Conservative Party win significant majority in yesterday’s UK General Election

Sterling has rallied over 2% as the Conservative Party won a significant majority in yesterday’s UK General Election. The move in the Pound began following the release of the exit polls at 10pm yesterday evening with further gains throughout the night. As things stand the Conservatives have passed the 326 seats needed for a majority with most news outlets forecasting an overall majority of approximately 80 seats. The move in the Pound is the 6th largest intraday move since 2001 while Euro/Sterling traded below 83p for the first time since July 2016, with the next level to watch at 0.8250.

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EUR/GBP traded at its lowest level since May yesterday morning

EUR/GBP traded at its lowest level since May yesterday morning after Labour’s bruising in the latest YouGov poll. However, profit taking and month-end flows saw EUR/GBP find a base at 85p, with the pair likely to remain range bound as we head into the final stretch of the General Election campaign. Reports are doing the rounds that Labour are planning on switching strategy to try consolidating seats they hold already and trying to win back leave voters.

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Sterling under pressure as Conservative lead narrowing

Sterling came under selling pressure yesterday after some polls showed the Conservative lead narrowing. No data is released in the UK today, but all the focus will be on the release of the YouGov MRP poll released at 10pm tonight (more highly anticipated given the tendency for this poll to be more accurate than others – correctly predicting the hung Parliament in 2017). EUR/GBP continues to trade in the middle of its 0.8520/0.86p range, with tonight’s poll likely to bring some volatility to the cross.

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Recent lows for EUR/GBP as preparation for the UK election continues

Sterling continues to trade well, with EUR/GBP eyeing up the recent lows near 0.8550 as the preparation for the UK election rumbles on in the background. Overnight saw reports in the Telegraph stating that Conservatives have offered an electoral pact to Farage, which would mean the Brexit party would only be targeting 40 seats, and naturally if we get confirmation of further concessions from Farage Sterling will likely benefit. For the day ahead we get release of retail sales – with UK data continuing to come in softer (yesterday CPI missed at 1.5% from 1.7% prior).

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Strong day for Sterling yesterday

A strong day for Sterling yesterday with the outperformance partly attributed to the better than expected PMI data (composite PMI came in at 50 vs. 49.5), with EURGBP now eyeing up the bottom of its recent range just below 86p. Today the UK Parliament is officially dissolved for the onset of the General Election campaign, with Conservatives beginning with a relatively healthy lead in the polls (see link below). Ultimately we expect the headline driven volatility associated with the election campaign to return to Sterling price action over the next number of
weeks, as potential twists and turns from the campaign unravel.

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Sterling gains after General Election news

Reports yesterday evening that the Brexit party may decide to step aside in certain constituencies in order to help Conservatives in a General Election helped Sterling on the margin yesterday – in what could be a boost to PM Johnson’s election campaign.

GBP now trades close to its October highs against the USD, with 1.3015 the next level to watch on the topside. Today is month end so there may be some sporadic flow related, while there is very little on the data front being released in the UK.

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Business sentiment rises on Brexit deal hopes but consumers remain wary

• Economic Pulse rises in October

• Business sentiment firmer as risk of Halloween Brexit crash out recedes

• Households gloomier about the economy and their own finances

The Bank of Ireland Economic Pulse rose slightly in October 2019 as the risk of a Halloween Brexit crash out receded. The index, which combines the results of the Consumer and Business Pulses, stood at 77.0 in October, up 0.8 on the previous month but 15.6 lower than a year ago.

Budget 2020 and Brexit formed the backdrop to this month’s survey, with the former framed around a potential no deal scenario come October 31st. Political advances made towards striking a new deal helped the business mood, but wasn’t enough to lift consumers out of their malaise.

Commenting on Bank of Ireland’s October Economic Pulse research, Dr Loretta O’Sullivan, Group Chief Economist for Bank of Ireland said: “October’s Economic Pulse was a touch firmer as the risk of a no deal Brexit at the end of the month receded, and hopes of a last minute deal grew. The survey findings suggest that households aren’t overly convinced by recent developments though, with consumer sentiment tracking lower again this month and one in two indicating they are holding out on spending. However, there was a sense of relief among firms that a Halloween crash out was increasingly unlikely and business sentiment edged higher. That said, the mood remains relatively subdued overall reflecting the fact that there is no such thing as a ‘good’ Brexit outcome.”

Consumer Pulse

“With Brexit uncertainty continuing to unnerve households, the Consumer Pulse tracked lower again this month.”

• Consumer Pulse down in October
• Fourth consecutive monthly drop
• Half of households holding out on spending

The Consumer Pulse fell 4.5 points to a fresh low of 69.9 in October, the fourth consecutive month it has fallen. Households were gloomier about the economy and their own finances, with buying sentiment also taking a knock as Brexit weighed on minds and Budget 2020 did little for consumers’ pockets. Just a quarter of those surveyed considered it a good time to purchase big ticket items such as furniture and electrical goods (down from a third in September), while one in two (a series high) indicated that they are holding out on spending because they are not certain which way economic policy is going to go.

Business Pulse

“Reflecting the tightening labour market, a third of firms expect to increase basic wages over the next 12 months by 3.6% on average.”

• Business Pulse up in October
• Sentiment mixed across the sectors
• Three in five firms are on a growth trajectory

The Business Pulse stood at 78.8 in October, 2.2 higher than in September but down 14.3 on a year ago. Budget 2020 included a support package in the event of a no deal Brexit, but with the UK Parliament passing legislation to prevent such an outcome and Downing Street working towards agreeing a new deal with Brussels, the risk of a Halloween crash out receded. This contributed to the uptick in business sentiment in October, though the picture was mixed across the sectors with the Services and Construction Pulses gaining ground but the Retail and Industry Pulses slipping back. Looking further ahead, the October data indicates that growth ambitions are holding steady, with three in five firms planning on expanding in the next 1 to 3 years.

Housing Pulse

“Three in four households think it’s cheaper to buy than rent in their area, and with rental inflation outpacing house price growth this is likely to continue.”

