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Markets News Wednesday: S&P downgrades Japan; Sony says PS data hacked; Barclays, Credit Suisse and BP report profit dips in Q1
By Finfacts Team
Apr 27, 2011 - 9:14 AM

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Japanese Prime Minister Naoto Kan (in blue overalls) meets Governor Sato of Fukushima Prefecture where the stricken nuclear power plant is located, April 21, 2011.

Japan: Standard & Poor's today cut the outlook on its long-term rating on Japan to negative from stable, citing the risk of a downgrade if the country's massive earthquake causes its fiscal situation to deteriorate substantially more than it expects.

S&P said it estimated reconstruction costs after the March 11 devastating earthquake, tsunami and nuclear disaster at ¥20trn to ¥50trn ($245bn to $613bn), with a central forecast of ¥30trn.

The agency raised its forecast of net general government debt to GDP to 145% by March 31, 2014, up from the previous forecast of 137%.

Johnson & Johnson: The US healthcare products firm is to acquire Swiss medical-device maker Synthes for $21.3bn, giving J&J a big lead in the global market for surgical devices used to treat fractures and traumatic injuries.

The two companies said J&J will purchase Synthes for CHF 159 Swiss francs a share, which is a premium of about 22% to where Synthes stock traded before talks began in mid-April.

PlayStation: Sony has warned over 70m users of its PlayStation Network that their personal information, including credit card details, may have been stolen.

The company said that the data might have fallen into the hands of an "unauthorised person" following a hacking attack on its online service.

In a statement posted on the official PlayStation blog, Nick Caplin, the company's head of communications for Europe, said: "There’s a difference in timing between when we identified there was an intrusion and when we learned of consumers’ data being compromised. We learned there was an intrusion 19th April and subsequently shut the services down. We then brought in outside experts to help us learn how the intrusion occurred and to conduct an investigation to determine the nature and scope of the incident. It was necessary to conduct several days of forensic analysis, and it took our experts until yesterday to understand the scope of the breach. We then shared that information with our consumers and announced it publicly yesterday evening."

Barclays Bank: UK bank Barclays today reported profit in Q1 2011 dipped 9% from a year ago as income at its investment banking arm dropped.

Barclays reported a pre-tax profit of £1.66bn down from £1.82bn a year ago.

Adjusted profit, stripping out movement in its own credit, was £2bn, up 10%.

The Barclays Capital investment bank unit contributed underlying profit of £1.3bn, down 15% on a year ago, as revenue also dipped 15% to £3.3bn.

Japan Will See A V-Shaped Recovery: Takuji Okubo, Japan chief economist, global economics research at Société Générale thinks that the Bank of Japan will only hike rates in 2015:

Credit Suisse:  Switzerland's No. 2 banking giant today reported a 45% drop in Q1 earnings as it took a CHF 617m Swiss francs charge (€481m) for valuation losses on debt and derivative liabilities.

Net profit attributable to shareholders rose to CHF 1.1bn Swiss francs in the first quarter.

Credit Suisse reported a slowdown in the growth of new money flowing into the bank, in contrast with rival UBS, which reported on Monday. Net new money coming in fell by 26.5% from a year earlier.

First-quarter net revenues jumped by 13% to CHF 7.8bn Swiss francs and the bank was also hit by the strong Swiss franc.

BP: BP Plc, Europe’s second-biggest oil company, reported today that profit declined 4% in Q1 after it sold off more than $24bn of assets to help pay for the Gulf of Mexico spill.

Excluding one-time items and inventory changes, earnings fell to $5.37bn from $5.6bn a year earlier. Production in the quarter dipped 11% to the equivalent of 3.58m barrels a day after the field disposals.

Economic View: Bond markets continue to take a dim view of peripheral prospects; Goodbody chief economist, Dermot O’Leary, comments - - "Bond markets continue to give a resounding negative reaction to the rescue efforts for Greece, Ireland and Portugal, with yields hitting record highs again yesterday. The most notable moves have been in Greece, where the two-year yield is now standing at 24.3%.

However, the Irish two-year yield rose to over 12% for the first time yesterday, while the Portuguese two-year stands at 11.3%. All rates are a long way from being described as sustainable which captures the market’s perception of the sustainability (or unsustainability) of debt levels in these countries. Although volumes are thin over the Easter holidays, the latest deterioration was triggered by comments to the effect that a Greek restructuring is inevitable by an advisor to Chancellor Merkel (Lars Feld) and the release of the official debt/deficit data for 2010 by Eurostat yesterday.

