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Markets News Tuesday: China’s foreign-exchange reserves rose to US$2.85trn in 2010 - - up from $769bn in 2005
By Finfacts Team
Jan 11, 2011 - 8:53 AM

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UK Prime Minister David Cameron welcomed Chinese Vice-Premier Li Keqiang to Number 10 Downing Street, as part of a four-day visit to the UK, Jan 10, 2011.

China: China’s foreign-exchange reserves rose to a new record in the fourth quarter of 2110 according to the Peoples's Bank of China today.

The currency holdings, reported by the central bank on its website, added $199bn in the quarter to to US$2.85trn - - the biggest quarterly gain since Bloomberg data began in 1996.

In 2005, China's foreign exchange reserves were valued at $769bn and in 1995 were valued at $74bn.

Global accord targets credit bubbles: The Financial Times reports that banking regulators have quietly taken a major step towards harmonised global regulation by agreeing to raise worldwide capital requirements whenever an individual country declares a credit bubble.

The FT says part of the larger “Basel III” banking reform package, the “countercyclical capital buffer” heralds a step change in the way national banking regulators interact and is the first concrete example of “macroprudential” regulation that seeks to moderate the economic cycle.

Poor UK retail sales in December: Davy economist, Conall Mac Coille, comments - - "Today's report from the British Retail Consortium (BRC) suggests that December was a gloomy month for the retail sector. On an annual basis, the BRC report indicates that retail sales fell in nominal terms by 0.3% compared with a year earlier, down considerably from the 0.7% rise reported in November. The BRC indicated that the unusually poor weather in December may have held back consumers during the Christmas period so that retail sales fell.

However, it is not clear if all of the weakness in retail sales can be attributed to poor weather. Consumers will have been aware that the rate of value added tax was scheduled to rise to 20% in January and may therefore have brought forward some of their spending. This makes the weak numbers from the BRC report all the more surprising. Also, the BRC numbers follow the release of the Census of Industrial Production figures for services (excluding retail sales) and construction which indicate that overall output in the UK economy may have contracted in December.

So it may be that the softening in UK growth that is expected in 2011 is now being reflected in the BRC numbers as households begin to realise that the impact of the coalition government's fiscal adjustment will be felt in 2011. This probably means that the Monetary Policy Committee of the Bank of England is more likely to leave policy rates on hold this week at its next meeting."

Stephen King, global chief economist at HSBC, discusses the Fed's role in fueling inflation outside of the United States, with CNBC's Oriel Morrison:

Economic View; Been here before; Goodbody chief economist, Dermot O’Leary, comments  -- "We are getting a deep sense of deja-vu with the emerging situation in Portugal. Prior to Ireland applying for aid from the IMF/EU last November, market rumours were rife that Ireland was about to avail of external aid, but this was strenuously denied by Irish and European policymakers.

Speculation has been building in the market at the start of this year that Portugal will be next in line to request aid, with the major trigger for that speculation the continued rise in Portuguese bond yields to well above rates that would be paid on an aid package from the IMF/EU (although Portuguese 10-year yields did fall to 6.94% yesterday). The response from the Portuguese government has, unsurprisingly, been to deny that any aid request is forthcoming.

It is not Ireland, they say. Ireland was not Greece! German Chancellor Merkel weighed in yesterday saying that nothing will be imposed on any country and that it is a 'free decision for each country' to request the funding that is available. This comes to the nub issue. The structure of the European Financial Stability Fund (EFSF), in particular, dictates that countries need to request the aid themselves. In the Irish case, it was effectively the ECB putting its foot down in relation to the amount of funding it was giving to the Irish banks that forced Ireland into requesting the aid package.

The funding problems for the Portuguese banks are not as acute so it is possible that Portugal can muddle through for longer, while paying high interest rates for its sovereign funding. A test of this will be the auction tomorrow. Although the reports of ECB buying sent bond yields in all the peripherals down yesterday, the experience of Ireland and Greece in 2010 suggests that this may be just temporary relief."

