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ECB won’t raise rates until at least mid-2020

ECB won’t raise rates until at least mid-2020

The European Central Bank yesterday signalled that it would not raise interest rates until the first half of 2020.

That compares to a previous guidance that pointed to a rate rise towards the end of this year – something that, in itself, was a delay on its previous plans.

The decision comes as the euro zone’s lacklustre economic recovery faces new headwinds – including China’s slowdown and transatlantic trade tensions.

“Over the last three to four weeks we’re beginning to see central banks across the world decide that they need to support the global economy more,” said Niall Dineen, chief investment officer with Appian Asset Management.

“We’re see rate cuts out of Australia and New Zealand and we’re seeing the Federal Reserve in the US talk about cutting rates as well. So I don’t think it’ll be a huge surprise that we’ve seen the ECB getting on board with everybody else,” Mr Dineen said.

This is a marked turn around from 12 months ago, when most central banks were moving rates upwards and the ECB was poised to follow suit.

According to Mr Dineen a number of factors, but particularly those around global trade, are weighing on economic performance.

“I think the reality is that the trade war rhetoric that we’ve been listening to over the past twelve months has had a real impact on the global economy,” he said.

“There is also weakness in China. There’s a real risk that parts of the Chinese economy could be in a recession and a lot of this is dragging down economic growth numbers across the globe,” he added.

That is prompting central banks to look again at offering supports to economies – rather than trying to take the heat out of markets with rate rises.

The problem for the ECB is that its interest rate remains at zero – while it already has trillions of euro of bonds on its balance sheet from the recently-completed round of quantitative easing. That leaves it with limited scope for further stimulus measures should the euro zone economy require it.

“Central banks will argue that they can always do more on the rate side in terms of forcing banks to lend, or they can do more quantitative easing,” Mr Dineen said.

“But maybe the reality is that the next part of support for the economy has to come from governments and has to come from fiscal spending – maybe that’s the thing that’s been lacking in this cycle. We have to get away from this idea that it’s always going to be central banks that provide this support,” he stated.

The support Europe’s central bank may be willing to offer could also hinge on the person at the helm, as Mario Draghi is due to step down at the end of October. His successor could set a different tone for the authority following what has been a prolonged period of accommodation.

“We have to recognise how positive Draghi has been for Europe,” Mr Dineen said. “He has put the ECB front and centre of keeping the euro zone together as it went through its own crisis and keeping the stimulus measures in place.

“Is there a risk that if we get, maybe, a German head of the central bank that the underlying philosophy will change? I think it’s a small risk – I don’t think it’s a huge risk,” he stated.

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Pound hits 20 week low against the euro

Pound hits 20 week low against the euro

The pound dropped to a 20-week low against the euro amid weak UK data and growing fears of a disruptive Brexit weighing on the currency.

The pound has dropped for four straight weeks, hit by concerns that Britain will crash out of the European Union on October 31st without an agreement on the terms of its departure.

Sterling remained just above five-month lows, trading flat on the day around $1.268.

Against the euro, it fell 0.2% to 88.92 pence, a four-and-a-half-month low.

US President Donald Trump, who arrived in Britain yesterday, has backed Brexit hard-liners such as Boris Johnson and Nigel Farage.

He’s to meet Prime Minister Theresa May and attend a dinner that may include Brexit backers like Johnson.

Nearly a dozen candidates are vying to replace Mrs May as prime minister.

Johnson, the bookmakers’ favourite, says the UK should leave the EU without any agreement.

Short positions on sterling are at their highest since March 17th, according to the US Commodity Futures Trading Commissions, reflecting uncertainty on Britain’s economic outlook.

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Second call of online retail initiative opens

Second call of online retail initiative opens

The Minister for Business, Enterprise and Innovation Heather Humphreys has opened the second call of Enterprise Ireland’s Online Retail Scheme.

The Scheme, an initiative of the Government through Enterprise Ireland, offers a total of €1.25 million in funding to online retailers.

The funding supports research, strategy development, implementation and training.

It aims to enhance retailers’ online sales capabilities and increase their competitiveness as they scale their businesses to international markets.

“Increasing the international sales of Irish companies translates into sustaining and creating high-quality, sustainable jobs across the country — something that this Government is firmly focused on,” Ms Humphreys said.

