22.07.15 Currency news: MPC minutes to be more hawkish? Today’s Treasury Events Currency thought of the day: Rand holding ground but Gold collapse a concern 09.00 SA CPI 09.30 UK MPC minutes Equities: REITs - Aviva potentially selling Dublin city centre block 15.00 US Home Sales Equities: EasyJet - Q315 IMS Upcoming Equity Events Equities: SKG - Stora Enso Group Q215 27.07 Ryanair Q1 IMS 29.07 PTSB H1 Results
29.07 Aer Lingus H1 Results
Rates and Commodites Last 1m chg % FX rates Last Indices Last 1m chg %
ECB rate 0.05 0.00 EUR/USD 1.0938 ISEQ 6,473 2.21 UK Base rate 0.50 0.00 EUR/GBP 0.7012 EUROSTOXX 3,624 0.79 US Fed Funds 0.25 0.00 EUR/AUD 1.4740 FSTE 100 6,715 -1.62 LIBOR GBP 3M 0.58 2.13 EUR/CAD 1.4186 S&P 500 2,119 -0.17 LIBOR USD 3M 0.30 4.87 EUR/CHF 1.0480 Top 5 Irish Equities Last 1m chg %
EURIBOR 3M -0.02 -35.71 EUR/JPY 135.3400 CRH PLC 26.46 -0.53 Gold ($) 1093.84 -7.76 EUR/NZD 1.6518 Ryanair Holdings PLC 12.55 2.66 Brent oil ($) 56.47 -10.85 EUR/ZAR 13.4796 Kerry Group PLC 69.56 3.05 Natural Gas ($) 2.88 4.38 GBP/USD 1.5599 Bank of Ireland 0.38 5.32 Copper ($) 243.55 -5.27 GBP/EUR 1.4262 Smurfit Kappa Group 27.77 3.62
Daily Deposit Rates
EUR 1 Month Notice 1 Month 3 Months 6 Months 12 Months 0.10% 0.01% 0.05% 0.15% 0.40%
GBP 1 Month Notice 1 Month 3 Months 6 Months 12 Months 0.8% 0.40% 0.60% 0.70% 1.00%
USD 1 Month Notice 1 Month 3 Months 6 Months 12 Months 0.25% 0.10% 0.20% 0.40% 0.60%
Currency Q2'15 Q3'15 Q4'15 Q1'16 Support Resistance
EUR/USD 1.1000 1.0800 1.0600 1.0600 1.0902 1.1075 0.7100 0.7000 0.6900 0.6750 0.6908 0.7114 EUR/GBP Contact Details: Economics +353 1 421 0496 Currency +353 1 421 0091 Equities +353 1 421 0463 www.investec.ie [email protected] To view the full range of Investec Research & Insights, go to www.investec.ie/research
Wednesday, 22 July 2015
Currency news: MPC minutes to be more hawkish?
MPC minutes: July’s meeting resulted in no change to policy and no material accompanying statement. Subsequently, however, Governor Mark Carney remarked that the UK is drawing closer to a rate increase and MPC member David Miles stated that a move up soon is likely to be right. A likely milestone in the meeting was the news that private sector regular pay growth strengthened to 3.2% in April from 2.8% in March. We will keep a close eye on the committee’s assessment here. We believe that the vote will be 9-0 this time, but suspect that perhaps three members could vote for a hike next month when the new quarterly Inflation Report forecasts will be available.
UK borrowing cut by a fifth: Yesterday UK Chancellor of the Exchequer George Osborne showed that he maintains a grip on his consolidation plans in the latest borrowing numbers. The headline measure for June, public sector net borrowing ex-banks, was recorded at £9.4bn, slightly worse than the £8.9bn consensus (Investec £10.6bn), but still some £0.8bn less than in the same month last year. However, back revisions were also favourable, with May’s borrowing outturn revised down by £1bn to £9.1bn. Over the first three months of the fiscal year, borrowing stands at £25.1bn, some £6.1bn less than over the equivalent period in 2014 or some 20% lower. Across the full 2015/16 fiscal year, the July Office for Budget Responsibility’s forecasts pointed to borrowing coming in 22% lower than 2014/15’s outturn, at £69.5bn. Bearing in mind that Mr Osborne has stepped up his planned pace of consolidation for the current fiscal year bringing greater savings over the coming months, from Mr Osborne’s current year to date standing, he looks to be on a good grounding to achieve this.
