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Markets News Tuesday: Goldman Sachs issues upbeat 2011 outlooks for global and US economies; Investment in Facebook will value site at $50bn
By Finfacts Team
Jan 4, 2011 - 7:04 AM

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On Monday, the first trading day of 2011, global stocks rallied in response to strong December manufacturing data and the rally continued Tuesday  - - see links to manufacturing stories below.

Copper hit a fresh all-time high, while oil in New York surged to as much as $92.58 a barrel in intra-day trading - - its highest level since October 2008.

Goldman Sachs: The US investment bank on Monday issued 2011 upbeat outlooks for the global and US economies.

GS said the world economy can expect another strong year of growth in 2011, according to its annual economic forecast. The United States can expect substantial acceleration in real GDP growth over the next two years to a 4% pace by early/mid-2012.  

Jan Hatzius, chief US economist, Goldman Sachs, and Sandra Lawson, senior global economist in the Global Markets Institute at Goldman Sachs, discussed the outlook for the year ahead in early December 2010 (includes access to videos and economic reports.)

Highlights

  • The revised US forecasts for 2011 and first forecasts for 2012 tell a story of continued global recovery. Most striking, given the investment bank's long-standing downbeat view on the US, it now shows a substantial acceleration in its US growth view.

  • Underneath this robust story is a gradual shift in the mix of growth. GS expects a pick-up in GDP growth in the advanced economies through the year and even more clearly into 2012, led by the US. And, while it expects emerging markets (EM) and BRICs (Brazil, Russia, India and China) growth to remain solid, it sees a mild deceleration in growth through 2011 and stable but high growth in 2012.

  • The result is a modest narrowing of the performance gap between the developed and EM economies, in absolute terms and relative to their trends.

  • With lots of spare capacity in the US and other large developed economies, GS expects monetary policy to remain very accommodative, with no interest rate increases in the US in 2011/12 and a slow pace of tightening elsewhere.

  • But the emerging world has a lot less economic slack and diminishing US recession risk may serve to reinforce the tightening of policy that is already underway in some quarters.

An optimistic view on the economy, with Jan Hatzius, Goldman Sachs chief US economist:

The New York Times reported on Monday that Goldman Sachs had reached out to its wealthy private clients, offering them a chance to invest in Facebook, the hot social networking giant that is considering a possible public offering in 2012.

The NYT said on Sunday night, a number of Goldman clients received an email from their Goldman broker, offering them the opportunity to invest in an unnamed “private company that is considering a transaction to raise additional capital.” Another person briefed on the deal said that Goldman clients would have to pony up a minimum of $2m to invest and would be prohibited from selling their shares until 2013.

A Goldman spokesman declined to comment.

Facebook has raised $500m from Goldman Sachs and a Russian investor in a transaction that values the company at $50bn, according to people involved in the transaction. As part of its deal with Facebook, Goldman is expected to raise as much as $1.5bn from investors for Facebook.

New York Times Deal Book blog analysis: Facebook Deal Offers Freedom From Scrutiny

Goldman's high net worth clients to get access to Facebook shares, with Andrew Ross Sorkin, The New York Times:

Irish Equities: Opening Call 2011; Goodbody's Eamonn Hughes comments  -- "We published our 2011 Investment Strategy and Key Stock Picks note in mid December, but for those of you who missed our note and as we open our account in the New Year, here are the themes and key picks again.

As we move into 2011, the peak in economic growth momentum globally frames our investment approach. We have tried to map the stocks to four key investment themes. We are setting a preference for: (i) structural over cyclical; (ii) improving returns, from widening margins or improving asset utilisation, over leverage; (iii) non-Irish rather than Irish exposure, though where a particular Irish stock looks to have real value, we put it on our radar, given the marginal trade may well be on the buy side; and (iv) for stocks with valuations that have lagged or where corporate activity may represent a valuation driver in consolidating industries.