“Aligned with this, the Online Retail Scheme is intended to enable Irish retailers to expand their reach to a wider customer base both at home and abroad.”

Stephen Hughes, Head of Consumer, Enterprise Ireland, said the Scheme was “developed in response to the challenges currently faced by the retail sector in keeping up with consumers’ ever-changing appetite for quick and easy consumption and the advances in digital capability.”

“At least half of the total number of funds will be awarded to Irish retail businesses based outside of Dublin,” Mr. Hughes projects, highlighting “the important role played by retailers in regional communities.”

Any Irish-owned retail business with 10 or more employees and a physical retail outlet can apply for funding ranging from €10,000 to €25,000.

The six-week application period opens on Wednesday, 19th June and closes at 3pm on Wednesday, 31st July.

The move has been welcomed by trade organisation, Retail Excellence, which said it would give Irish retailers the resources to respond to external challenges like exporting in Q4 in a difficult post-Brexit environment, flat consumer confidence and increasing business costs.

“While we’re clear that today’s Call 2 launch is most welcome, the fact is that this scheme has been rolled out on a pilot basis, so it’s a step in the right direction,” said Bryan Rankin, Head of Public Affairs with Retail Excellence.

“However, the level of State support and financial intervention needs to be far more ambitious, in our view.”

“We will be working with Minister Humphrey’s office to scale up funding to a level that can impact positively on the thousands of retailers that sell Irish products and services online.”

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Housing commencements rose by over 31% in Q1

Housing commencements rose by over 31% in Q1

New figures today show that the number of housing commencements rose by 31.6% in the first quarter of the year compared with the same time last year.

The latest Housing Market Monitor, published today by Banking & Payments Federation Ireland, showed that 5,8000 housing commencements were registered in the first thee months of the year.

The Housing Market Monitor also showed that mortgage approvals and drawdowns both grew strongly in the first quarter, increasing by 9.2% and 8.9% respectively.

It noted that the volume of purchase mortgage drawdowns rose to its highest first quarter level since 2008.

The BPFI figures also revealed that cash sales accounted for an estimated 27.1% of sales on an annualised basis in the first quarter of this year, down from 31.2% a year earlier.

Meanwhile, residential property prices increased by 3.9% year-on-year in March – the lowest rate of annual growth in average prices since August 2013.

The BPFI said its latest Housing Market Monitor points to the need for a range of solutions and stakeholders to meet current housing needs.

Its economist Ali Uğur said that in recent years the private rented sector has been dominated by residential individual investors.

“BPFI mortgage drawdown data show that these individual investors accounted for around 20% of the value of drawdowns in 2006 during the peak of activity. However, since 2008, along with the decline in activity until 2013, the share of mortgages accounted for by residential individual investors declined significantly,” the economist said.

He said the market is seeing increased activity by the non-household sector – which includes companies such as pension funds, specialist private rental firms and Real Estate Investment Trusts (REITs) in the domestic residential property market.

“This in a way shows that, to a significant extent, buy to let sector investors which have been traditionally individual investors have been replaced by institutional investors in the Irish housing market over the last 10 years, particularly in the new apartment sector,” Mr Uğu said.

He said that while the latest figures shows signs of progress on housing supply, significant challenges remain.

“Given different segments that make up the housing market from a demand perspective and the needs of these different segments, it is important to recognise that we need a number of stakeholders, both from the private and public sector, to play a role in addressing the nation’s housing needs with perhaps a different product mix varying according to needs, from houses to apartments and purchase to rental,” the economist added.

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Ireland is close to ‘full employment’, new CSO figures show

THE economy is now close to full employment as the jobless rate slumped to just 4.4pc.

This is a sharp fall from the height of the recession when it hit almost16pc.

The Central Statistics Office’s latest figures show the unemployment rate stood at 4.4pc last month, down from 4.6pc in April.

It was 5.6pc in May last year.

This means there are now 108,200 people out of work – a fall of 33,200 compared to the same month last year.

Economist Alan McQuaid said we are as close to full employment as possible.

He said full employment is generally around the 4pc mark – but 0pc is never reached because there are always people between jobs.