• Housing Pulse dips in October
• Rent expectations up a notch
• Buying is still considered cheaper than renting

At 73.3 in October, the Housing Pulse was down 1.9 on last month’s reading. Households in Dublin, the Rest of Leinster and Connacht/Ulster were a little more downbeat about the outlook for house prices, though the balance of positive and negative responses remained in the black in all regions including Munster. The October survey also found that one in ten are planning on buying or building a property in the next 12 months, with the cost of renting a key push factor, while a quarter are likely to spend a large sum of money on home improvements.

Regional Pulse

The Bank of Ireland Regional Pulses bring together the views of households and firms around the country. The results for October 2019 (3 month moving average basis) show that sentiment was down on the month across the board.

• Dublin Pulse = 82.0 -0.6 points on the previous survey;
• Rest of Leinster = 75.8 -2.1
• Munster = 71.7 -3.8
• Connacht/Ulster = 80.7 -1.5

About the Bank of Ireland Economic Pulse:

The Bank of Ireland Economic Pulse survey is conducted in conjunction with the European Commission, with the data feeding into the EU Commission’s Joint Harmonised EU Programme of Business and Consumer Surveys, a Europe-wide sentiment study running since the 1960s. The Economic Pulse surveys are conducted by Ipsos MRBI on behalf of Bank of Ireland with 1,000 households and approximately 2,000 businesses on a range of topics including the economy, their financial situation, spending plans, house price expectations and business activity.

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Brexit legislation paused despite majority vote on Withdrawal Agreement Bill.

Sterling came under some selling pressure overnight despite the UK government’s Withdrawal Agreement Bill actually getting a 30 vote majority in its first hurdle in the House of Commons.

Ultimately, the UK Parliament rejected the PM’s proposed schedule to pass the Brexit deal in three days, which ultimately leaves PM Johnson “pausing” his Brexit Bill. Focus will now be on PM consultations with EU27, and what decision the EU make on the length of extension (be it until end-November to get the bill passed in Parliament, or into January 31st as requested in the Benn act.

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Spotlight now turns to Saturday’s vote on PM Johnson’s Brexit deal.

Sterling has rallied almost 5% since last week when Taoiseach Varadkar met with UK PM Johnson.

The spotlight now turns to Saturday’s vote on PM Johnson’s Brexit deal – with Parliamentary arithmetic being very tight considering the DUP has officially stated it is unwilling to support the PM’s deal. On Saturday, the House of Commons are due to sit at 9:30am, with voting beginning around 11:00am. Ultimately the outcome is binary for GBP at this juncture; with Sterling volatility suggesting EUR/GBP could see sizable moves depending on the outcome of the weekend’s vote.

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The EU & UK announce that a Brexit deal has been reached.

Sterling strength continues as the EU & UK announce that a Brexit deal has been reached; the full text can be read at https://ec.europa.eu/commission/sites/beta-political/files/revised_withdrawal_agreement_including_protocol_on_ireland_and_nothern_ireland.pdf

Initially markets had assumed that the DUP had also given their support however a DUP statement has confirmed that the party is standing by its early statement that it cannot support the deal “as it stands”.

Currency markets will now begin to price in the probability of Boris Johnson being able to get enough support from the House of Commons on Saturday.

Labour Leader Jeremy Corbyn has officially backed a public vote to allow the UK people have the final say over Brexit.

The EU Summit begins later this afternoon with UK PM Johnson expected to address the summit later this evening.

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Sterling continues to rally as Brexit negotiations progress.

Sterling continued its rally yesterday as Brexit negotiations continued well into the night. Negotiations will remain ongoing in what will be a busy day full of headlines and Sterling volatility. A deal is not yet on the table, but both sides are reportedly close to agreement – although details have been scarse. The schedule for today will be hectic with the EU’s Barnier briefing EU governments before the European Summit tomorrow (due to speak at 1pm today). While PM Johnson is due to hold a Cabinet meeting at 4pm, and meet the 1922 Committee at 7:30pm this evening.

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Queen Elizabeth opens new session in parliament to outline PM Johnson’s plans.

Thursday and Friday saw significant moves in Sterling, notching its biggest two-day rally since 2009. Naturally optimism reached its peak after the EU and the UK announced they would enter into a period of intense negotiations. We’re seeing some reversal this morning however, with comments over the weekend from the EU’s Barnier stating that significantly more work was needed to be done to reach a deal, while commentary from the DUP’s Dodds hinted doubts on the idea of “double customs”. For today Queen Elizabeth opens a new session in parliament to outline PM Johnson’s legislative plans.

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Sterling rallies following last night’s statement by An Taoiseach and the UK Prime Minister.

Sterling has reacted dramatically to last night’s statement issued by An Taoiseach and the UK Prime Minister that progress had been made in identifying a pathway towards an agreement. The Pound rallied 2% against the majors, with Cable trading above 1.24 and EurGbp selling off below 0.89 to the late September lows. This morning’s meeting between negotiators Barclay and Barnier is expected to be the main focus in determining if substantive progress can indeed be made.

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Brexit headlines continue to induce currency volatility.

Euro/Sterling has traded back towards 90p yesterday following some headlines that suggest a deal is increasingly unlikely to come before October 31st. Reports that talks were breaking down was followed by a headline that indicated UK PM Johnson told Germany’s Merkel that a deal was “essentially impossible”. Taoiseach Varadkar has said it will be very difficult to reach an agreement and there may be a meeting with Mr Johnson before the end of this week.

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Sterling opens marginally stronger vs. both the Euro and Dollar.

Sterling opened marginally stronger today vs. both the Euro and the Dollar after reports from numerous sources indicate that PM Johnson is set to present his Brexit plan to EU leaders over the next 24 hours. This morning we get release of manufacturing PMI, albeit the market is going to largely ignore the print in anticipation of Johnson’s announcement. Cable is currently holding above support at 1.2280 for now.

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Bank of Ireland Hosting SME Brexit Briefings.

