Currency news: US Payrolls in focus 02.10.15 Currency thought of the day: CB speakers and Payrolls enough to move dollar? Today’s Treasury Events Economics: Irish Economy – Another bumper month for the Exchequer 09.30 UK Construction PMI Economics: Irish Economy – NAMA upgrades profit guidance 13.30 US Non-Farm Payrolls Economics: Irish Economy – One and Done for the NTMA 14.30 EZ Draghi speaking Economics: Irish Economy – Labour market conditions continue to improve Equities: Kerry Group - Global innovation centre officially opened Upcoming Equity Events Equities: IRES - population growth ahead of forecasts 08.10 Mondi – Q3 IMS Equities: Irish Banks - KBC cutting standard variable mortgage rate by 0.25%

Rates and Commodites Last 1m chg % FX rates Last Indices Last 1m chg %

ECB rate 0.05 0.00 EUR/USD 1.1168 ISEQ 6,172 -1.60 UK Base rate 0.50 0.00 EUR/GBP 0.7376 EUROSTOXX 3,102 -3.03 US Fed Funds 0.25 0.00 EUR/AUD 1.5877 FSTE 100 6,146 1.03 LIBOR GBP 3M 0.58 -0.64 EUR/CAD 1.4783 S&P 500 1,924 -1.28 LIBOR USD 3M 0.33 -1.22 EUR/CHF 1.0924 Top 5 Irish Equities Last 1m chg %

EURIBOR 3M -0.04 -21.21 EUR/JPY 134.0600 CRH PLC 23.77 -6.10 Gold ($) 1109.20 -2.19 EUR/NZD 1.7437 Ryanair Holdings PLC 12.98 3.72 Brent oil ($) 48.24 -4.48 EUR/ZAR 15.5341 Kerry Group PLC 67.23 4.18 Natural Gas ($) 2.43 -10.81 GBP/USD 1.5142 Bank of 0.34 -2.53 Copper ($) 231.75 -0.52 GBP/EUR 1.3559 Smurfit Kappa Group 23.63 -5.52

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 Q3'15 Q4'15 Q1'16 Q2'16 Support Resistance

EUR/USD 1.1000 1.0800 1.0600 1.1000 1.1120 1.1185 0.7050 0.7000 0.6700 0.6900 0.7355 0.7395 EUR/GBP

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Friday, 02 October 2015

Currency news: US payrolls in focus

US payrolls: Market participants expect the nonfarm payrolls to increase by circa 200,000 in September, higher than the 173,000 in August. This would paint a picture that US jobs growth momentum is solid but still below the pre-August 3 month average of +250k. On Wednesday, the ADP report showed that companies in the U.S. private sector added 200,000 jobs in September. The market use the ADP report data to gain some insight about how many new jobs the government‘s official employment report will show. Even though they don’t always move in the same direction, the market will be hoping that on this occasion that there will be a positive correlation.

US unemployment rate: Note that we expect to see another tick down from 5.1% to 5.0% in the unemployment rate, taking it lower within the Fed’s 4.9% to 5.2% range for the longer term rate. This should ensure that labour market developments are seen keeping the Fed on track to hike rates later this year, despite the far from impressive August payroll print and the prospect of another far from storming September reading.

EURGBP retreats: EURGBP has failed once again to regain the .7400 handle. During the week, EURGBP had a lot of positive momentum but it looks like this move has run out of steam. The only piece of UK data of note out today is Construction PMI. However, next week we have a raft of big data releases, including the next policy announcement from the UK’s Monetary Policy Committee (MPC). We maintain our view that the MPC is on a course towards lifting the Bank rate in Q1 2016 and that its communications over the next few months will reflect that, bringing a near term rate rise into greater focus gradually. However we see little by way of a marked shift towards that emerging in this month’s communications. Indeed, we suspect any MPC members close to shifting to vote for tighter policy would likely favour waiting for the 5 November Inflation Report, allowing any change of view to be tied in closely with any adjustments to projections.

Currency thought of the day: CB speakers and Payrolls enough to snap a listless dollar?

The dollar has had listless week by recent standards, trading within a 150 point range against the euro and Pound, and little moved against other the G10 currencies bat the commodity currencies who have been through the ringer recently. A lack of data could be partly to blame with very little by way of significant data releases from the US so far this week, but that is set to change this afternoon as we see non-farm payrolls data for September released at 13.30.Payrolls are expected to sneak in just above 200k jobs added (201k consensus forecast), with the Unemployment rate expected to remain at 5.1%. On the wages side, average hourly earnings are expected to push up slightly from 2.2% to 2.4%.

