Irish bank shares get surprising boost from Jeremy Corbyn’s unity bid, as sterling gains
A sharp rebound for Irish bank shares capped a week in which global stock markets were haunted by the threat of global recession, sparking a flight by investors from shares to government bonds.
The Iseq index of Irish shares ended the session 1.3% higher but has still lost around 3% of its value in the past five days. Large gains for the Irish banks stood out — helped by gains for sterling amid Jeremy Corbyn’s bid to topple Prime Minister Boris Johnson by uniting political opposition in Westminster against a crash-out Brexit at Halloween.
Gains for the UK currency held from late Thursday through Friday and came after it had sunk to under 92 pence against the euro on fears of a hard Brexit. Irish bank shares are highly sensitive to political moves in Westminster because of the damage to their future profitability entailed by a hard Brexit.
Investec Ireland noted that sterling posted “modest gains over the last 24 hours over signs that Mr Corbyn’s proposals are gaining traction”, as sterling traded higher to 91.5 pence.
Owen Callan at Investec said the focus remains on Westminster in the coming days to see whether Mr Corbyn’s pitch to replace Mr Johnson with a “time-limited” government ahead of a UK election gains ground with Liberal Democrats and disaffected Tory MPs.
Shares in Bank of Ireland — which has a lot to lose because of its significant lending operation in Britain — climbed 6%; AIB rose by over 5%; and Permanent TSB shares gained over 1%. However, the Irish banks are still among the hardest hit of their European peers, losing around 50% of their value in the past year.
Irish international shares exposed to any world recession also rose, amid broad gains for US stocks. Building products firm CRH and packaging giant Smurfit Kappa rose almost 2% and 4%, respectively. Meanwhile, Tullow Oil shares climbed a further 10% followings its Monday announcement of a significant oil discovery off the coast of Guyana.
The risks of a recession in the US in the next 12 months have risen, but at between 30% to 35%, are still not a racing certainty, according to S&P Global Economics. The ratings firm noted the ability of the US central bank to cut interest rates should worries over the US-China trade war flare again.
Boosting US shares at the end of a losing week, China’s state planner said it would roll out a plan to boost disposable income this year and in 2020 to spur consumption as the economy slows. Investors are also expecting moves by the ECB next month to fight softening growth.
“We haven’t seen any major headlines on trade war today and that is giving the market some relief. The move back up on [government bond] yields is also releasing the pressure on equity markets,” said Peter Cardillo at Spartan Capital Securities in New York.
It is sort of a relief rally and perhaps some bargain hunting since a lot of stocks have been really decimated during this recent decline.
Government bond yields across the world plunged this week on concerns about global growth.
The Irish 10-year bond ended the week still offering investors a negative return on their money of minus 0.10%. That, in theory, means investors would pay the Government interest for the relative safety of lending it money.
