Weekly Market Insight

Weekly Market Insight – 06th September 2021

06th September 2021

Why bad news is the new good news for equity investors, the domestic economy rebound in Q2 is clearly helping the hospitality sector and the ‘Housing for All’ strategy is a gamechanger for Ireland if the government can deliver. All these stories and more are covered in this week’s insights update from BlackBee.


Investors seemed to take the view that the Fed’s taper of its bond purchases would be a long drawn out process judging by last week’s market reaction to Jay Powell’s comments at Jackson Hole. However, it hasn’t as yet had any knock-on impact on market expectations for interest rate hikes with 0.25% and 0.5% of rate hikes still priced in for the US in 2022 and 2023 according to Fed funds futures.

On balance US economic data remained a little softer than expected last week with consumer confidence and employment data in particular disappointing expectations (Only 235,000 jobs were created in August versus expectations of 725,000) although August PMI readings remained solid, important insofar as they are good indicators of future short term economic activity. A similarly weaker than expected pattern was also visible in Chinese data last week with the service PMI actually dipping back into contractionary territory while the manufacturing PMI reading was only slightly over the key 50 mark separating expansion from contraction.

From an Irish perspective, last week’s data showed the domestic economy continuing to recover strongly. August’s PMI readings for both the manufacturing and service sectors were well over 60, indicating both sectors are growing strongly. Towards the end of the week the National Accounts for Q2 2021 were also published. While the GDP figures always grab the headlines (up 6.3% in Q2) we’re always conscious that Irish GDP is skewed by the impact of multinationals. In our view, the most heartening part of the release was the strong recovery in modified final demand (see this week’s Chart of the Week) which rebounded by 8.4% in Q2. In our view this is the clearest evidence that the rehabilitation of the domestic economy is now happening which augurs well for spending, investment and employment.


Equity markets rallied again last week despite the weaker economic signals from the US and China, raising the intriguing possibility that bad news is the new ‘good news’ if it elongates the Fed bond taper and the road back to tighter monetary policy. As we’ve argued before, to keep equities grinding higher at these valuations will require improvement in economic and market fundamentals over the next couple of years, not deterioration. The technology sector was again at the centre of the strong performance, helped by signs of a rebound in Chinese and Hong Kong listed technology stocks following the recent government crackdown in China. Japanese equities also perked up late in the week on hopes that the resignation of PM Suga could open the door to a new round of government stimulus for the economy.


Riskier parts of the bond space fared well last week as other risky assets climbed. Interestingly Euro zone sovereign bond yields pushed higher though, leading to negative returns. German inflation in August rose to 3.9%, the highest rate since 1993. This is hardly a major shock to bond investors given the regularity of higher inflation readings this year. However, it did perhaps cause them a little bit of angst ahead of the European Central Bank’s monetary policy meeting this week.


Commodities clocked up further gains last week with most sectors pushing higher as riskier assets made good gains and the dollar slipped a little on foreign exchange markets. Oil prices remained on the front foot as US Gulf of Mexico production struggled to get back to normal in the aftermath of Hurricane Ida’s damage. OPEC+ countries also resisted suggestions that they revise their plans to increase output higher (above their target of increasing supply by 400,000 barrels per day), another factor which kept prices firm.

Sector News:

Housing – Plenty to welcome in Housing for All report

Last week the government published its eagerly-awaited ‘Housing for All’ report which outlined its plans to target over 30,000 housing units per annum over the next decade across the four categories of social, affordable and cost rental, private rental and private ownership. From a social and economic perspective in our view this represents a ‘win win’ situation for Ireland in a number of ways; extra supply will help address social housing demand, it will in time cool both the sales and rental markets, it will ensure the Irish economy remains cost competitive and the extra government spend each year will also act as a further support for Irish economic growth. However, delivery is key now and it is essential that any potential hurdles in the form of planning, infrastructure and resourcing (labour) are overcome.

Hospitality – Green shoots of recovery visible in BoI spend data and Dalata H1 results

Since the economy reopened initial trading data has pointed to a strong performance from Irish hotels over the summer season, particularly those heavily exposed to ‘staycationing’ activity. The data on August spending patterns published last week by Bank of Ireland appears to confirm this. The bank’s data showed that spending in popular regional spots like Clare (+33%), Donegal (+32%) and Kerry (+28%) all rose significantly. Meanwhile Dalata’s first half results last week also showed an improving theme in the sector. At a group level occupancy rose to 58% in July and 68% in August even in spite of its exposure to the Dublin market which continues to be negatively impacted by weak corporate spending and international leisure travel. With the Irish economy reopening rapidly now and a strong rebound in activity evident, the outlook for the hospitality sector is clearly improving in our view.