Payrolls aside, we also have a raft of speakers at various events in the US. Speakers include St Louis Fed’s Bullard who speaks on Monetary Policy (including a Q&A) at 5.30, while Vice Chairman Stanley Fischer is joined by fellow Fed members Loretta Mester, Eric Rosengren, William Dudley and Naranya Kocherlakota who are all scheduled to speak at the Boston Fed’s Monetary policy conference. Recent Fed speakers have been keen to reiterate that rate hikes in 2015 are still on the table, but it will be interesting to see if this message is still as clear after another sell-off in equity markets and commodity markets earlier this week.

2 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

Friday, 02 October 2015

Economics: Irish Economy – Another bumper month for the Exchequer

According to a report in today’s Irish Times, Exchequer Returns (to be released after the market close today) for September will show another sharp rise in tax revenues. The report says that tax revenues for September will be “more than €300m” ahead of target, which would bring the year to date beat relative to profile to €1.7bn. While some of the tax headings can be lumpy, these numbers suggest that our forecast of a general government deficit of 1.4% of GDP for FY 2015 (which compares to the Department of Finance’s 2.3% projection in April) should be easily met – at least.

The government, for its part, is sticking to guidance of an expansionary package in the range of €1.2-1.5bn when it unveils its pre-election Budget on October 13, but given the extent of the fiscal (and broader macro) outperformance we expect that the voices around the Cabinet table will be calling for a bigger package of tax cuts and spending increases. One hopes that considerations around short term political advantage will play second fiddle to the longer-term interests of the economy when this largesse is distributed.

Philip 0’Sullivan │Chief Economist│+353 1 421 0496│ philip.o’[email protected]

Economics: Irish Economy – NAMA upgrades profit guidance

In testimony to the Oireachtas Public Accounts Committee yesterday, the CEO of NAMA upgraded the agency’s guidance on its lifetime profit to €1.75bn from the previous €1.0bn. This follows “a detailed review of [NAMA’s] loan portfolio in recent weeks”. NAMA has today also confirmed that its profits for the first six months of this year exceeded the FY 2014 outturn of €458m.

While welcome, this news is not a surprise. We have repeatedly (most recently in last week’s Irish Economy Monitor release) stated that the agency is “likely to comfortably exceed its own guidance of a lifetime profit of €1bn for the Exchequer”. The agency’s most recent results (for Q1 2015, Q2 results are expected in the coming weeks) show that at that time it had total assets of €14.8bn, liabilities (including the sub debt) of €15.1bn and underlying equity of -€0.3bn. Of the assets, 85% (€12.5bn) of these were represented by loans and receivables, while cash (€1.8bn) accounted for a further 12%. Given the underlying profitability of the agency, the improving prospects for the collateral underpinning NAMA’s loans and receivables (note that NAMA’s net book value of loans cited above is after the deduction of €3.5bn of provisions) and the upside accruing from NAMA’s investment in its asset base, our view is that the ultimate surplus will top €2bn – a far cry from the apocalyptic scenarios painted by a number of commentators at the time of its establishment.

As an aside, NAMA’s upgraded profit guidance is also important news for holders of the NAMA sub debt. As per its termsheet, the redemption basis of that instrument is “subject to the financial performance of the National Asset Management Agency in totality”, so the 10 digit surplus being guided by management is particularly significant in that regard.

Philip 0’Sullivan │Chief Economist│+353 1 421 0496│ philip.o’[email protected]

3 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

Friday, 02 October 2015

Economics: Irish Economy – One and Done for the NTMA

The NTMA yesterday published its auction schedule for Q4 2015. The agency will, subject to market conditions, hold one auction in the final quarter of the year. This will be held next Thursday (October 8), with details to be announced on Monday. There will be no T-bill auctions during the quarter.

The agency has already reached the low point of its guided range of €12-15bn of funds to be raised on the bond market in FY 2015. With €17.2bn of cash at hand at the end of August, the deficit set to fall to below 1% of GDP next year and only €8.1bn of debt maturities falling due in 2016, we would not be surprised if the size of next week’s auction is set at the lower end of the range of €500-€1,000m that we have seen this year. We would also expect that the NTMA will target the IRISH 2.4% 2030 bond for a tap for a third successive auction.