Bank of Ireland is hosting a series of Brexit events throughout October as the deadline of October 31st approaches. The breakfast events are designed to provide useful advice for small to medium sized enterprises, offering specific guidance on changes to tariffs, revenue guarantees and documentary requirements for businesses trading with or through the UK.

The series of 11 Brexit Briefings begin on October 1st in Dublin and will move around the country through October. The Brexit series includes;

Date | Region | Venue

Oct. 1st Dublin BOI, College Green

Oct. 2nd Midlands/Meath Johnstown House Hotel

Oct. 3rd Louth/Meath/Dublin City North Hotel

Oct. 4th Cavan/Monaghan Errigal Hotel

Oct. 10th Limerick/Clare Strand Hotel

Oct. 11th Cork Clarion Hotel

Oct. 11th Kilkenny Newpark Hotel

Oct. 15th Wexford Newbay House Hotel

Oct. 16th Dublin Red Cow Hotel

Oct. 16th Galway/Mayo The Claregalway Hotel

Oct. 18th Donegal/Sligo The Abbey Hotel

Speaking about the Brexit briefings and Bank of Ireland’s Brexit supports, Michael Lauhoff, Director of Business Banking, Bank of Ireland said; “With the Brexit deadline looming, we’d encourage any customer who requires guidance or support to talk to us. We have run over 250 events aimed at supporting SMEs in the past 18 months, and launched a €2bn Brexit Fund to help businesses prepare. Our Brexit events are designed to support businesses in these uncertain times, and we are delighted to welcome a number of guest speakers to share their expertise with us.”

Registration is free for the Brexit Briefings and can be made for each event online via the following link;

https://corporate.bankofireland.com/brexit/

Bank of Ireland continues to support its customers to negotiate the challenge of Brexit, and this year launched a €2bn Brexit Fund to help businesses prepare. The Bank has also launched a €50m unsecured FX fund designed to enable businesses manage foreign exchange risk to give certainty on cash flow and profit margin, and is participating in the Government’s Future Growth Loan Scheme, designed to support the development of SMEs and Agri businesses.

Bank of Ireland’s dedicated Brexit Portal provides a range of financial and foreign currency supports, as well as access to sectoral, trading and economic updates. https://corporate.bankofireland.com/brexit/

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The UK Supreme court ruled that the order to suspend the UK parliament was unlawful and should be quashed.

The UK Supreme court ruled that the order to suspend the UK parliament was unlawful and should be quashed. In a clear defeat for the UK Government, this ruling now hands control back to the House of Commons, thus reducing the chances of a “No Deal” exit, as well as preventing the use of a second prorogation further down the line. Sterling initially rallied on the announcement however the currency has since stabilised against the Euro as markets begin to price in the increased chances of a UK General Election. The Pound’s recent gains have been predicated upon the increasing chances of a deal however today’s ruling could potentially reduce PM Johnson’s flexibility in negotiations, meaning some of Sterling’s strength may well fade in the coming days.

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Irish investors succumb to the Brexit boogeyman.

All around the world investment markets have rallied strongly in 2019. World stock markets are nearly up by 20% for Irish investors and bond markets have also joined the party with Euro zone government bonds posting their best gains since 2014. So investors are feeling positive right? Well, not quite – that’s where things get more complicated.

One of the most interesting themes this year is how investment markets have performed so strongly even as investors have grown pessimistic about the outlook. In June the Bank of America Merrill Lynch Investment survey showed that the last time international investors were this downbeat was in 2008 at the height of the Global Financial Crisis. In Europe, the Sentix Index of investor confidence currently languishes at around a five year low while in the US the AAII’s (American Association of Individual Investors) ‘Bull-Bear’ Index currently shows that private investors are more negative than positive on the short term outlook for stock markets.

When we look at the reasons for investors’ apprehension typically question marks about Chinese economic growth, the trade war and whether central banks can still dig the world economy out of a hole tend to occupy minds most.

It is understandable why investors feel nervous about these issues. The US and China are the two biggest economies on the planet, so it stands to reason that a trade war between the two will muddy the economic outlook. In addition, China is forecast to account for around 30% of the growth in the world economy this year and this massive contribution is unlikely to change soon. In other words, whatever happens in China will be central to the global outlook for the foreseeable future. Since central banks were instrumental in rescuing the economy and markets from the Global Financial Crisis, naturally investors will wonder can they produce a repeat performance if required again.

Since October 2017 Bank of Ireland has been tracking investment sentiment among Irish investors. So have Irish investors reacted any differently to their international peers this year? Well, no is the short answer. Like many other global gauges of investor sentiment, Bank of Ireland’s Investment Index has fallen from 102 in March to 94 in August, its lowest level since launch.

However, over the summer months Irish investors appear to have adopted a much more gloomy outlook. Our Investment Environment sub-index (which asks people whether they think it is a good or bad time to invest), slumped from 91 to 76 in August, by far the lowest reading on record. Here a record high percentage of people (39%) felt that now was a bad time to invest.

The fact that Irish investor sentiment weakened significantly during a period which coincided with Boris Johnson’s election as UK Prime Minister strongly suggests that Irish concerns about the UK crashing out of the EU, above all else, are central to growing Irish investors’ unease. This is also validated by another insight in August that 50% of Irish people answered that they were less likely to invest as a result of Brexit concerns.

In our view the direction of investment markets over the medium term is much more likely to be shaped by global issues such as trade and the twists and turns in global economy rather than the nature of Brexit per se. A crash out Brexit could certainly add to market volatility and may even tip the UK and Euro zone economies into a recession in the short term, in addition to having negative repercussions for the Irish economy. Clearly such a scenario makes the short term investment outlook more uncertain. However, we would caution against Irish investors thinking that Brexit will be a ‘global event’ for markets in the same way the Global Financial Crisis was.