Our key picks in the year ahead, on the basis of market capitalisation are; Ryanair, Dragon Oil, Travis Perkins, Aryzta, DCC, Paddy Power and FBD.Ryanair: A 1.5x rise in ROAs to FY13 due to tighter fleet growth, the use of more mainstream airports in the mix and operational trends. Dragon Oil: Undemanding value (EV/boe of $4.30), production growth, and the potential for corporate activity continue to attract. Travis Perkins: Medium-term growth prospects coupled with the self-help of the BSS deal, underpin our mid-cycle valuation of 1390p.

ARYZTA: It has strong growth potential, proven management capability, combined with a substantial valuation discount to peers. DCC: Valuation is ignoring the quality of profits and the scope to continue growing in fragmented markets. Paddy Power: It is in an earnings upgrade cycle, driven by significant competitive advantage in Australia, which is not reflected in the current share price. FBD: A strong balance sheet where returns are set to outweigh write-downs, mark an inflection point in NAV. Also, its historically low dividend payout ratio offers excellent growth potential."

Countries in the Eurozone will have no choice but to cooperate to overcome the debt crisis, Jean-Paul Pierret, strategist at Dexia Securities France, said. "We know now that there is a bill to foot… we know the amount but what we don't know is how each country will be able to pay it," Pierret added:

Economic View: Positive international growth trends provide a decent start to the year; Goodbody chief economist, Dermot O’Leary, comments  --
"The ongoing turmoil in the sovereign debt markets dominated our commentary in the closing weeks of 2010. This was for good reason of course, given that Ireland was at the very epicentre of the storm.

This issue is not likely to go away any time soon, but there has also been more encouraging news in the form of improving economic data on both sides of the Atlantic. Sustained international growth is of course vital to Ireland experiencing an export-led recovery. In the US, double-dip concerns started to surface in the summer of 2010, while in Europe, it was thought that Greece’s woes in May would threaten the recovery in the region as a whole.

As it turned out, both these fears were misplaced, with an impressive turnaround in the US data seen in the final few months of the year, while growth continued at an impressive, albeit uneven pace in the euro-area, powered by Germany. The opening economic data of 2011, released yesterday, provided further evidence of this trend. The ISM index of manufacturing activity rose to 57.0 in December, up from 56.6, and is now at a seven-month high.

Two of the most important sub indices - new orders (60.9) and employment (55.7) – are well in expansionary territory. In the euro-area, the manufacturing PMI rose to a similar 57.1 in December, up from 55.3 in November, putting it at an eight-month high. Ireland has numerous challenges to face in the year ahead, issues that I am sure we will be returning to, but it is, nonetheless, encouraging that one part of the jigsaw – growth in international demand – remains in place."

Manufacturing continues to expand: Davy economist, Conall Mac Coille, commented  - -"Stock markets rose by more than 1% yesterday following news that the manufacturing sector continued to expand in December in both the US and euro area. In the US, the Institute of Supply management (ISM) manufacturing index was 57 in December, as expected by the market and the highest reading in seven months. The euro zone purchasing managers index (PMI) was slightly stronger than expected at 57.1. Yesterday's releases will be followed today by the release of the UK PMI for manufacturing which is also expected to post a robust reading at 58, well above the 50 no-change level.

Taken together, these reports indicate that manufacturing output gathered momentum through the fourth quarter. Within the US ISM release, the new orders component rose sharply from 56.6 in November to 60.9 to end the year. This suggests that the momentum in manufacturing output in Q4 is likely to continue into Q1.

That said, the employment component of the ISM fell back slightly to 55.7, which although above the 50 no-change level, is likely to deliver only modest growth in factory payrolls. So for now the strength of manufacturing output does not appear to have translated into employment growth sufficiently strong to reduce the high US unemployment rate. And for that reason markets may focus on this week's initial and continuing jobless claims numbers to see if the momentum that the US economy built up towards the end of 2010 is beginning to deliver improving labour market conditions."

US Markets

On Monday in New York, the Dow Jones Industrial Average gained 93.24 points, or 0.8%, to close at 11670.75, a 28-month high. The Standard & Poor's 500-stock index rose 14.23 points, or 1.1%, to end at 1271.87.