“We are almost back to Celtic Tiger levels of employment and the numbers are holding up remarkably well despite Brexit,” he said.

“The rate today is more than 11.5pc below peak unemployment during the recession and is lower than the 7.6pc Eurozone average.

“We had a very strong labour force survey recently showing there were 2.3 million people at work and the number of jobs created is likely to be over 70,000 and even higher than last year.”

He noted that youth unemployment has fallen to 10pc, down from 10.3pc the previous month.

However, he sounded a note of caution as an AIB manufacturing survey this week showed growth could be weaker in the second half of the year.

But he said he believes the numbers unemployed will continue to fall.

He noted that full employment has implications for employers in terms of finding enough staff.

Mr McQuaid said that measures need to be taken including adequate childcare to attract more women back to the workforce as the overall portion of the population at work could be improved.

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Irish FDI soars 52pc as UK and Europe stall

IRELAND delivered a Brexit-busting performance in attracting foreign direct investment in 2018, according to a European-wide analysis of FDI trends.

The annual EY European Attractiveness Survey found that Ireland won 205 new FDI commitments last year, up 52pc from 2017.

That cut against the grain of an overall 4pc decline in FDI growth across Europe and a 13pc drop in the United Kingdom, where analysts identified the threat of Brexit as a key factor in spooking investors.

“Ireland’s FDI performance is all the more remarkable given the impact Brexit has had elsewhere in Europe,” said EY Ireland chief economist Neil Gibson.

“The survey identified talent, trade, technology and tax as the key themes driving FDI trends in 2018.

“Ireland’s clear strengths in each of these areas is likely to lie behind its Brexit-bucking performance.”

Survey respondents cited Brexit as the number one issue weakening Europe’s attractiveness as an investment location, rising from fourth place in the 2017 survey. Just one in four identified London as one of Europe’s top three cities for investment, down from 34pc the year before.

While the UK retained pole position in 2018 as Europe’s top target for FDI, attracting a 17pc market share of all new investment, it saw this activity decline by 13pc to 1,054 projects, a four-year low driven by a sluggish manufacturing sector.

Germany experienced a similar 13pc drop, losing its number two spot on Europe’s FDI table to France, where FDI growth stalled after two years of strong gains. Still, for the first time in two decades of EY surveys on the topic, France outpaced the UK and Germany to come top in wooing new R&D and manufacturing investments.

Ireland’s 52pc gain left it in 10th place with a 3pc share of new European FDI. Fourth-place Spain (32pc), fifth-place Belgium (29pc) and sixth-place Poland (38pc) also fared particularly well in growing FDI in 2018.

But the survey also identified signs of waning international interest in investing in Europe. It found that only 27pc of businesses plan to establish or expand operations in Europe this year, compared with 35pc last year. Should this forecast prove accurate, 2019 would mark a seven-year low in FDI growth.

The report also identified signs that investment from US multinationals is waning, cooled by weak American growth and tax reform measures.

It said FDI from US sources into Europe grew 3pc in 2018, down from the previous four-year average of 8pc growth.

The EY European Attractiveness Survey excludes portfolio investments and M&A activity to ensure it measures only those FDI projects that create new facilities and jobs.

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Affordability is key issue for pension system study

Employment minister Regina Doherty has commissioned a key study into the affordability of a new auto enrolment system for pensions that she has insisted is on course to launch in 2022.

The new system is aimed at trying to ensure that young workers will have adequate savings by the time they retire. But there is concern this could cause financial difficulties for low-paid workers.

A consultation last year indicated those earning below €20,000 per annum would not be automatically enrolled.

Ms Doherty said her department had commissioned the ESRI to examine the potential “macro and micro-economic impacts” of the new system.

The ESRI is to examine the impact of reducing the earnings threshold and would also examine the gender impact.

“Any decision on the earnings threshold for automatic enrolment will need to balance the benefits of enrolment with concerns regarding affordability,” Ms Doherty said.

She said feedback from last year’s process had been largely “positive and constructive” but generated “diverging and conflicting views from stakeholders on some of the specific aspects”.

“My department is continuing its research and consultation with experts from around the world,” she said.

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Euro dips on Italian debt worries and trade tensions

Euro dips on Italian debt worries and trade tensions

The euro dipped today as investors nervous about trade tensions bought into the safe-haven dollar and fretted that political risks in Europe remain high.

