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UK economy expands on Brexit stockpiling

UK economy expands on Brexit stockpiling

The UK economy grew by 0.5% in the first quarter, boosted by companies stockpiling ahead of Brexit, official data showed today.

British gross domestic product expansion outpaced the 0.2% seen in the final three months of 2018, the Office for National Statistics said in a statement.

The ONS added that UK manufacturing jumped 2.2% in the first quarter with recent surveys showing Brexit-facing companies building inventories, said to include key car parts and medicines.

The first-quarter growth figure was meanwhile in line with market expectations.

The strong manufacturing performance offset a slowdown in services output to 0.3%, the ONS data showed.

The Bank of England last week raised its forecast for UK economic growth this year, as stockpiling offsets lower business investment elsewhere ahead of Britain’s departure from the European Union.

UK economic activity was given a temporary boost as companies rushed to build up stocks of components and goods before the original March 29 Brexit deadline, the Bank of England said.

The Bank of England is predicting UK GDP expansion of 1.5% this year, up from its previous growth estimate of 1.2%.

Following today’s data, the pound was little changed as first-quarter output of 0.5% had been widely forecast following the recent BoE update, analysts said.

Britain is due to leave the EU by October 31 after two delays this year triggered by MPs rejecting a divorce deal Prime Minister Theresa May had struck with the bloc.

The Centre for Economics and Business Research said that businesses in the first quarter had purchased more goods to keep in storage in the event of a no-deal Brexit affecting supply chains and the ability for businesses to the buy goods they need for production.

The Bank of England, meanwhile, sees the boost to growth from stockpiling as only temporary, forecasting that UK GDP would slow to about 0.2% output in the second quarter of this year.

Many analysts agreed with Joshua Mahony, senior market analyst at IG trading group, who said that “while manufacturing is enjoying a bullish moment, there is a strong chance that such strength could be short-term given its reliance upon Brexit stockpiling”.

Reacting to the latest GDP data, British finance minister Philip Hammond described the UK economy as “robust”.

“The economy has grown for nine consecutive years, debt is falling, employment is at a record high and wages are rising at their fastest pace in over a decade,” the minister said.

The Treasury said that the UK economy was forecast to grow faster than Germany, Italy and Japan in 2019.

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Annual inflation hits seven-year high of 1.7% in April – CSO

Annual inflation hits seven-year high of 1.7% in April – CSO

Inflation hit a seven-year high of 1.7% in the year to April, new figures from the Central Statistices Office figures show.

Today’s CSO figures are a sign of significant consumer price growth in the country after four years as European Union’s best performing economy.

Consumer prices, which have been broadly flat since 2012, grew 1.7% year-on-year in April, up from 1.1% in March on the back of more expensive rents and mortgage interest repayments as well as higher prices for diesel and petrol.

Consumer prices on a monthly level rose by 0.4%, today’s CSO figures show.

The CSO said that Housing, Water, Electricity, Gas and Other Fuels costs rose by 4.7% due to higher rents and mortgage interest repayments as welll as an increase in the price of electricity, gas and home heating oil.

Prices in restaurants and hotels increased by 3.7% in the year to April, while alcohol and tobacco prices increased by 2.4%.

Transport costs also rose by 3.7% last month, mainly due to an increase in air fares and higher prices for diesel, petrol and motor cars.

However, April also saw lower motor insurance premiums and a reduction in prices for appliances, articles and products for personal care and other personal effects, as well as cheaper furniture and furnishings, the CSO added.

While the increase was probably exaggerated by Easter, Ireland appears to be moving into a slightly higher inflation environment, commentedd Austin Hughes, Chief Economist at KBC Bank Ireland.

“By and large it is healthy because the two elements that are driving it are the strength of domestic demand and the fact we are not seeing a collapse in sterling,” he said.

“There is a little less pessimism about the UK economy and that also is a positive for the Irish economy,” the economist added.

The average annual inflation rate for 2018 was 0.5%, up from 0.4% in 2017 and no change in 2016, according to CSO data.