Amid periods of economic and geopolitical uncertainty such as now, basic investment advice if anything becomes even more valuable for investors. This includes principles like the need to stay well diversified (to reduce risk), to remember that investing is a long term process and to even ‘drip feed’ their money into investment portfolios if they are particularly nervous about short term volatility. The decade since the Global Financial Crisis has been packed with geopolitical issues and economic scares and yet the bull market in stocks has endured. It is also worth remembering this.

Investment markets are always climbing ‘walls of worry’. The important thing to remember is that these episodes don’t last forever. In the meantime investors can console themselves in the knowledge that the markets have delivered strongly despite weaker sentiment globally – which makes you wonder whether bad news has somehow become good news for markets in 2019.

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Sterling reached its highest level in nearly two months after Juncker’s interview on Sky yesterday.

Sterling reached its highest level in nearly two months after Juncker’s interview on Sky yesterday. The European Commission President stated he believes the two sides can reach a deal by the 31st October should the objectives of the backstop be met through alternative arrangements. More upbeat comments from Taoiseach Varadkar also, saying he’d meet with PM Johnson next week in New York and “try to get a deal”. The mood is improving, but we’ve yet to see concrete progress, so continue to expect Sterling volatility as commentary/headlines to drive price action.

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Investors suffer a dose of the Brexit blues.

‘Half of people likely to invest less because of Brexit’

• Savings and Investment Index drops to 94 as investment sentiment buckles
• Nearly two in five feel that now is a bad time to invest
• Saving sentiment slightly stronger in August, 47% of people saving regularly

The Bank of Ireland Savings and Investment Index, which measures sentiment towards saving and investment, fell from 96 to 94 in August. Saving sentiment improved modestly compared to earlier in the summer but investment sentiment slumped as trade war and Brexit concerns in particular grew. Since hitting its 2019 peak of 102 in March, the Savings and Investment Index has now fallen to 94 with the majority of the fall resulting from weaker investment sentiment.

Investment Index

The Investment Index dropped sharply from 94 to 88 in August, its lowest level since the index’ inception in October 2017. The fall was caused by a collapse in investor confidence around the market outlook. The Investment Environment subindex tumbled from 91 to 76, by far the lowest reading on record. A record high (39%) percentage of people felt it was a bad time to invest in August. This gloominess was visible across the board but seemed most acute for baby boomers (nearly one in two of over 60s felt it was a bad time to invest in August) and for lower income groups.

Tom McCabe, Bank of Ireland Investment Markets commented: “August’s results for the Investment Index clearly show that Brexit concerns stalked Irish investors over the summer. Boris Johnsons’ ascension to the position of UK Prime Minister increased fears of the UK crashing out of the EU, leading to a record fall in Irish investor sentiment. Unfortunately the strong gains accumulated by investment markets this year no longer appear to mean much, if anything, to Irish investors. Instead, in the short term at least, investor sentiment looks set to be dominated by the outcome of EU-UK negotiations and the looming deadline of October 31st.”

At first glance this buckling in investor confidence looks at odds with how markets have performed in 2019. Up to the end of August world stock markets had increased by 18% for Irish investors and given this strong performance the collapse in investment sentiment is surprising.

However the fact that investor sentiment has dropped during a period which coincided with Boris Johnson’s election as UK Prime Minister strongly suggests that Irish concerns about the UK crashing out of the EU lie at the heart of this pessimism.

This finding was confirmed by a special topic question asked this quarter where 50% of people answered that they were likely to invest less as a result of Brexit concerns. The sentiment expressed here was broadly based, although the responses were more negative outside Dublin, possibly indicating some nervousness about the impact a UK crash out could have on the agricultural sector of the economy.

Savings Index

The Savings Index rose modestly from 99 to 100 in August, pulled higher by slightly stronger attitudes to saving. The percentage of people saving regularly inched higher to 47% compared to 46% in June with larger numbers of baby boomers in particular saving regularly. In addition, the percentage of people that felt they were saving the right amount rose slightly to 34% in August, another factor that led saving sentiment higher.

The percentage of people that felt that it was a good time to save now rose from 47% in June to 49%. So far Brexit does not look like it has had the same outsized impact on savers as it had on Irish investors over the summer. However our special topic question in August showed that Brexit could yet have a big impact on saving patterns with 40% of people answering that they felt they were likely to save more as a result of Brexit concerns. Millennials and Generation Xers seemed most likely to save more as a result of Brexit concerns compared to baby boomers. 43% of under 50s said they would save more as a result of Brexit compared to only 35% for over 50s.

Tom McCabe, Bank of Ireland Investment Markets said: “The latest results for the Savings Index shows that Irish saving sentiment remains on a solid footing, underpinned by continued favourable economic conditions. So far we haven’t seen evidence of savers responding to growing Brexit uncertainty in the way Irish investors did over the summer. However our finding that 40% of Irish people are likely to save more because of Brexit concerns indicates that precautionary saving could certainly spike suddenly were the UK to crash out of the EU with no deal.”

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Sterling’s recent move higher has stalled somewhat.

Sterling’s recent move higher has stalled somewhat as the market waits for more concrete progress between the EU and the UK. The day ahead will see the Supreme Court hear two appeals on whether PM Johnson acted lawfully in his suspension of Parliament. Cable retraced hastily from the 1.25 level, with PM Johnson’s trip to Luxembourg yesterday not appearing very fruitful. Politics and headlines will continue to dominate Sterling for now.

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Sterling opening up on the front foot this morning.

Sterling opening up on the front foot this morning, with Cable breaking past resistance at the 1.2390 mark. Overnight there was a report in The Times alleging that the DUP were willing to accept some differential treatment to the rest of mainland UK in order to get a Brexit deal across the line – although this has been refuted by the DUP’s Wilson this morning, stating it was “nonsense” that the party was softening its stance on the backstop. For today, we expect more volatile trading for the Pound, with any headlines/further clarification from PM Johnson, the EU or the DUP likely to be in the driving seat for the day.

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No reaction in Sterling at the open in response to the Government’s release of Yellowhammer.

