Residential Property Price Index for April revealed the smallest annual decline since 2008

The CSO’s Residential Property Price Index for April revealed the smallest annual decline since prices (as measured by the RPPI) turned negative in February 2008. However, not for the first time the headline figure masks a two-tier performance across the country with a 1.0% y/y rise seen in Dublin and a 2.8% y/y decline seen elsewhere. The subindices of the CPI release referenced above show that the annual rate of inflation in private rents (+5.4%) stands at its highest level in almost five years, which is supportive in terms of the outlook for prices in the key urban areas in particular.

The PMIs for Ireland revealed a mixed picture. While the Investec Manufacturing PMI showed that the sector remained in contraction for a third successive month in May, the headline rate (49.7) suggests that activity may be beginning to stabilise. The picture was brighter for the services sector, with the Investec Services PMI indicating a 10th successive month of growth. While not a surprise, it was nonetheless sobering to see that the Ulster Bank Construction PMI suggests that the decline in activity in that area has now extended into a sixth year.

There was a lot of newsflow from the banking sector. Bank of Ireland launched its first fully unguaranteed senior unsecured issuance since June 2008, raising €500m from a well-diversified range of 120 investors, 97% of whom were located outside of the State. That marked another important milestone in the group’s re-engagement with the bond markets over the past year, following two ACS issues and the sale of new subordinated debt.

One of the key issues for the banks has been the timing of the next round of stress tests. The updated MoU between the Troika and Ireland confirmed that a single test will be carried out in H1 2014. While this does provide some extra breathing space for the institutions to deal with the tail of legacy issues in their mortgage books in particular, relative to the original Q3 2013 timeframe, we view this development as unhelpful for Bank of Ireland, which would have presumably used an earlier result to better inform its options ahead of the step-up in the redemption costs of its preference shares in March 2014.

Another key issue for the banks is the issue of mortgage arrears. The latest Central Bank arrears data show that 12.3% of owner-occupied and 19.7% of BTL mortgages are now in arrears of more than 90 days, although there was an improving trend in early owner-occupied arrears which suggests that we may be close to a peak in terms of the stresses in that area.

Staying with the banks, NAMA’s decision to redeem a further €1.5bn of its senior bonds (all of which are held by AIB, Bank of Ireland and PTSB) is a positive development for the domestic institutions in that it reduces the negative carry attached to their holdings. Since its inception NAMA has redeemed €6.25bn of its senior bonds, with this latest redemption bringing it close to reaching its target of buying back a total of €7.5bn by the end of 2013.

Turning to the public finances, Exchequer Returns data to end-May show outperformance on both the revenue and expenditure sides. This suggests that the risks to our fiscal estimates (which assume an improvement in the general government deficit to 7.4% of GDP, from last year’s 7.6%) lie to the upside, but we would caution that the ultimate NAMA ‘true up’ cost and the slightly higher (54%) H2 weighting for projected annual tax receipts mean that this is by no means assured. 

On the consumer side, headline retail sales data for April revealed a pick-up relative to the March outturn. However, after excluding the volatile car sales component the picture is less encouraging, with declines in both value and volume terms recorded on both a m/m and y/y basis. There was better news elsewhere on the consumer front. Firstly, the Live Register revealed that the numbers on it had fallen for an 11th month in a row. Secondly, the CPI revealed that the headline rate of inflation (+0.4% y/y) has fallen to its lowest level since August 2010, which provides some respite to consumers.