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Irish savers still earn the lowest return on their deposits across the Euro zone

Irish savers still earn the lowest return on their deposits across the Euro zone

Saver with €10,000 earns average of just €3 in Ireland – compared with €122 in the Netherlands

It’s not getting any better for Irish savers. In fact, it could be getting worse. New figures show that Irish savers continue to earn the lowest return on their deposits, and the trend remains downwards.

According to Raisin, a provider of pan-European deposits, which has yet to venture into the Irish market despite its intentions to do so, Ireland is the Xand currently offers savers an average return on new deposits of just 0.03 per cent. This means that €10,000 invested at such a rate will return just €3 after a year, while €100,000 will earn just a paltry €30. Rates are also very low – but not as low – in Spain (0.04%); Belgium (0.16%) and Portugal (0.13%).

“Ireland persists with the lowest rates in Euro territory,” the survey says, noting that savers in other Euro zone jurisdictions continue to benefit from much higher rates.

Top of the pile is the Netherlands, where savers can earn an average return of 1.22 per cent on their deposits, or France, where a return of 1.1 per cent is possible. Achieving such a rate would boost the return of our saver with €10,000 to €122 or €110 a year, while our saver with €100,000 on deposit would see their return rocket from just €30 to €1,220 in the Netherlands.

And not only is the Irish rate the lowest, but it is also getting worse, regardless of the fact that the European Central Bank hasn’t touched interested rates in recent years. Indeed average Irish deposit rates are down by 57 per cent on this time last year, the Raisin survey shows. This trend is right across deposit rates, with rates down by 19 per cent in the Netherlands and by 12 per cent in France.

Longer term savings
When it comes to longer rates, Irish savers do a little bit better, with an average one-year rate of 0.38 per cent, bringing an annual return on €10,000 up to €38. It is again, however, the lowest rate on offer in the Euro zone, and lags far behind Italy (1.72%) and Germany (1.01%).

When it comes to three-year rates, Ireland has a higher rate of 0.47 per cent, but again, this is the lowest, behind Italy (2.25%); Germany (1.29%) and France (1.32%).

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European shares tumble amid trade tensions

European shares tumble amid trade tensions

European shares dropped broadly on Thursday as investors shunned risky assets while waiting to see whether United States and China manage to avoid a trade war which would damage the global economy.

The pan-European STOXX 600 index had dropped 0.7pc by 0720 GMT, touching a fresh four-week low.

US President Donald Trump said on Wednesday that China “broke the deal” it had reached in trade talks with the United States, and vowed not to back down on imposing new tariffs on Chinese imports.

As the world’s largest economies resume two-day trade talks on Thursday in Washington, investors were on the edge to see if a last minute truce could avert a sharp increase of tariffs on $200bn worth of Chinese goods on Friday.

More than seven major sectors lost above 1pc. Tariff-exposed auto stocks slid 1.6pc decline while semiconductor stocks also lost ground.

Adding to chipmaker’s woes was Intel’s uninspiring full year outlook.

Losses in heavyweight bank stocks weighed the most, with results from some of the biggest Italian banks in focus.

Italy’s third largest lender, Banco BPM dropped nearly 6pc after reporting a halving of loan-loss provisions for the first quarter.

Meanwhile, the country’s biggest bank by assets UniCredit dipped even after it reiterated its 2019 targets and posted a net profit above analyst expectations.

Among the biggest decliners were shares of ArcelorMittal after the world’s largest steelmaker cut demand forecast for its key markets and said it was facing the twin challenges of lower steel prices and reduced consumption in Europe.

German wholesaler Metro slid after reporting another quarter of falling sales at its Russian business and its Real hypermarkets, which the company is in the process of selling.

Swiss drugmaker Novartis dipped on a deal to buy Takeda Pharmaceutical’s eye drug assets for $3.4bn.

Shares of Norway’s Equinor came under pressure after wage talks between Norwegian oil firms and their employees broke down.

Investors sought safety in defensive stocks such as telecom, utilities and real estate which eked out the smallest losses.