No reaction in Sterling at the open in response to the Government’s release of Yellowhammer – its no-deal Brexit assessment report. Labour are calling for a return of Parliament in response. Meanwhile, French President Emmanuel Macron has announced that the UK has not yet proposed any concrete plans to the European negotiators, but once they propose something “compliant with EU requirements”, then the EU negotiators can move.

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Sterling is by far the significant outperformer, with market perceptions of No Deal options receding.

Sterling is by far the significant outperformer, with market perceptions of No Deal options receding for the UK Government as the Benn Bill passed into law and the Commons voted to reject PM Johnson’s repeated proposal for a general election. The Pound rallied 1% against the Dollar, above 1.23, and 0.7% against the Euro, back to the low 0.89’s, aided by position covering in thin liquidity. Despite this morning’s important data, the Pound remains vulnerable to headline risk.

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Last week was the fourth consecutive week of Sterling gains.

Last week was the fourth consecutive week of Sterling gains as the House of Commons voted to pass a Bill that requires an extension to Article 50 if a deal has not been reached with the EU. UK PM Johnson is facing cabinet resignations and the unlikely prospect of an election before October 31st and this has supported the Pound. Tuesday’s employment report is the main data release of this week while the proroguing of parliament is due to happen early in the week.

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Sterling has continued its dramatic rally.

Sterling has continued its dramatic rally as the market continues to price a lower probability of a No Deal Brexit based upon the UK PM Johnsons’s vote losses in the House of Commons. Both Cable at 1.23, and EurGbp at 0.89 have traded back to levels last seen in July. Sterling performance will continue to be driven by political events, with the timing of a possible UK general election the dominant factor.

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Sterling strength has continued following subsequent defeats for UK PM Johnson in parliamentary votes.

In the coming days, a bill designed to stop a No Deal Brexit is expected to pass the House of Lords and gain Royal Assent which has reduced the chances of a No Deal scenario for now. Currency markets are now focused on a UK General Election, and crucially the timing of an election, to drive the path of the Pound. There are some reports that Boris Johnson could address the UK people at some point today.

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Sterling has recovered following events in House of Commons

Sterling has recovered, following events in the House of Commons, having traded below 1.20 yesterday against the Dollar and close to 91.5p against the Euro. Last night’s defeat for UK PM Johnson, by 27 votes, was larger than expected and markets are focused on the passing of a Bill to prevent a No Deal and the timing of a General Election, if it is called for and supported in Westminster. The schedule for today is PM Questions at 12pm followed by the Benn Bill, beginning at 3pm, and then Bill Amendments and a motion for a UK General Election debated later on this evening.

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Pound trading at its lowest levels against the Dollar since the flash crash of 2016

The Pound is trading at its lowest levels against the Dollar since the flash crash of 2016 following the Brexit Referendum and could be about to fall to levels not seen since Margaret Thatcher was in Downing Street. Sterling fell below 1.20 this morning as currency markets are becoming increasingly nervous of the possible scenarios following the return of the House of Commons. Today the opposition is expected to announce legislation to try to prevent a No Deal scenario, more details are expected later this evening. UK PM Johnson has announced he will attempt to call an election with the support of two thirds of the House of Commons should this legislation succeed. With the Conservatives well ahead in the polls, markets are beginning to price in a strengthened hand for PM Johnson which could see further Pound pressure unless a deal can be reached before October 31st.

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Sterling continues to hold its ground against most major currencies

Despite the growing uncertainty around the potential scenarios next week, Sterling continues to hold its ground against most major currencies. This weekend is likely to see a torrent of media coverage on the political machinations going on in Westminster but before then markets have to deal with the usual month end currency moves which have added to Pound volatility. Euro/Sterling has traded from 90-91p in recent sessions but intraday volatility is high and this is likely to continue next week.

Traders are bracing for more big price swings in sterling between now and the expected October 31st Brexit date, with a three-month volatility gauge hitting its highest level of the year yesterday. Speaking on this, Philip Hartley, Head of FX and Emerging Markets at Bank of Ireland said Mr Johnson’s latest move sees sterling remain under pressure as the perceived probabilities for both a no-confidence vote in his government or a no-deal Brexit continue to build. “Market focus will now shift to the return of parliament next Tuesday to see if the opposition can garner sufficient support to propose a credible alternative route which should ensure continued elevated volatility in the currency until some clarity is restored,” he said.

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Sterling Flash Update

Sterling is under pressure this morning as the UK Government confirmed that UK PM Johnson has requested the Queen to suspend the current parliament session.

The House of Commons will still return next week but will once again rise on the 13th September until the 14th October. In effect, this gives MP’s less time to block a ‘No Deal’ scenario via legislative methods and makes a further extension to Article 50 less
likely.

Next week – when the UK Parliament does return – will now take on greater significance as today’s announcement further increases the pressure on MP’s to either try to pass a law to prevent a No Deal or call a Vote of No Confidence in the UK Government.

Euro/Sterling has rallied from 0.9020 up to 91p following the announcement.

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Brexit concerns weigh on Consumer and Business sentiment in August

• Economic Pulse down in August
• Households remain on edge about the economy
• Business confidence also softer

The Bank of Ireland Economic Pulse stood at 79.1 in August 2019. The index, which combines the results of the Consumer and Business Pulses, was down 3.7 on last month and 12.2 lower than a year ago.

With Boris Johnson taking up office as UK Prime Minister and raising the stakes on the Brexit front, and the Central Bank here publishing estimates of the damage a no deal departure would potentially do to the Irish economy in the short term, the mood among households and firms was gloomier this month and the Economic Pulse hit a new low.

Commenting on Bank of Ireland’s August Economic Pulse research, Dr Loretta O’Sullivan, Group Chief Economist for Bank of Ireland said: “The Economic Pulse headed south again in August and sentiment could remain ropey for a while yet given the unsettled Brexit backdrop. At the time of last month’s survey, Boris Johnson hadn’t been confirmed as UK Prime Minister but that expectation was enough to knock sentiment. When this month’s survey was conducted, he was in situ and upping the ante with his ‘Do or Die’ approach to Brexit. As the recent Central Bank and our own Bank of Ireland analyses show, if the UK leaves the EU without a deal at the end of October, the Irish economy could suffer badly. So households and firms are understandably worried and unsurprisingly consumer and business confidence took another hit in August.”