This is despite the fact that pro-Europe parties won a majority of European parliamentary seats.

Remarks by two euro zone officials that the European Commission was likely to fine Italy on June 5, because its rising debt and structural deficits break European Union rules, also weighed on the single currency.

Pro-Europe parties kept a majority of seats in last week’s European parliamentary elections. Support grew for eurosceptic and right-wing parties, but not as much as investors had feared.

European leaders now meet in Brussels to fill in a number of top EU posts, from the head of the European Commission to the European Central Bank.

Currency markets remain in tight ranges without new catalysts and amid uncertainty over how trade tensions between the US and China are affecting the world’s major economies.

The euro slipped 0.1% to $1.1179 as the euro’s initial gains after the EU election results were fleeting.

The dollar rose 0.2% against a basket of peers, but it remains off a two-year high of 98.371 hit on Thursday.

Sterling slipped 0.1% to $1.2671 as candidates to succeed British Prime Minister Theresa May laid out some of their Brexit plans.

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Mortgage approvals rise by 9.5% in April – BPFI

Mortgage approvals rise by 9.5% in April – BPFI

New figures from the Banking and Payments Federation Ireland show that just over 4,100 mortgages were approved in April.

This is down slightly month on month, but up 9.5% on an annual basis.

The figures show that just over half of those mortgages went to first time buyers – with movers making up a little over a quarter of the figure.

But the number of mortgages given to investors – for buy-to-let properties – fell in the month, and is down almost 30% year on year.

Meanwhile, the value of the loans being given out by banks continues to rise.

Approvals in April were worth a total of €931m with more than half of that total going to first time buyers.

The value of approvals is up 1.1% in the month and more than 10% year on year.

Felix O’Regan, Director of Public Affairs at Banking and Payments Federation Ireland, said the latest figures show good year-on-year growth of 9.5% and 10.5% in the number and value respectively of mortgages approved by lenders during April 2019.

“This growth is particularly evident in the case of first-time buyers where the 23.2% uplift in the value of approvals in April 2019 compared to April 2018 represents the strongest rate of growth since October 2017,” Mr O’Regan said.

He said that while the comparison of the April figures with March shows weaker growth, and even a decline in some categories, the year-on-year comparison provides a more reliable picture of the overall mortgage market performance because of the volatility that can arise from one month to another.

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New €100 and €200 banknotes in circulation from today

New €100 and €200 banknotes in circulation from today

The European Central Bank has said that new €100 and €200 banknotes will start circulating around the euro zone today.

The new banknotes use new and innovative security features and are easy to check using the “feel, look and tilt” method.

At the top of the silvery stripe a satellite hologram shows small € symbols that move around the number when the banknote is tilted and become clearer under direct light.

The silvery stripe also shows a portrait of Europa, the architectural motif and a large € symbol.

The new banknotes also feature an enhanced emerald number. While the emerald number is present on all the other notes of the Europa series, this enhanced version also shows € symbols inside the number.

These enhanced security features all make them more resistant to counterfeiting.

The new €100 and €200 notes complete the Europa series that has been gradually replacing the first set of euro notes first issued in 2002.

The ECB said the new €100 and €200 notes are now the same height as the €50 banknote, which makes them easier to handle and process by machines.

They will also fit better in purses and wallets and last longer, as they will be subject to less wear and tear.

The €100 is the third most widely used euro banknote, after the €50 and the €20.

About 2.7 billion €100 notes were in circulation at the end of June 2018, accounting for 13% of all banknotes in use.

The ECB also noted that demand for €100 and €200 banknotes is increasing, at an annual rate of 7.6% for the €100 and 8.6% for the €200.

The €100 and €200 banknotes of the first series, like all the other denominations, will remain legal tender.

They will continue to circulate alongside the new notes and will be gradually withdrawn from circulation.

The ECB said it was printing about €2.3 billion €100 denomination notes but not all of these would be introduced immediately, as some would be kept in the ECB’s vault and sent to commercial banks when needed.

National central banks within the euro zone have jointly printed the currency’s banknotes since 2002, with each institution accountable for a proportion of the total annual production in one or several denominations.

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