Markets News Monday: Bank of Japan floods money market with liquidity in aftermath of earthquake; Arytza reports revenues up 35% in half-year
By Finfacts Team
Mar 14, 2011 - 9:24 AM

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Japanese television shows members of the Self-Defence Force in the devastated earthquake zone.

Bank of Japan: Japan’s central bank on Monday injected a record ¥15trn yen ($183bn) into money markets and eased monetary policy, while the Tokyo stock market slumped Monday after Friday's devastating earthquake and tsunami.

The central bank said:
"Japan's economy is emerging from the current deceleration phase. The year-on-year rate of decline in the CPI (excluding fresh food) has continued to slow. The Bank has maintained its baseline scenario that Japan's economy is expected to return to a moderate recovery path.

The year-on-year rate of change in the CPI is expected to become slightly positive in the near future. However, the damage of the earthquake has been geographically widespread, and thus, for the time being, production is likely to decline and there is also concern that the sentiment of firms and households might deteriorate."

Shares in Tokyo tumbled over 6% on Monday with the Nikkei 225 index slumping below 10,000, down 626 points at 9,628.

Aryzta,: The Irish-Swiss food group formed by a merger in 2008 of IAWS and Swiss bakery group Heistand, today reported sales for the six months to the end of January rose by 36% to €1.89bn.

Group earnings before interest and tax, jumped by 52% to €173.1m while earnings per share rose by 34% to 140.3 cent.

Results detail

Goodbody's Liam Igoe commented: "Aryzta's results this morning were well ahead of our forecasts at adjusted EPS level, with EPS of 140.3c nearly 10c ahead of our estimate. Most of this differential may be to do with the timing of profits in the acquisitions (esp. FSB) between H1 and H2. Arytza is maintaining its full year guidance at 300c (our forecast 305.9c). Some recovery in most of its markets is evident in Q2. The company quotes lfl revenue only, though we believe that volume growth is evident in Continental Europe (especially France and Germany), quite strong in North America and, obviously, very strong in the rest of the world. Pricing was the other key feature that was evident in the results. The company has estimated that, based on current commodity price levels, double digit price inflation will be necessary.

This is already being passed on to its customers, though it was in the latter part of Q2 that it commenced in earnest. Food Europe saw modest lfl revenue growth of 0.6% in Q2. Within this, Ireland / UK remain weak, with consumers remaining under pressure, especially in Ireland where emigration is literally shrinking its customer base. However, volumes appear to be stabilising. Growth has resumed in continental Europe (was also evident at end of Q1). In Food North America, lfl sales were up strongly (we estimate +5.6%) and most of this, we understand, was volume growth, driven by a return of growth to the high street and some segments of the food service (top end restaurants and QSR).

 Following Origin’s better than expected interims results on Thursday, we increased our FY11 forecast EPS from 36.2c to 41c (+13%). Two-thirds of this upgrade was due to the acquisitions of United Agri Products and Rigby Taylor for a combined cost of Stg£47m. Even excluding these acquisitions, however, the company’s core agri-services businesses are showing growth, with 8% volume increases in H1, though some of this is to do with timing of some sales coming into this period (e.g. forward buying of fertilisers by farmers due to rising prices). For FY12, we are increasing EPS by 9% to 43.4c. Net debt (including hybrid as debt) was higher than we had forecast, but we expect this was timing of working capital of the acquisitions, and our full-year estimate (€1.4bn) is unlikely to change materially. At first glance, we are unlikely to make significant changes to our forecasts. In H2 the key issues include: (i) the pass-through of cost inflation; (ii) the impact this might have on volumes; and, (iii) the impact of acquisition synergies flowing through."

Noriyuki Shikata, Japan Prime Minister's Office's spokesperson, updates us on the latest at the country's troubled Fukushima Daiichi nuclear plant, where a hydrogen explosion happened earlier today:

Economic View: Ireland left out in the cold? Goodbody's chief economist, Dermot O’Leary, comments - - "We have known for some time, based on rhetoric from European politicians that Ireland would have to meet strict conditions if it was to get an improvement in the terms of the loan package from its European “partners”. On Friday, European leaders backed up these words with action for the first time.

While Greece was granted a 1% reduction on its aid package and a lengthening of its loan term in return for agreeing to sell off €50bn of state assets, Ireland refused to yield to demands on its corporation tax regime in return for a 1% reduction in its loan package. Correctly, this was seen as too big a price to pay.

Judging from statements following the early Saturday morning break-up of the meeting, French President Sarkozy seems to be the strongest critic of Ireland’s stance and is reported to have asked for a “gesture” from the Irish Taoiseach Enda Kenny on the corporation tax issue (despite the fact that the effective corporation tax rate in France is lower than in Ireland). We noted on Friday that there were two immovable forces going into the summit and that proved to be the case. As a result, Ireland seems to be left out in the cold and in a very difficult position given that the “Pact for the Euro” agreed in principle at the summit will continue regardless.

Some important decisions were indeed agreed that markets will be pleased with. For example, it was agreed that the lending capacity of the EFSF will indeed be increased to its original €440bn, while its successor – the European Stability Mechanism – will have a lending capacity of €500bn. Both facilities will be allowed to intervene in primary markets for government debt.

The interest rates charged on these facilities will be in line with the pricing mechanism of the IMF (i.e. lower rates). Agreement has also been made in principle on issues such as monitoring competitiveness developments, national fiscal rules and national legislation for banking resolution. A quantitative target of 1/60th of the difference between the government debt level and the 60% limit was also agreed.

This means that if a country has a debt level of 120% of GDP, fiscal consolidation of 3% of GDP must be targeted. Given that Ireland’s debt level is fast approaching this level, particularly if all of the €35bn in funding for the banks is required; this gives an idea of the scale of the fiscal consolidation task, even beyond 2015.