Consumer Pulse

“Households remain on edge about the economy, with around one in two now expecting things to get worse over the coming year.”

• Consumer Pulse falls in August
• Lowest reading to date
• Expectations for the economy move deeper into the
  red

The Consumer Pulse came in at 76.0 in August 2019. This was down 5.5 on last month and marks a new low for the series. Brexit uncertainty is continuing to fray nerves and prompted households to further scale back their assessment of the economy’s prospects this month. The buying mood was also softer in August despite the summer sales, whereas savings sentiment was a touch firmer. 32% considered it a good time to purchase big ticket items such as furniture and electrical goods, while 73% indicated that they are likely to put money aside in the next 12 months.

Housing Pulse

”It was a fresh low for the Housing Pulse this month as households in all regions pared back their expectations for future price gains.

• Large drop in the Housing Pulse in August
• Uncertainty starting to bite
• 48% think house prices will increase in the next 12 months

The Housing Pulse continued on its downward trajectory in August 2019, coming in at 82.1. This was 10.4 lower than last month’s reading. While house price inflation and expectations have been softening for some time amid increasing supply and stretched affordability in parts of the country (making the Central Bank’s mortgage rules more binding), heightened uncertainty is also becoming a factor. Brexit and what it might mean for the economy is unsettling households and builders alike, with speculation about the future of the ‘Help to Buy’ incentive for first buyers rife as well.

Business Pulse

• ”With Brexit-related uncertainty at an elevated level, the Business Pulse lost ground again this month.”
• Business Pulse softer in August
• New low for the series

The Business Pulse stood at 79.9 in August 2019, down 3.3 on last month and its weakest print to date. While the Industry Pulse was little changed, the Retail and Construction Pulses took quite a tumble this month and the Services Pulse eased back as firms downgraded their near-term expectations for business activity and hiring. Fears of a no deal Brexit come October have risen tempering the general mood, with the lack of clarity around domestic policy measures like ‘Help to Buy’ also weighing on building sentiment. More positively, the August survey points to some easing in non-labour input cost pressures over the past three months for firms in the industry, services and construction sectors as the weak pound feeds through to lower import prices.

Regional Pulse

The Bank of Ireland Regional Pulses bring together the views of households and firms around the country. The results for August 2019 (3 month moving average basis) show that sentiment was down on the month across the board.

• Dublin Pulse = 84.7 – 1.1 points on the previous survey;
• Rest of Leinster = 84.5 – 2.6;
• Munster = 82.1 – 6.2;
• Connacht/Ulster = 86.3 – 4.6.

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A volatile week for Sterling

Last week was a volatile week for Sterling, which saw heavy short positioning come under pressure after a more conciliatory tone was struck by Germany’s Merkel and France’s Macron, but PM Johnson dampened these hopes saying he didn’t expect a quick Brexit deal. Over the weekend at their G7 meeting nothing substantive emerged between PM Johnson and the EU’s Tusk, with Johnson telling Tusk that Britain is leaving the EU on the 31st of October, with or without a deal, and that the backstop is “undemocratic” – but he is willing to sit down for talks. For this week it’s relatively quiet on the data front, with headline driven markets to remain.

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Significant moves in Sterling in recent days.

There have been some significant moves in Sterling in recent days. EUR/GBP has made new highs for 2019 just below 92p and GBP/USD has traded to its lowest level in 2.5yrs. Sterling volatility is at its highest levels since the A50 extension in March this year.

The UK Parliament is now on summer recess until 3rd September. The UK PM & the EU are at a standoff where neither side seem willing to budge on the backstop issue. The current UK government seems much more committed to leaving the EU than Theresa May’s government did in recent years and they’re stepping up their plans to prepare for a No Deal scenario. Meanwhile the Bank of England cut their 2019 and 2020 GDP forecasts on Thursday, with Brexit uncertainty being a key factor in these changes.

With Sterling under pressure in recent weeks, it’s important to look towards the next important levels above 90p. From the chart below it can be seen that the Euro has now broken resistance at 91p (yellow box). The next resistance is the high from August 2017 of 93p followed by the flash crash highs of 94p.

One of the most common questions we get from customers is, “how can a No Deal be avoided?” Currently there are three ways this can happen;

1. 1. New Legislation to stop a No Deal

MPs have tried to pass legislation to stop a No Deal. With no Meaningful Votes on a new deal expected, the chances to pass legislation are very slim and with Jacob Rees-Mogg – who is very knowledgeable on parliamentary procedure – now the Leader of the HoC, this path looks unlikely.

1. 1. Revoke Article 50 via ‘Primary Legislation’

To revoke A50, an Act of Parliament would need to be passed. Blocking No Deal is one thing but voting to revoke A50 is another and unlikely to gain enough support. In addition, passing an Act of Parliament requires 3 readings and voting in HoC, House of Lords and a Royal assent – all of this will take time that the UK simply does not have.

1. 1. A No Confidence Vote in the UK government

This is the most likely way a No Deal can be stopped. The current government have a majority of 2 in the House of Commons; so with a slim majority, it’s not a high bar for those who oppose No Deal to take down the government via a vote. The main issue for this is timing, even if a No Confidence vote is called on Sept 3rd, there is not enough time to have a GE before the October 31st deadline. This would require the UK to ask for an extension or to force Brexit. We feel that MP’s will use the 14 day period after a No Confidence vote to agree a ‘Technocratic’ government that would then request the extension.

It’s fair to say that the current state of play is challenging for a positive resolution, the UK PM may soften his stance on the UK demands but that is unlikely given his recent win and momentum in the Conservative Party. Our latest FX Monthly will be published later this week or early next giving an overview of our latest thoughts and forecasts. For now, we still see a General Election as the most likely outcome given the current state of play.

