This week was all about the positives. The latest Exchequer Returns show that the underlying deficit continues to reduce; the unemployment rate has fallen to its lowest level in five years; and the PMIs show momentum building for both the manufacturing and services sectors.
In other news, NAMA agreed to sell its £4.5bn Northern Ireland portfolio, while industrial production moved higher in February.
Next week we get our second Irish Treasury Bond auction of 2014 – given the recent good run in peripheral paper this should be very well supported (see overleaf).
Key stories from the past week
Ireland lines up new bond sales while also tying up loose ends
The NTMA has announced the dates of its next two bond auctions, namely 10 April and 8 May, subject to market conditions. The agency will also hold T-bill auctions on 15 May and 19 June. These sales come as no surprise, with regular new (presumably long-term, as with last month’s tap of the 10 year bond) issuance a reflection of the normalisation of the NTMA’s funding moves. In a separate move, the NTMA has also cancelled €750m of the 4.5% Treasury Bond 2015. There was, however, no update from the agency on its previously declared intention to either top-slice or offer a switch to holders of the 2016 Treasury bond.
An impressive Exchequer performance in Q1 2014
Exchequer Returns reveal an impressive Q1 performance. Total year-to-date tax revenues were €9.2bn, +4.7% y/y and €257m (2.9%) ahead of guidance. All of the tax headings are showing a positive variance relative to profile, with the sole exception of Customs, where revenues were only €3m behind target. On the expenditure side, total net voted (discretionary) expenditure was €10.3bn in Q1, 5.8% below the outturn for Q1 2013 and €261m or 2.5% below profile, with 14 of the 16 government departments at or below profile. Tight management of public expenditure has outlasted the Troika. These moves should help to further tighten the fiscal jaws in 2014.
Unemployment rate falls to 11.8% in March
The latest Live Register data show that the seasonally adjusted number of people on the Register (396,900) fell for the 21st month in a row in March, with the standardised unemployment rate now at 11.8%, its lowest level since April 2009. The number of people on the Register has fallen by 11.6% (-52,000) since the peak (August 2011) and by 7.0% (-30,000) in the past year. This improvement in the Live Register partly reflects the return to positive net job creation in the economy. The Q4 2013 QNHS, released on 27 February, showed that total employment rose 3.3% in the year to Q4 2013. The employment component of the Investec Manufacturing and Services PMIs for Ireland (see below) suggest that this positive momentum has been sustained into 2014.
PMI releases show the manufacturing and services sectors continue to grow
The latest Investec Services and Manufacturing PMIs for Ireland reports show strong growth for both sectors. The headline Manufacturing PMI improved to 55.5 in March from February’s 52.9, extending the current sequence of expansion to 10 months, while the implied pace of growth is the fastest seen since April 2011. With purchasing and hiring activity on the rise, we expect this good run to continue. The Services PMI also rose in March, from 57.5 to 60.7 (a 20th successive month of growth). With the forward-looking ‘Business Activity: Expected levels in 12 months’ time’ index at its second-highest level since March 2005, we expect to see further growth in the services sector in Ireland over the coming months and beyond. Contact Details: Philip O’Sullivan | firstname.lastname@example.org | +353 1 421 0496 Emmet Gaffney | email@example.com | +353 1 421 0494 To view the full range of Investec Research & Insights go to www.investec.ie/research
Trade Idea of the Week: Reiterate long on AIB 2.875 11/16 and Reinstate long on IRISH 3.4 03/24
Admittedly, we are a little late to the party, but the dovish remarks by Mr. Draghi this week, which are supportive for peripheral bonds, have prompted us to turn more bullish on the Irish 10 year.
On the periphery, earlier today the Italian 10 year government bond yield dropped to a record low of 3.194% – the previous record low (3.196%) was set back in 2005. Our benchmark 10 year, the IRISH 3.4 03/2024, traded at its record low since its launch (2.91%) this afternoon.
With Irish economic data continuing to improve, the ECB ratcheting up its supportive rhetoric; and next week’s auction likely to provide an index extension lift to that part of the curve, we think we should reinstate our previous long. So, we’re buyers of the IRISH 3.4 03/2024, adding it at MS+116bps (2.92%).