The technology-heavy Nasdaq Composite gained 38.65 points, or 1.5%, to finish at 2691.52, a three-year high.

Asia Markets

The MSCI Asia Pacific Index climbed 0.7% Tuesday to the highest since June 2008.

The Nikkei rose 1.23%; China's Shanghai Composite climbed 1.76%; Australia's S&P/ASX 200 Index dipped 0.23% and India's Sensex added 0.25%.

Asia benchmarks

Finfacts Reports

Global Manufacturing PMI ended 2010 at a six-month high
Innovation: Ireland's 'smart economy' strategy, universities and free-lunch entrepreneurship
Two-speed economic growth recovery extends into 2011 says IMF
Over 1,500 Irish companies were declared insolvent during 2010; Process of court examinership fell
Dr. Peter Morici: US state and local governments face daunting budget challenges
US manufacturing activity expanded in December for the 17th consecutive month; US construction spending in November rose to the highest level in five months
Eurozone manufacturing growth in December accelerated and job creation rose to 10-year high
Recovery in Irish manufacturing sector continued in December; Employment rose
Indian manufacturing sector grew at slower rate in December
Global population to grow to 7bn in 2011; Family photo of all humanity could be taken in area of Los Angeles city
Sweden's Gapminder shatters economic and environmental myths with online animated graphs
Irish Shares: Stock market capitalization at end 2010 was at 1997 level in current money values
Global Stock Markets 2010: Among big countries, Germany and US were in the lead while shares in China fell
US businesses expanded in December at fastest pace in two decades; New weekly jobless benefit claims dipped by 34,000
Central Bank says lending to Irish households and businesses fell again in November; ECB lending to banks rose by €11.7bn in to €97.3bn
China's manufacturing activity fell to a three-month low in December; Japanese manufacturing contracted for fourth straight month but at slower pace
Eurozone retail sales posted steepest gain in December since May 2008
Spain says it expects to cut sovereign debt sales by 24% in 2011
European loan growth accelerated in November
Gap between improving ‘traded’ sectors gaining from exports and weakening Irish domestic demand increasing
Home prices in 20 large US cities fell in October; Detroit home prices are more than 30% below their January 2000 values
US Consumer Confidence Index slipped in December
O'Keeffe says Irish State enterprise agencies may support the creation of 30,000 jobs in 2011
Irish State Secret!: Ireland's farm incomes rose a stunning 39.1% in 2010
Greens about to orbit from Planet Bertie launch Irish Climate Change Bill to save Planet Earth
US pre-Christmas economic data point to strengthening recovery
Irish retail sales volume increased by 0.9% in November 2010 compared with November 2009
Government nationalises Allied Irish Banks; High Court orders de-listing of Ireland's former top bank from main markets of Irish and London stock exchanges
World trade and industrial production momentum has been falling since January 2010
Irish trade surplus rises on falling imports; Enterprise Ireland says 70% of lost indigenous exports recovered; Job numbers in Irish-owned firms fell
Ireland, optimism and King Lear's 'great stage of fools'
German business confidence rose to a record high in December

In Europe, the Dow Jones Stoxx 600 has risen 0.63% in early trading Tuesday.

The ISEQ has added 0.90% in Dublin.

CRH is up 0.65%; Elan has added 6.63%; Aer Lingus has risen 1.85% and BoI has gained 6.67%.


European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies 

The euro is trading at $1.3334 and at £0.8624.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index averaged 59% lower in 2009 than a year earlier.

On Thursday, July 15, 2010, the index  fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points, Bloomberg report.

On Friday July16th, the BDI rose 20 points or 1.12% to 1,700 to break the 35-session losing streak; In December, the BDI closed the year with a 14th session drop of 22 points, or 1.2%, to 1,773 points, according to the Baltic Exchange in London because of a surplus of ships competing for cargo. The exchange was closed on Monday this week.

Crude oil for January 2011 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $91.72 barrel up 32 cents from Monday's close. In London, Brent for January delivery is trading on the International Commodities Exchange at $95.02.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,415.30, up $0.70 from Monday's close.


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