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The Week Ahead: Brexit Uncertainties Mean U2, Ireland

Investors in the week ahead will receive salient updates on Ireland’s economy, including housing costs, inflation and trade figures, while uncertainties over Brexit continue to swell.

Economic data releases kick off in earnest in the latter part of the week, with residential property costs, as well as Ireland’s consumer price index (CPI).

Thursday, June 13

  • Property Prices (Apr)
  • CPI (May)

Market participants Thursday, June 13, will receive an update on Irish housing prices, after costs rose 3.9% in the year to March, down from 4.3% in the year to February and an increase of 12.6% from the same year-ago month.

The figures come as the country continues to struggle somewhat from the 2008-09 financial crisis, with the national index remaining 18.6% lower than peak prices set in 2007. However, the index has soared 81.6% from its trough in early 2013.

Part of the recovery in housing prices may stem from mortgage measures made by the Central Bank of Ireland, which aim to bolster bank and borrower resilience, as well as reduce the likelihood and impact of a credit-house price spiral.

To achieve this, the central bank said the measures limit the amount of high loan-to-value (LTV) and loan-to-income (LTI) lending in the market and provide households with a level of protection against income shocks or a fall in property values. They also build bank resilience through limiting the flow of more risky new lending.

In its 2018 review, Ireland’s central bank noted that it “found little evidence of a credit house price spiral emerging, nor of a generalized deterioration in lending standards to the detriment of bank and borrower resilience.”

Utility prices rise while Brexit threatens services

Meanwhile, investors Thursday will also receive fresh consumer price figures for May following a 1.7% year-on-year rise in the prior month.

According to Ireland’s Central Statistics Office, among the most notable changes in the year were increases in Housing, Water, Electricity, Gas & Other Fuels (+4.7%), Restaurants & Hotels (+3.7%), Transport (+3.7%) and Alcoholic Beverages & Tobacco (+2.4%), while costs fell in the categories of Furnishings, Household Equipment & Routine Household Maintenance (-3.6%), Communications (-3.3%), Clothing & Footwear (-1.1%) and Miscellaneous Goods & Services (-1.0%).

With Ireland caught-up in the maelstrom of Brexit uncertainties, the Central Bank of Ireland recently identified a lack of service continuity as the most serious threat to consumers. As political divisions within the UK strive to arrive at an agreement for how, or if, to leave the EU, business plans and investments within Ireland appear to remain shrouded in risk.

Invesco chief global market strategist Kristina Hooper observed that the situation in the UK has become “far more uncertain” in the wake of Prime Minister Theresa May’s resignation.

She said the “Conservative party is likely to choose a hard line Brexiteer such as Boris Johnson in late July as the next prime minister, but opposition to this outcome appears to be growing,” amid Labour Party leader Jeremy Corbyn’s call over the weekend for a general election or referendum.

Hooper added that there are “likely to be more twists and turns in this British telenovela in coming weeks.”

Indeed, global advisory firms such as Deloitte have also been challenged to give advice to Irish businesses as Brexit-related developments unfold.

David Carson, Brexit lead at Deloitte Ireland, said: “Prolonged uncertainty may continue to delay investment decisions that companies here in Ireland may be considering, and companies now face a further period of limbo. Those Irish businesses that have invested significant time and money to get Brexit-ready will be keen for there to be clarity” ahead of the October 31 deadline.

Carson continued that for “those businesses that are still trying to take stock of what Brexit may mean for them, our advice is to continue to consider all options and those steps that potentially add value to your business whatever the direction of Brexit.

“Identifying the impact of Brexit on market access and supply chains and customs, in addition to reviewing contracts is very important, as is keeping abreast of the latest requirements and guidance issued by the Governments and agencies in both Ireland and the UK.”

Stocks strike a down note, while government notes rally

Against this backdrop, equities in Ireland – as evidenced by the iShares MSCI Ireland ETF (NYSEARCA: EIRL), which has among its top holdings construction materials supplier CRH plc (NYSE: CRH), as well as food manufacturer Kerry Group (OTCMKTS: KRYAY), have been recently sliding.

The ETF has fallen roughly 4.11% since late April, after recovering from a 26.8% plunge in the second half of 2018.

Meanwhile, the yield on Ireland’s 10-year government notes have declined by around 40 basis points to hit a new 52-week low intraday Tuesday of a little more than 0.40%.

Elsewhere, while updated trade figures for April are set for release ahead of the next weekend …

Friday, June 14

  • Trade Balance (Apr)

Investors will likely be following Brexit developments, as well as UK political shifts, closely for how they may impact Ireland’s economic and financial well-being. A host of other geopolitical headwinds will also generally draw Ireland into the increasingly slow growth global economy, including U.S. trade policy and tariff threats.

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Steven Levine

Steven Levine is a Senior Market Analyst at Interactive Brokers, (IBKR), which provides online trade execution and clearing services to institutional, professional and individual investors for a wide variety of electronically traded products including stocks, options, futures, forex, bonds, CFDs and funds worldwide.

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