
OIL (London Brent) 56.3 3.4 To convert to 365 day count, divide by 360, & multiply by 365
Gold 1,576 0.4
Slide 8Highlights for the week ahead: Q4 LFS to provide key update on Irish
employment trends; February PMIs and UK data in focus abroad
The Labour Force Survey (LFS) is one of the most important
Ireland, Employment, % change Irish datasets and so the release of the Q4 survey results next
3 5.0 Tuesday means it takes centre stage in next week’s domestic
economic calendar. We know from the recently-refreshed
monthly unemployment estimates that the seasonally adjusted
2 jobless rate will come in at or very close to 4.7%, down from
2.5
4.9% in Q3. This means that the bulk of the attention will be on
1 the latest trends in employment and the LFS is expected to
0.0 signal that favourable trends continued in Q4 following very solid
jobs growth of 2.4% y/y in Q3.
0 There is also plenty to keep international datawatchers occupied,
-2.5 with the February readings of the closely-followed (Markit) PMI
surveys likely to be a particular late-week focus for investors.
-1
The January figures pointed to some improvement in private
-5.0 sector activity growth (particularly so in the case of the UK) and
-2 continuation of such trends would provide further reassurance,
though the Coronavirus outbreak is a source of downside risk for
-7.5 next week’s figures which will cover the Eurozone, US and UK.
-3 The UK docket also includes the labour market report for the 3-
months to December (on Tuesday) and January retail sales
-4 -10.0 figures (on Thursday) which will provide an important update on
2008 2010 2012 2014 2016 2018
post-election jobs and consumer spending trends, while we will
also get January figures on inflation (on Wednesday). Finally,
y/y, rhs q/q (sa), lhs Central bank updates will also attract investor interest as we get
Source: UB / Macrobond meeting minutes from the Fed on Wednesday and the ECB on
Thursday.
Slide 9
Economic calendar for the week commencing February 17th
Ireland / Eurozone UK US
Monday
10.00 – EZ Construction Output (Dec) 00.01 – Rightmove House Prices (Feb)
Tuesday
11.00 – Labour Force Survey (Q4) 09.30 – Labour Market Data (3-mth to Dec) 13.30 – Empire Manufacturing Survey (Feb)
10.00 – GE ZEW Survey of Financial Analyst 15.00 – NAHB Housing Market Index (Feb)
Confidence (Feb)
Wednesday
10.00 – EZ Current Account (Dec) 09.30 – CPI inflation (Jan) 13.30 – Housing Starts and Building Permits (Jan)
19.00 – FOMC Minutes of Jan. Policy Meeting
Thursday
07.00 – GE GfK Consumer Confidence (Mar) 09.30 – Retail Sales (Jan) 13.30 – Philly Fed Manufacturing Survey (Feb);
Initial Jobless Claims; CPI (Jan)
11.00 – HICP Inflation (Jan)
12.45 – ECB Account of Jan. Policy Meeting
Friday
08.00 to 09.00 – FR, GE & EZ ‘Flash’ PMIs (Feb) 09.30 – ‘Flash’ PMIs (Feb); Public Sector Net 14.45 – Markit PMIs (Feb)
Borrowing (Jan)
10.00 – EZ HICP inflation (Jan - final) 15.00 – Existing Home Sales (Jan)
11.00 – Wholesale Price inflation (Jan)
The Calendar uses Irish local time
Slide 10Important Information
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"Ulster Bank") and is not intended for any other person. It does not constitute an offer or invitation to purchase or sell any instrument or to
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The information including any opinions expressed is indicative and may constitute our judgement at time of publication and are subject to
change without notice. The information contained herein should not be construed as advice, and is not intended to be construed as such.
This publication provides only a brief review of the complex issues discussed and recipients should not rely on information contained here
without seeking specific advice on matters that concern them. Ulster Bank make no representations or warranties with respect to the
information and disclaim all liability for use the recipient or their advisors make of the information.
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