Finance Minister Noonan will meet his European peers today to thrash out further the main points from Friday’s summit. He is also expected to push for a change in the way in which the banking sector is being rehabilitated, including a request for further assistance at European level. We have said before that this European support is required, as Ireland can no longer deal with the banking crisis on its own. After Friday’s summit, this looks like an even bigger task."

"It's quite striking how complex civilizations can fall apart really, really quickly... we seem at the moment, bombarded by shock events," Niall Ferguson, Professor of History at Harvard University and author of 'The Ascent of Money' told CNBC on Western civilization:


Japanese stock markets collapse despite policy action: Davy economist, Conall Mac Coille, commented - - "The Nikkei 225 fell by 6.2% in the first trading following the earthquake over the weekend, and the collapse in share prices came despite the Bank of Japan making asset purchases of ¥15tn ($183bn). The Bank of Japan also indicated that it plans to expand its existing programme of asset purchases and provide further injections of liquidity to stabilise markets.

The damage over the weekend will surely mean that, following negative growth in Q4, gross domestic product is likely to contract in Q1 also so that the Japanese economy will technically be in recession. Of course, this decline will reflect the temporary impact of the earthquake damage on production lines within factories. But by preventing asset prices from falling further, the Bank of Japan aims to prevent consumer and investor confidence from deteriorating. Unfortunately, Japan is already in a perilous fiscal situation. Today Moody's said that at some point Japan may reach a "tipping point" in terms of its fiscal position following news that the Prime Minister is planning a supplemental budget to pay for reconstruction. So today's earthquake comes at a particularly bad time for the Japanese economy.

Investors will now look to the European and US stock markets to see the knock-on impact of the events in Japan. US and European stock index futures fell in early Asian trading this morning. So there may be downward pressure on stock prices when the US and European markets open today."

Asia Markets

The MSCI Asia Pacific Index of shares slumped 2.8% Monday.

Japan's Nikkei 225 tumbled 6.18%; China's Shanghai Composite rose 0.13%; Australia's S&P/ASX 200 Index slid 0.40% and the Bombay Stock Exchange's Sensex index climbed 1.01% .

Asia benchmarks

Finfacts Reports

China became the world's biggest manufacturer in 2010; US loses crown held since 1890
McDonald’s Europe is the single largest purchaser of Irish beef
Kenny says Noonan will meet Trichet on Irish banking crisis
Irish business sentiment improves in first quarter of 2011
The rate of contraction in Irish construction activity continued to ease in February
US biotech giant Amgen to acquire Pfizer's Dún Laoghaire plant and save Irish 280 jobs
US retail sales rose 1% in February
Production for Irish manufacturing industries for January 2011 was 1.7% higher than in January 2010

In Europe, the Dow Jones Stoxx 600 is down 0.68% in early trading Monday.

The ISEQ has dipped 0.45% in Dublin.

CRH is up 0.13%; Elan is down 1.97% and Arytza fell 1.19%. No change on ICG.


Davy analyst Stephen Furlong commented today on 2010 results from Irish Continental Group: "ICG delivered a strong set of results in 2010 with EBITDA up 5.7% to €53.6m and basic EPS of 156.8c, up 53.1%. Key factors in the results included a strong performance from the passenger side of the business, where revenue was up 12.3%, and the profit on the sale of the vessel Bilbao (€9.4m), partially offset by a weakness in the freight side of the business due to the sharp reduction in economic activity in Ireland over the last number of years and the effects of ship overcapacity in the market." See full comment.

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


The euro is trading at $1.3933 and at £0.8663.

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.


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.

On Friday last week, the BDI rose 24 points or 1.56% to 1,562.

The Financial Times reported earlier in January, that Australia’s flooding and fears of ship oversupply has pushed down a gauge of the cost of hiring ships to carry coal, iron ore and other dry bulk by nearly half since October to the lowest level since the aftermath of the financial crisis. The Baltic Dry index, the widely watched measure of dry bulk charter rates, fell to 1,453, nearly half the 2,784 peak reached on October 27, 2010.

Crude oil for April 2011 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $99.00 per barrel, down $2.16 from Friday's close. In London, Brent for April delivery is trading on the International Commodities Exchange at $111.88. The North Sea benchmark accounts for two-thirds of the global market.

The margin between the US benchmark WTI (West Texas Intermediate) used on the New York Mercantile Exchange and Brent is almost $13.

The FT said in early February that a surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America’s pipeline system, has depressed the value of the benchmark against other yardsticks. The International Energy Agency said on Thursday that with “few relief valves” to cut the stock overhang in Cushing, the price dislocation “may persist for months [or years] to come”.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,424.30, up $4.70 from Friday's close.

Irish Financials; PCAR results to show additional capital requirements? Goodbody's Eamonn Hughes comments  - - "Press reports over the weekend speculate that the Irish banks may need between €15-25bn of additional capital, on top of the original €10bn earmarked for them in last November’s bailout plan.

The plan at that stage provided for up to €25bn of contingency funds available for the banks and speculation is mounting that the bulk, if not all, of these funds will be required in the upcoming PCAR (capital) and PLAR (liquidity) reviews. The press comments indicate that the tests aren’t finished yet and that the incoming new Finance Minister will receive a report on them next week.

We would wonder how willing the new Finance Minister will be to move on the capital front so soon into his brief. Additional press reports this morning highlight that buy to let loans (over one-third of the mortgage books) are receiving the highest scrutiny in the stress tests. We have been highlighting our belief for months that the capital figures of €10bn last November was insufficient to fill capital gaps at the banks and we were of the view that the PCAR/PLAR would throw up additional requirements. This now looks like it is coming to pass, though obviously the final determination on the quantity is awaited."

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