Philip 0’Sullivan │Chief Economist│+353 1 421 0496│ philip.o’[email protected]

Economics: Irish Economy – Labour market conditions continue to improve

Two CSO releases this week reflect the improving conditions in the Irish labour market. Yesterday’s Live Register release revealed that the seasonally adjusted number of people ‘signing on’ fell for a 39th successive month in September (-3,700 last month to 337,300). On this basis, the total number of people signing on has fallen by 25% since the September 2010 peak of 449,200. Earlier this week we learned that the monthly unemployment rate fell by 10bps to 9.4% in September, bringing the cumulative improvement from the January 2012 peak to 580bps. With the employment component of surveys such as the Investec PMIs pointing to continued appetite on the part of businesses to hire, we expect that the above trends have further to run.

Philip 0’Sullivan │Chief Economist│+353 1 421 0496│ philip.o’[email protected]

Equities: Kerry Group - Global innovation centre officially opened

Kerry Group’s new Global Technology & Innovation Centre in Naas, Co. Kildare was officially opened yesterday by the Taoiseach (Prime Minister) accompanied by Minister for Jobs, Enterprise and Innovation, Richard Bruton and Minister for Agriculture and the Environment, Simon Coveney. Kerry has invested €100m in the establishment of the Centre, which is located on a 28-acre site and can accommodate 800 research, product commercialisation, business development and business support positions. The Centre will complement the similar facility Kerry already operates in Beloit, Wisconsin and provide support to sub-centres across the globe as Kerry looks to provide innovative solutions to its clients in a rapidly changing consumer environment

Ian Hunter │ Research Analyst │+353 1 421 0466│ [email protected]

4 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

Friday, 02 October 2015

Equities: IRES - Dublin population growth ahead of forecasts

A report from estate agents Savills cited in today's media highlights the favourable demographics in the capital, which are expected to put upward pressure on the demand for housing. Dublin's population has risen by 43,000 (+3.4%) over the past 2 years which, even without the economic resilience of the period, will have put pressure on the housing stock. Total completions over the 2013/2014 period across Ireland were of the order of 20k, while most areas of the country have seen their population increase over that timeframe. While we haven't seen the Savills research, it does chime with other projections including the State CSO. Ireland has the second highest fertility rate in the EU and an open immigration policy for skilled labour, key factors that ensure that the long term drivers of demand for residential are positive. For owners of well-located residential real estate in the capital such as IRES, the implications are clear.

Philip 0’Sullivan │Chief Economist│+353 1 421 0496│ philip.o’[email protected]

Equities: Irish Banks - KBC cutting standard variable mortgage rate by 0.25%

Summary: KBC Bank Ireland is set to cut its standard variable mortgage rate for existing customers by 0.25% to 4.25%. The listed Irish banks all now offer customers the option of availing of a rate of less than 4.0% - much less than KBC’s 4.25% - following the upcoming cut. We do not see a risk of the listed banks moving their headline back book rates further downwards in response to this move.

Media reports yesterday evening noted that KBC Bank Ireland is set to cut its standard variable mortgage rate for existing owner occupier customers by 25bps to 4.25%. Customers who elect to switch their current accounts to the bank can avail of a further discount of 0.20%. However, the rate of 4.25% on existing SVR mortgages still means that KBC Bank Ireland’s rate is materially higher than the rates offered to existing customers of the listed Irish banks – who all now offer customers the option of availing of a rate of less than 4.0%.

Following the Finance Minister’s meetings with the Irish banks earlier this year in relation to the high cost of standard variable rate mortgages in Ireland, the listed banks took various steps to provide greater rate optionality to their customers. The Finance Minister yesterday acknowledged that “…the majority [of banks] have put options in place to allow borrowers reduce their monthly payments”, indicating that he is satisfied that the banks have taken sufficient steps to address the issue. We do not expect further downward moves in the listed banks headline SVR rates but we do factor in some back book price compression in our models to account for medium-term risk and an inevitable increase in switching. In this context it is worth noting that a recent Central study noted that “There is little evidence that those who could benefit financially from switching are actively seeking to switch”, finding that the number of incoming switchers per month at the top five lending institutions, which account for a 90% share of the Irish mortgage market, averaged just 38 out of an approximate 684,000 mortgages since January 2014). Finally, the databank shows that credit institutions’ borrowings from the ECB dropped by €4.7bn in August to just €10.1bn. The domestic credit institutions’ accounted for €8.8bn of these central bank borrowings.

John Cronin │Research Analyst│+353 1 421 0494│ [email protected]

5 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

Friday, 02 October 2015

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