Germany’s Rheinmetall was the top percentage gainer on the STOXX 600 after it confirmed its outlook and reported a rise in revenue in the first quarter, mainly driven by its booming defence unit.

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Irish and Spanish bond sales could underline move away from ‘periphery’

Irish and Spanish bond sales could underline move away from ‘periphery’

Irish and Spanish borrowing costs were close to record lows today ahead of planned bond sales that could well cement their move away from the “periphery”.

This is a phrase used to describe the lower-rated and more volatile euro zone bond markets.

Even though political issues are clouding the outlook for both countries, with Spanish coalition talks rumbling on and an uncertain Brexit outcome hanging over Ireland, their debt has been in heavy demand in recent weeks.

Benchmark Irish 10-year bond yields were close to their lowest since December 2017 at 0.495% while Spanish 10-year yields were near a two and a half year low at 0.96%.

Analysts expect to see strong demand as both countries prepare to sell long-dated debt – Ireland in the shape of a 30-year syndicated debt issue and Spain with an auction of five, 10 and 30-year debt.

Ireland has had a Single A rating from all three of the main credit ratings agencies for a while now, and Spain has more recently been upgraded into Single A status by two out of the three; S&P Global and Fitch.

This represents an improvement from the days of the euro zone debt crisis of 2010-2012.

The both countries had needed euro zone bailouts and Spain teetered on the edge of a junk rating and Ireland dropped into the Triple B ratings bucket.

An inconclusive Spanish election earlier this month and questions over the Spanish deficit and the separatist issue in Catalonia have not been a barrier to investor demand for Spanish government debt.

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China’s exports fall ahead of crucial trade talks

China’s exports fall ahead of crucial trade talks

China’s exports fell more than expected in April while imports rose, official data showed today ahead of high-stakes talks aimed at resolving a trade war with the US.

The world’s two leading economies face a possible make-or-break moment when top negotiators meet in Washington this week following months of fraught talks.

US President Donald Trump has upped the ante with plans to more than double tariffs on $200 billion in Chinese goods on Friday, the last day of a two-day visit by President Xi Jinping’s point man Vice Premier Liu He.

The trade war has battered shipments between the economic giants.

In April, China’s exports across the Pacific fell 13.2% from a year earlier, while imports from the US fell 25.7%, according to the data from China’s customs administration.

The politically sensitive trade surplus with the US remained large, widening to $21 billion last month from $20.5 billion in March. Last year it hit a record $323.3 billion.

Global markets have taken a beating this week as investors grow increasingly concerned that the China-US trade deal, which last week appeared all but ready to sign, could fall through.

US negotiators accused Beijing of reneging on commitments made during months of talks focusing on clamping down on theft of US technology and reducing China’s massive subsidies.

Analysts said that if Trump’s threat becomes reality, it will be a game changer for the global economy.

They added that the worst-case scenario would result in a US recession and a rapid reduction of growth in China.

Tepid global demand for China’s goods have heightened the risk for Beijing, which posted 6.4% economic growth in the first quarter, having decelerated every quarter last year.

China’s exports to the world sank 2.7% on-year last month while imports rose 4%, producing a trade surplus of $13.8 billion.

Economists polled by Bloomberg had expected a 3% rise in exports with imports projected to fall 2.1%.

Beijing has moved to jumpstart its cooling economy this year with massive tax cuts and fee reductions, and a targeted reduction in the amount of cash that small and medium-sized banks must hold in reserve announced on Monday.

But the central bank has yet to cut interest rates.

In March China’s exports unexpectedly jumped 14.2%, and analysts caution it is difficult to compare trends at the start of the year due to the Chinese New Year holiday, which fell in February.

Over the first four months of the year China’s exports rose only 0.2% on-year while imports dropped 2.5%, both down from the final quarter of last year.

Data last week showed China’s factory activity softened in April, with the new export orders sub-index rising from March, but remaining in contraction territory.

