Five years after their death bell had been sounded, Fianna Fáil have bounced back having secured 44 seats. The most realistic option now is a coalition between the two parties whose pre election commitment was that they wouldn’t go into government with one another. For Fianna Fáil the temptation of being back in power may overwhelm their previous promises.

The new Dáil is set to convene on March 10th, but negotiations to form a new government may not have concluded at that stage. The present government will take on a caretaker role during the negotiations. If no viable coalition can be found, one scenario is that Fine Gael could form a minority government, propped up indefinitely by Fianna Fáil. However, such an unstable arrangement would struggle to be maintained beyond the next Budget, scheduled for October. In this context, a second general election in the next six months is a distinct possibility.

Ireland’s GDP growth should weather a protracted period of political uncertainty relatively well. A key point is that Irish GDP growth remains largely export-led, with consumer spending only joining in the recovery over the past 12 months. Household savings rates remain exceptionally high, with consumers rapidly paying down legacy debts from the Celtic Tiger years.

The global index rose 2.7% last week to deliver gains for the second week running. The US S&P 500 Index also saw a positive return of 1.6%, with Euro weakness once again adding to returns for Irish investors. The FTSE ended the week up 2.5% but it is worth noting the impact of the weaker Sterling, with the return pared to 0.5% for Euro investors. Ireland outperformed Europe on a relative basis with a return of 1.9% versus 1.8% for Europe ex UK.

Eurozone bond prices in general were up 0.7%. German 10 year yields fell five basis points to 0.15, with the Irish equivalent following suit from 0.95 to 0.90;. US Treasuries were little changed on the week.

Oil remains down over 10% year to date but did post a strong Euro return of 10.6% for the week as the market shrugged off comments from the Saudi oil minister.
Sterling fell to a six-year low against the dollar at $1.401 after London Mayor, Boris Johnson, said he would support the campaign for the UK to leave the EU. However, there was little apparent impact from the news on UK gilt or share prices. Against the euro, sterling traded around 78p.

Market March 16

Source : Bloomberg Finance LP
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