US home sales: Along with the release of the MPC minutes (see above), this is the only other meaningful piece of data out today. It will give us another opportunity to analyse the state of the housing market in the US. Janet Yellen, Chairperson of the Federal Reserve, always pays particular attention to this data set. Anything greater than May’s figure of 5.35 million (annualised) will strengthen the argument that the housing market, as well as the US economy in general, is set to move in a upward trajectory in this year’s second half. This will also support calls for the Federal Reserve to start tightening monetary policy.
Currency thought of the day: Rand holding ground but gold collapse a concern
The Rand has been remarkably resilient ant in the face of global economic uncertainty and increasing talk of Fed and BoE rate hikes later this year, which would erode the currencies interest rate advantage. The Rand has recovered almost 3% from June lows against the Dollar and even more against the Euro despite an agreement being reached on Greek debt. It has also remained remarkably well supported so far this month in the face of the recent collapse in the price of gold (to 5 year lows) and other precious metals of which South Africa remains a leading global producer. While a temporary dip may not be anything to worry about, a prolonged drop could cause mines to cut back operations with further impact on employment and the economy.
Part of the Rand’s resilience could be explained by growing expectations that the SARB could hike rates before the end of the Summer, or even as early as tomorrow’s meeting, to combat rising inflation which is heading back towards the upper bound of their 3% - 6% target range. The SARB raised rates twice in H1 2014 as South African inflation broke above 6% and headed towards 6.5% by mid-year before the fall in oil price helped cut inflation back to 4%, and saving the SARB from having to take further action. Inflation is expected to top 5% for June in data released today, up from 4.6% the previous month, which could be enough to prompt the SARB into action. There is a narrow consensus for a 25bp rate rise at tomorrow’s SARB after a hawkish meeting in May where two of the SARB’s six voters voted for a rate hike. While the rate hike expectations may be providing some temporary support (particularly if they occur before US rates lift-off) a delay from the SARB could see the Rand succumb to the pressure from the recent collapse in precious metals.
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Wednesday, 22 July 2015
Equities: EasyJet - Q315 IMS
EasyJet this morning issued its Q315E IMS reporting, a 2.8% decrease in revenue per seat at constant currency, ahead of the 4.0% fall guided by the company in May. Costs per seat, ex fuel and at constant currency increased by 2.1% versus company guidance of +2.0%. The cost increase was attributed to difficult operating conditions in the quarter including the French ATC strike action and the fire at Fiumicino. As previously indicated in monthly updates, the company reported carrying 6.2% more passengers over the period (19.1m) with capacity up 4.7% to 20.8m seats and the load factor increased by 1.3 percentage points to 91.7%. 77% of H2 seats are now booked. Management is guiding FY15E profit before tax in the €620m to €660m range.
John Cronin │Research Analyst │ +353 1 421 0494│ [email protected]
Equities: SKG - Stora Enso Group Q215
Stora Enso reported Q2 results yesterday with Group EBIT down slightly to €207m, below consensus expectations on €226m. The miss was largely due to production issues in its Consumer Board division. The Group’s Packaging Solutions division, however, reported sales growth of 6.1%, excluding the divested Corenso business. Corrugated packaging deliveries increased by 5.5% and pricing was reported to be slightly higher. Operational EBIT increased by €4m to €24m due to higher volumes and lower variable costs. Management reiterated its guidance that the converted Varkaus mill should start up production at the end of 2015. Looking forward, management expects Q3 sales and EBIT to be similar to Q2.
Equities: REITs - Aviva potentially selling Dublin city centre block
A report in this morning's Irish Times notes that Aviva has offered Nassau House, a retail and office block in Dublin's south city centre, for sale to a number of investment and development companies in an off-market transaction. Nassau House is a five-storey building with shops fronting on to Nassau Street and Dawson Street, a prime location in the city centre, and is producing annual rental income of €3.5m, suggesting a yield of less than 7.0% for the acquirer. Green REIT is thought likely to be interested in acquiring the property given its ownership of a nearby building at the junction of Dawson Street and Molesworth Street, which it acquired in 2014 for €23m. The report notes that Green REIT is awaiting the outcome of an appeal by An Taisce (the National Trust) against Dublin City Council's decision to grant permission to Green REIT to demolish the building and replace it with a six-story office block.
Gerard Moore │Research Analyst │ +353 1 421 0463│ [email protected]
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Wednesday, 22 July 2015
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