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NTMA plans to launch new 2050 syndicated bond

NTMA plans to launch new 2050 syndicated bond

The National Treasury Management Agency said today it plans to issue a new 2050 bond via a syndicated sale in the near future

Market sources say the auction – which is subject to market conditions – is expected to raise about €3 billion.

The NTMA has already raised over €5.5 billion of a planned €14-18 billion of long-term debt issuance this year.

The bond “is expected to be launched and priced in the near future subject to market conditions”, the agency said in a statement, indicating a sale was likely this week.

The NTMA also said it was cancelling a bond auction that had been scheduled for Thursday.

It is unusual for the agency to cancel an auction in favour of a syndicated deal but the move comes after Cyprus’s recent first 30-year bond sale was overloaded with orders.

The NTMA usually sells only around €1 billion of bonds per auction, more often than not a mix of short and long-dated paper.

High demand for such long maturities – with Ireland an active seller in recent years – shows just how much Europe’s bond market is adjusting to expectations of persistently low interest rates and central bank stimulus.

Barclays, BNP Paribas, Cantor Fitzgerald Ireland, Danske Bank, Deutsche Bank and Goldman Sachs have been appointed as joint lead managers for the transaction, the debt agency said.

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Irish economic growth set to moderate – Commission

Irish economic growth set to moderate – Commission

The European Commission said today that GDP growth in Ireland is forecast to moderate as support from the external environment weakens and risks, including Brexit, grow.

But in its latest quarterly economic forecast, the Commission said that underlying economic activity is expected to remain “robust” on the back of construction investment and positive labour market developments.

The Commission has predicted that GDP here will grow by 3.8% in 2019 and by 3.4% in 2020, below the rates of 4.1% and 3.7% predicted in an earlier forecast in February.

The Commission said that uncertainty surrounding the economic outlook comes mainly from external factors, especially Brexit, as well as possible changes in the international taxation and trade environment.

It also said that on the domestic side, signs of overheating could become more apparent and the “huge impact” of the often unpredictable activities of multinationals could drive headline growth in either direction.

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Easter inflation bounce won’t end slowdown fears

Easter inflation bounce won’t end slowdown fears

A rise in headline inflation in April should have given comfort to the European Central Bank, but the pick-up was due to a rise in package holiday and airline fare prices at Easter and is set to fall back as the year progresses.

Data from the European Statistics Agency issued yesterday showed the headline inflation rate picked up to 1.7pc from 1.4pc in May and at first brush appeared to chime with some bullish economic reports that had suggested the global economy had regained its mojo.

Coming hard on the heels of news that Italy had emerged from recession in the first quarter of the year and that growth in the bloc as a whole came in at 0.4pc quarter on quarter, the impression among many economists and money managers was that the panic had been overdone.

Economists at consultancy Capital Economics forecast inflation would fall back to 1pc this year and stay there as exports, household consumption and investment remain subdued.

It may be time too to prick some of the optimism that has surrounded the world economy after blockbuster annual growth of 3.2pc in the United States for the first quarter and data from China that put growth in the same quarter at 6.4pc.

Those numbers suggested to some that fears of a slowdown were overdone and investors piled yet more money into stock markets, pushing US indices to record highs.

Federal Reserve Chairman Jerome Powell reinforced the upbeat view of the economy at the central bank’s policy meeting earlier this week when it left interest rates unchanged.

The analysis from Fed policymakers was that economic growth, a strong labour market and an eventual rise in inflation were still “the most likely outcomes” as the US expansion nears its 10-year mark, closing on an all time record.

The analysis from Fed policymakers was that economic growth, a strong labour market and an eventual rise in inflation were still “the most likely outcomes” as the US expansion nears its 10-year mark, closing on an all-time record.

That will surely please President Donald Trump, whose re-election campaign depends on a growing economy and buoyant stock market, even though his call for a one percentage point cut in interest rates was ignored by the Fed.

Governor Powell played down the Fed’s failure to raise inflation, which fell to 1.6pc in March, down from February’s 1.7pc and well below the bank’s target of 2pc.