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Bank of Ireland Economic Pulse shows business sentiment static amid ongoing uncertainty

Economic Pulse little changed in June

Consumer confidence firmer

Business sentiment moves sideways

The Bank of Ireland Economic Pulse came in at 90.7 in June 2019. The index, which combines the results of the Consumer and Business Pulses, was up 0.5 on last month’s reading but 7.4 lower than a year ago. With the domestic economy putting in a good performance, households were more upbeat about the ‘here and now’ and their own financial situation this month. But given the increasingly unsettled backdrop in the UK and beyond, some nervousness about the economic outlook was evident among consumers, with firms generally more circumspect about near-term prospects for business activity as well.

Commenting on Bank of Ireland’s June Economic Pulse research, Dr Loretta O’Sullivan, Group Chief Economist for Bank of Ireland said:

“Mid-way through 2019 and the Economic Pulse remains relatively soft, with the June reading little
changed on last month. Having nosedived earlier in the year, consumer confidence was a touch firmer this month while business sentiment moved sideways.

“Yesterday marks three years since the UK referendum on EU membership which set Brexit in train. 36 months on and uncertainty about the leaving process and the future trading relationship is still clouding the horizon. Theresa May has now exited stage left and while we don’t know yet who will be entering stage right, leaving without a deal is something most of the Tory Party leadership candidates have raised as a possibility. 2016 also saw the election of Donald Trump as President of the US. His protectionist stance back then was pure rhetoric but has since turned into policy action, making heightened trade tensions a key risk for the global economy.

“While things have been going well at home, the openness of our economy means that the Brexit and Trump curve balls have taken a toll on sentiment. The Economic Pulse, for example, has fallen from 101.5 in June 2016 to 90.7 in June 2019. And over the coming months, good or bad news on these fronts will likely further buffet consumer and business confidence.”

Consumer Pulse

”Households were more upbeat about the ‘here and now’ this month but remain worried about where the economy is going next.”

Consumer Pulse up in June

37% think it is a good time to buy big ticket items

Households cautious about the economic outlook

The Consumer Pulse stood at 90.6 in June 2019, up 1.8 on last month but down 8.3 on a year ago. Households took a more positive view of the current economic situation and their personal finances this month, with buying sentiment also ticking up a notch. Good news on the jobs and earnings fronts – including employment hitting a record high and wage growth continuing apace – looks to have provided some comfort, whereas political developments in the UK and what these might mean for the Brexit process prompted households to downgrade their assessment of the economy’s prospects.

Housing Pulse

Housing Pulse softer in June

Two thirds expect price increases in the next 12 months

68% think rents will go up

The Housing Pulse resumed its downward trend in June 2019, coming in at 99.4. Households pared back their expectations for future house price gains this month, but with the number of units being completed still lagging the number needed, the balance of responses remained in positive territory in all parts of the country. On the supply side, the June survey finds that over two in five builders are finding it difficult to get workers and that uncertainty – related to Brexit among other things – is also holding back activity.

Commenting on the Housing Pulse, Dr Loretta O’Sullivan said: “Like Brexit, house prices have been back in the headlines lately, partly because the annual rate of increases has eased quite a bit, especially in Dublin. One reason for this is that affordability is more stretched in the capital which makes the Central Bank’s mortgage rules more binding.

Price expectations in Dublin and elsewhere have also cooled over the past while, and our nationwide Housing Pulse tracker dipped again in June. Two in three households still think price increases are on the cards over the next year though. This is partly because the number of units coming on stream remains well shy of the number needed. And with our survey of construction firms finding that a shortage of workers and uncertainty is limiting building activity, this gap isn’t likely to be closed any time soon.”

Business Pulse

”It was a sideways move for the Business Pulse this month amid ongoing uncertainty and tensions on the external front.”

Business Pulse broadly unchanged in June

Services Pulse up, but softer readings in other sectors

At 90.7 in June 2019, the Business Pulse was broadly unchanged on the month but down 7.1 on a year ago. The Services Pulse recovered some lost ground this month whereas the other sectoral Pulses posted lower readings. With the global backdrop unsettled and Brexit uncertainty back in the spotlight, industrial and construction firms reported softer order books, while businesses more generally scaled back their expectations for activity over the next three months. The June survey also finds that over two in five firms in the industry, services and retail sectors, and some three in five builders, have seen a rise in non-labour input costs in the past three months. Nonetheless, the majority expect to keep their near-term selling prices the same.

Regional Pulse

The Bank of Ireland Regional Pulses bring together the views of households and firms around the country. The results for June 2019 (3 month moving average basis) show that sentiment was down on the month in Dublin and Connacht/Ulster, more or less flat in the Rest of Leinster and up in Munster.

• Dublin Pulse = 89.1 (- 0.4 points on the previous survey)
• Rest of Leinster = 88.1 (+ 0.1)
• Munster = 92.4 (+ 2.0)
• Connacht/Ulster = 92.1 (- 0.8 points)

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Irish businesses pursuing investment opportunities despite Brexit uncertainty.

With the Brexit deadline extended to the 31 October some Irish businesses, which had been postponing investment pending further clarity regarding the Brexit outcome, are now forging ahead with their plans.

The deadline extension means that if the UK government can pass their withdrawal deal through the House of Commons at any point before 31 October they will leave the EU on the first of the following month. If the withdrawal agreement is not passed the UK will leave the EU without a deal on Hallowe’en unless something else is agreed before then.

The uncertainty surrounding Brexit had been influencing businesses’ hesitancy to act on investment plans but over recent months, says Pierce Butler, Head of Sectors for Bank of Ireland, many businesses have made the decision to proceed with their investment plans.

“Various different reports have shown over recent months that a number of firms are postponing their investment decisions until they get that clarity. What we’ve seen recently is a number of companies deciding to go ahead with those decisions and there’s a number of reasons behind it; firstly in some situations they don’t see themselves being materially affected by Brexit, or it makes sense irrespective of the outcome of Brexit, or, in a lot of cases, companies aren’t in a position where they can postpone that investment until a post 2020 scenario when they’ll have full clarity around the future trading relationship.”