Insight on whether the crash of Bangladesh stock exchange will continue to cause fear in emerging markets, with Ronald Weiner, RDM Financial Group and Tom Lydon, ETF Trends:

US Markets

The Dow closed down 37.31 points, or 0.3%, at 11637.4 on Monday. Chemical giant DuPont fell 1.5% after agreeing to acquire Denmark's Danisco, an enzyme and food-ingredients company, in a $6.3bn deal.

The Nasdaq Composite rose 4.63, or 0.2% to 2707.80. The Standard & Poor's 500 stock index fell 1.75, or 0.1% to 1269.75.

Aluminum giant Alcoa kicked-off the fourth quarter earnings season with earning per share (EPS) of 21 cents, beating the consensus expectations of 19 cents.

"China and the United States realize their bilateral relationship is a very important bilateral relationship, they certainly do not want to see a sharp deterioration in their ties," Joseph Y.S. Chang, professor at City University of Hong Kong told CNBC:

Asia Markets

The MSCI Asia Pacific was little changed Tuesday, gaining less than 0.1%.

Japan's Nikkei 225 dipped 0.29%; China's Shanghai Composite rose 0.44%; Australia's S&P/ASX 200 Index fell 0.03% and India's Sensex added 0.73%.

Asia benchmarks

Finfacts Reports

ECB intervenes in bond markets as Portugal remains under siege; Japan says it will purchase bonds issued by Eurozone bailout fund
China promotes flood of patents while Europe tries to break patent logjam
Emerging market growth quickens in Q4 2010 but inflation threatens sting in the tail
Dr. Peter Morici: The new pro-business Obama Administration or just a big smooze?
Markets News Afternoon: French industrial output jumps in November; Banks likely to appoint receiver for McInerney; State Street completes acquisition of BIAM
Newly appointed president of American Chamber of Commerce in Ireland says Ireland as a country has been tarnished by the fiscal and banking crises
Irish industrial production for November 2010 was 15.7% higher than in November 2009 but job numbers fell

In Europe, the Dow Jones Stoxx 600 is up 0.36% in early trading Tuesday.

The ISEQ has risen 0.43% in Dublin.

CRH is up 0.76%; Elan has added 1.10%; IL&P has gained 4.71%.

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 $1.2928 and at £0.8315.

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; The BDI fell 24 points or 1.58% to 1,495, on Monday this week.

Crude oil for February 2011 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $89.24 barrel down 1 cent from Monday's close. In London, Brent for February delivery is trading on the International Commodities Exchange at $95.44.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,377.10, up $1.10 from Monday's close.

Bank of Ireland (Closing Price €0.31): BOI completes small disposal/Possibly considering debt for equity swap; Goodbody's Eamonn Hughes comments  - -"Bank of Ireland yesterday announced that it has completed the disposal of its asset management operation to State Street Global Advisors for a €57m cash consideration. This follows the earlier October announcement of the transaction.

The sale generated €40m of equity tier 1 capital for the bank and while the bank says the deal represents a significant milestone in relation to the execution of its EU restructuring plan, we would categorise it as a more modest contributor to capital , at less than 2% of the revised capital target set by the regulator. In addition, we would envisage higher capital requirements again in the upcoming Q1 PCAR assessment. Speaking of which, Bloomberg carried a story yesterday that BOI is said to be considering a junior debt for equity swap. Presumably all options on a capital raising exercise are on the table at the moment.

We note that BOI has about €0.7bn of junior subordinated debt outstanding and the comments from “informed” sources appear to indicate possible capital generation in the low hundreds. So lets say €100-200m, which compares to the €1.5bn outstanding needed by the bank to reach its €2.2bn target after the senior subordinated debt swap a few weeks ago which generated c.€0.7bn. As we have been saying for some time, it implies more dilution for existing shareholders, but the extent of which is hard to estimate given a large input in any NAV calculation will be the price at which the equity will be raised. For that reason, we pulled our recommendations and fair values on the banks after the November capital assessment from the Financial Regulator."


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