He even described the decline in inflation as being just “transitory”, and while the Fed’s inflation record has been better than that of the European Central Bank, it has been here before and failed to spot a sharp sustained fall in inflation in September 2017 caused by falling phone contract prices.

That policy torpor may turn out to be a big misreading of the economy, according to Steve Blitz, chief US economist at TS Lombard.

“Our reading of recent economic data suggests that the time to be pre-emptive should be now. A slowdown strong enough to pull inflation lower is in the making,” he said.

The latest Institute of Supply Management (ISM) survey of manufacturers last week showed manufacturing hit a two-and-a-half-year low in April and fewer and fewer companies in the sector were seeing inflation.

“In sum, the Fed has moved to the sidelines and out of the policy spotlight. Our read of the data is that by late summer, inflation will be low enough for long enough to pull the Fed back into the game and cut rates,” Mr Blitz said. Survey data such as the ISM series and purchasing manager indexes (PMI) provide a much more up-to-date assessment of the economy than some of the big headline numbers like gross domestic product and employment.

A similar picture has emerged in Europe where the Composite PMI declined for the second month in a row, while the Services PMI – which had been performing well up to now – fell in April and a steep fall in industry confidence pulled the eurozone Economic Sentiment Indicator lower in April.

If the world economy does start slowing rapidly, the effects will be felt here thanks to our high dependence on exports. The Department of Finance has based its forecast of 3.9pc growth on an expectation of 1.2pc growth in the eurozone and 2.3pc in the US for this year.

Recent survey data here has also raised some concerns over the outlook for economic growth with the AIB Ireland Services PMI released yesterday showing that growth in the sector had slowed to a three-month low. Job growth was down and in a parallel with the United States, cost inflation fell to its slowest in over a year.

“Taken together with Wednesday’s Manufacturing PMI report, these releases point to slightly weaker expansion at the start of Q2,” said Philip O’Sullivan, chief economist for Ireland at Investec.

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Euro zone inflation accelerates in April on energy, services

Euro zone inflation accelerates in April on energy, services

Euro zone inflation surged beyond expectations last month, mild relief for the European Central Bank, even if much of the jump was likely related to seasonal effects due to the timing of Easter.

Inflation in the 19 countries sharing the euro accelerated to 1.7% in April from 1.4% a month ago, beating expectations for 1.6%, Eurostat data showed today.

More crucially, underlying prices excluding food and energy, a figure closely watched by the ECB, picked up to 1.3% from 1%.

This saw it erase a worrisome dip a month earlier and hit its highest rate since October on a jump in services costs.

The ECB targets inflation just below 2% but has undershot this for the past six years despite deploying an arsenal of conventional and unconventional tools to boost growth and prices.

But any relief from solid April figures is likely to be short lived as the ECB expects inflation to slowly sink this year and not hit its target over the next three years.

Indeed, the ECB has already announced plans to provide even more stimulus through a new round of ultra cheap loans to banks to help the economy, backtracking on earlier plans to normalise policy after years of extraordinary help.

It now expects interest rates to stay steady through the year but risks are skewed towards an even later lift-off as markets price no hike for the better part of the next two years.

The problem is that growth is faltering, mostly as Germany, the bloc’s powerhouse, struggles through an unexpected dip caused by weak export demand for its manufactured goods.

German growth could fall to just 0.5% this year, the Bundesbank said today, less than half of the euro zone’s rate, and there was no sign yet of a recovery taking hold.

Still, policymakers agree that weakness is merely a dip, not the start of a recession, and a recovery is likely coming in the second half of the year.

Supporting their argument, employment continues to rise and services remain robust, suggesting that weak external demand, partly caused by global trade tensions, were the chief culprit of the slowdown.

Separately, Eurostat said euro zone prices at factory gates eased 0.1% month-on-month in March for a 2.9% year-on-year rise, falling short of market expectations of a 0% monthly reading and a 3% annual gain.

Changes in producer prices are an early indication of trends in consumer prices, as they tend to be passed on by retailers and intermediaries to consumes.

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