While previously there had been a lack of preparation among Irish business in terms of their exposure to Brexit, Butler now says that companies have been proactive about learning about the impact Brexit could have on them. For companies that have not yet begun to prepare for their Brexit reality he has some practical advice.

“Firstly understand the impact, engage with revenue if you’re going to be trading with the UK to ensure that you’re prepared from a documentary perspective and from a customs and potentially tariffs perspective as well, and look at your supply chain, look at your route to market so if you haven’t started that planning do so now to understand the impact and how you might address that”

Paul Fleming, Treasury Manager at Bank of Ireland Global Markets, says that while customers can hope for the best Brexit outcome that preparation for the worst should be built in to their Brexit plans.

“In terms of any business there’s going to be certain risks that you’re aware of and certain risks that you’re not aware of and if you can take the risk out of a business you should. With the foreign exchange exposure you are in a position to do something about it so I think if you are able to de-risk it makes sense to do it.”

Bank of Ireland recently announced the launch of a 2 billion euro Brexit fund to help support businesses through any Brexit outcome.

This fund and the Bank of Ireland’s Brexit Hub website are resources which have been made available to customers to help them understand and plan for their Brexit reality. They have also recently released a guide for importers and exporters in the Republic outlining key considerations in East-West trade in the event of a ‘no-deal’ Brexit, or after any agreed transition period has ended, in the event of a deal being agreed. Customers can contact their Bank of Ireland business relationship manager or, if they have a specific query about managing foreign currency risk, our treasury dealing teams in Dublin and Belfast.

Written by Marie Cogan, Business Writer, Bank of Ireland.

This article has been prepared by The Governor and Company of the Bank of Ireland (“BOI”), for information purposes only and BOI is not soliciting any action based upon it. BOI believes any information contained in the article to be accurate but BOI does not warrant its accuracy and accepts no responsibility for any loss or damage caused by any act or omission taken as a result of the information contained in this recording.

Any expressions of opinion reflect current opinions as at 22 May 2019, based on information available before this date. BOI accepts no responsibility or liability for the accuracy or validity of any third party content referenced herein. This article is property of BOI. The content may not be reproduced, either in whole or in part, without the express written consent of a suitably authorised member of BOI staff.

Bank of Ireland is incorporated in Ireland with limited liability. Bank of Ireland is regulated by the Central Bank of Ireland.

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After a brief hiatus, Brexit related currency volatility has returned to the markets.

After a brief hiatus, Brexit related currency volatility has returned to the markets. While many quickly overlooked the results of the UK Local Elections last Thursday, the losses gave both major UK parties further incentive to get a Brexit deal done. Indeed on Friday afternoon Labour Leader Jeremy Corbyn told the UK media that there is a “huge impetus” on British MPs to achieve a Brexit deal which sent Euro/Sterling briefly below 85p.

Currency markets have yet to see much follow through from Friday’s moves as cross-party talks continue this week. PM Theresa May is already under pressure from her own Conservative Party, and a deal with Labour on a Customs Union could potentially lead to further revolt from inside the Tories. On the Labour side too, it’s still difficult to see how much support Mr. Corbyn can garner for a deal to get passed. Despite more positive soundings, investors remain doubtful of a clear path to a deal that can gain a parliamentary majority. Unless and until we see a clear breakthrough, optimism for Sterling is likely to be short-lived.

There has been some positive news regarding the EU Elections, with the UK confirming yesterday that they would take part. UK participation means that the potential cliff edge at the end of May would no longer be in place with the Article 50 extension in place until October 31st unless a deal can be reached before then.

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Sterling falls as May’s withdrawal agreement is defeated once again

UK PM, Theresa May, has once again failed to garner support for her Withdrawal Agreement in the House of Commons. The margin of loss has decreased markedly over the course of the three votes however today’s margin of 58 votes still leaves plenty of work to be done to get the deal approved. For her part, May has stated her intention to continue to pursue a deal. In the EU, the President of the European Council, Donald Tusk, called an emergency EU Summit for April 10th- two days before Britain is due to leave.

From here, focus turns to Monday when the Indicative Votes process restarts. The hope of many MPs is that despite no clear majority for any of the 8 options which were put before Parliament earlier this week, a majority could yet coalesce behind one or two of the more popular options – such as the inclusion of a confirmatory vote on any deal passed or even a Customs Union. If MPs can secure a majority then this can be put to the UK Government in an effort to re-open negotiations with the EU and most likely extend the Article 50 deadline.

Sterling immediately fell on the announcement of the result although the chances of a long extension have risen, markets have reflected an increased chance of a UK General Election in the value of the Pound.

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Bank of Ireland launches €2bn Brexit Fund

Speaking about the Bank’s initiatives, Gavin Kelly, CEO of Retail Ireland, Bank of Ireland said:

“We are completely focused on supporting and partnering with our customers, helping them to prepare for and navigate Brexit – whatever the outcome, and wherever they do business on the island of Ireland. Today, we are launching a €2bn Brexit Fund designed to support businesses in implementing their investment plans to flex, adapt and thrive into the future.

“This €2bn fund will provide support to businesses regardless of how the UK exits the EU. Our nationwide team of specialists are meeting customers in their place of work every day and are seeing incredible ingenuity and resilience in terms of how Irish SMEs are getting ‘Brexit ready’. Our team is working closely with customers to provide the most suitable financing options for their unique circumstances when and if required.

“We know from dealing with our customers that Irish businesses are quick to adapt to changing circumstances. Many will need to adapt how they operate as the Brexit outcome becomes clearer. Brexit isn’t ‘business as usual’, but we are here to support our customers flex, adapt and thrive. Our ‘all-weather’ Brexit fund will complement our ongoing commitment to the SBCI Brexit Scheme 2018.”

To enquire about a business loan click here

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