Not for the first time, the Greek deficit came in higher than expected at 10.5% of GDP, with debt levels now standing at 143% of GDP. The Irish deficit stood at 32.4% of GDP last year, or 12.2% when one excludes the cost of the banking recapitalisations. The debt level stood at 96% of GDP at the end of last year. Portugal’s deficit and debt level stood at 9.1% and 93% of GDP, respectively.

While Greece is a special case, debt levels in Ireland and Portugal are not that much above the euro-area average of 85%. However, the key concern is around the ability for these economies to grow over the coming years to stabilise debt levels in the context of the massive fiscal consolidation strategies that they have to implement. This is not something that is going to be resolved in the near future, but the markets continue to try to push for a solution sooner rather than later.

As we have learned from the lessons of the bail-out of Greece almost a year ago, solutions employed for one country often get forced upon others by the market in a domino effect. Therefore, although circumstances are different in each country, what happens in Greece (where some believe a restructuring event in imminent) could have important implications for Ireland and Portugal."

Brazil: Inside the World's Biggest Brewer :CNBC's Maria Bartiromo goes inside the world's biggest brewery, with Carlos Brito, AB InBev CEO, in a wide-ranging conversation on Brazil's economic outlook:

UK GDP to expand in Q1, but underlying growth remains weak: Davy economist, Conall Mac Coille, comments  -- "UK GDP for the first quarter of 2011 will be released at 09.30 this morning. The market expects the data to show that the UK economy expanded by 0.5% in the first quarter. This is clearly a robust rate of growth, but UK GDP fell by 0.5% in the final quarter of 2010. The UK Office for National Statistics estimated that bad weather in December pushed down on UK GDP in Q4 by 0.5%. If correct, this means that the underlying GDP growth rate, excluding the impact of the weather, was zero. Hence, the temporary negative impact of the bad weather onto the level of UK in Q4 will flatter the Q1 GDP growth rate released today.

So the market's expectation for Q1 GDP growth of 0.5% implies that activity in the UK economy was flat across Q4 2010 and Q1 2011. The Purchasing Managers Indices for the UK indicate that GDP growth was a little stronger at around 0.6% on the quarter. However, if there is a stronger weather-related bounce-back, growth could be considerably stronger. It is worth remembering that even if UK GDP increased by 1% in Q1, this would still imply a weak underlying growth rate across Q4 2010 and Q1 2011.

All in all, there is considerable uncertainty around today's GDP release because of the impact of the bad weather in Q4, but the market's expectation is a relatively pessimistic one. If the market's expectation is disappointed, this would imply that the UK economy contracted across the last two quarters. A poor number would clearly push out expectations for a rate rise by the Bank of England and put downward pressure on the pound.

Markets will also focus on Federal Reserve Chairman Ben Bernanke's first press conference at 19.15 this evening following the Federal Open Market's Committee meeting. It is likely that Bernanke will reinforce expectations that a tightening monetary policy is not likely in the near future from the Fed. If so, there may be positive market reaction once markets open in Europe tomorrow morning."

US Markets

In New York Tuesday, the Dow rose 115 points or 0.93% to 12,595.

The S&P 500 added 0.90% and the Nasdaq advanced 0.77%.

Asia Markets

The MSCI Asia Pacific Index rose 0.7% Wednesday.

Japan's Nikkei 225 gained 1.39%; China's Shanghai composite index fell 0.49%; Australia's S&P/ASX 200 dipped 0.83% and the Bombay Stock Exchange's Sensex index dropped 0.25% in Mumbai.

Asia benchmarks

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Markets News Afternoon: Sarkozy supports Italy's Mario Draghi for ECB presidency; Ford reports 22% surge in quarterly earnings
UK manufacturing recovery is firmly on track and looks set to continue
US Consumer Confidence Index improved slightly in April
US Case-Shiller home prices fall for 8th straight month in February
US new home sales rebounded from record low in March; Supply at a 1967-year low
EU Deficits/Debt 2010: Ireland at -32.4% of GDP; Greece at -10.5%; UK at -10-4%; Sweden at zero
Irish factory gate prices fell in March due to fall in US dollar; Annual prices increase up 0.9%

In Europe, the Dow Jones Stoxx 600 is up 0.04% in early trading Wednesday.

The ISEQ has risen 0.18% in Dublin.

CRH is up 0.48%; Elan has dipped by 1.56%; AIB is off 1 cent or 4.17% while IL&P is up 1 cent or 5.63%.

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 $1.4663 and at £0.8910.

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.

On Tuesday this week, the BDI slipped 4 points or 0.32% at 1,250.

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 May 2011 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $112.06 per barrel, down 15 cents from Tuesday's close. In London, Brent for May delivery is trading on the International Commodities Exchange at $124.03. 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 $12.

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 $1,505.50, down $1.60 from Tuesday's close.


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