Markets News Wednesday: Japan reports first April trade deficit in 31 years; First Derivatives posts 15% rise in pre-tax profits
By Finfacts Team
May 25, 2011 - 9:17 AM

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The initial plume from Grímsvötn was higher than that in April and May 2010 from the Eyjafjallajökull volcano, which only reached 8 kilometers (5 miles). Despite its taller plume, Grímsvötn was expected to hamper trans-Atlantic air traffic less than Eyjafjallajökull had, at least in the first 24 hours. Grímsvötn’s ash was initially forecast to travel toward the northeast, the Icelandic Met Office stated. In addition, the ash content was coarser and therefore less likely to remain airborne long enough to reach European airspace.

The Irish Aviation Authority has announced that said all Irish airports would remain open Wednesday. However, because of restrictions in other European countries, a small number of flights are expected to be affected. Last night, the Volcanic Ash Advisory Centre in London said it was likely the ash cloud could affect parts of Denmark, southern Norway and southwest Sweden today, with possible disruption to flights in to and out of these countries.

In northern Germany, Hamburg and Bremen airports cancelled flights and German aviation authorities said Berlin terminals could also face closure. Image: NASA's MODIS Rapid Response System.

Japan: The earthquake stricken country today reported a trade deficit in April as exports dropped on supply chain disruptions.

The trade deficit was the first in the month of April in 31 years, the finance ministry. The shortfall was ¥463.7bn ($5.6bn) reversing a year-before surplus of 729.2bn.

Exports dipped 12.5% with shipments of cars plunging 67% and electronics such as computer chips dropping 19%.

First Derivatives: The Northern Ireland software and consulting company reported today that pre-tax profits for the 12 months to the end of February rose by 15% to £6.5m sterling while its revenues surged 44% to £36.7m.

The company said its software sales rose by 104% to £12.5m and the sector now accounts for 34.1% of total sales. First Derivatives said it now has revenues flowing from over 40 software customers.

Goodbody analyst, Clodagh McCarthy, commented: "Key to the strong performance in the software division, emphasised by recent deals in the Delta range, such as the Delta Stream product and its contract with ANZ and its implementation in a number of banking institutions and the Singapore Stock Exchange.

Other key products such as the Delta Algo, RDF and eFX have also continued to make progress. Another significant development in the results is the establishment of a SaaS offering, with five new data centres in the UK, US and Ireland due to capablilites acquired from the Cognotec deal. Of note, headcount increased 36% in FY11 to 524 and with the recently secured £4.3m grant from Invest Northern Ireland; the further creation of 359 jobs is planned in the next three years.

In terms of outlook, product launches are expected to continue in H1 followed by intense marketing to bring these products to market. Management notes an encouraging start to FY12 with a ‘strong pipeline of prospects’ and expects further growth in FY12.

With on-going investment into product development and consultancy and continuous expansion within the existing client base, we retain our positive stance on the company. Currently we are forecasting FY12 revenue of £44m and EBITDA of £10.7m, however, at first glance there is potential for upside to these numbers subject to further analysis and talks with management."

Glencore Listing: Norman Chan, CIO at Banyan Asset Management, says Glencore IPO has a reasonably smooth listing in the U.K. but the share price did not do too well due to the pressure in commodity:

Economic View: Irish Competitiveness - Devaluation the hard way; Goodbody chief economist, Dermot O’Leary, comments - - "Unlike past crises, Eurozone economies do not have the benefit of currency devaluation to aid an improvement in international competitiveness. In the absence of such devaluation, domestic costs in the Irish economy are reducing at an impressive pace. We detail these developments in our note this morning.

The broadest measure of this internal devaluation is unit labour costs: these have fallen by 9% relative to the rest of the euro-zone in the 2009/2010 period and are expected to decline by a further 4% in 2011/2012. Property costs were another major impediment in the boom years but these have now totally reversed.

The arrival of the IMF/EU programme in Ireland in December and the crises over recent years has done some damage to Ireland’s reputation but the work of the IDA in particular has ensured that the impact on prospective inward FDI has been minimised. Many considerations come into the decision-making process for multi-national firms, but the uncertainty about Ireland’s corporation tax rate is not helpful and must be concluded soon.

Without large currency devaluation, the export-led recovery in Ireland is unlikely to be a V-shaped one similar to that enjoyed in Scandinavia in the early 1990s. However, improvements in competitiveness have already started to yield tangible benefits for the Irish economy, with the number of foreign direct investment projects increasing by 18% in 2010, while over twenty separate investments have been announced already by the IDA in 2011 thus far.

 Exports grew by 10.6% yoy in Q4 2010, while net exports are contributing strongly to growth. The turnaround in the current a/c from a deficit of 5.6% in 2008 to an expected surplus this year is another clear signal of the improvement in Ireland’s external competitiveness, unlike other economies facing similar challenges."

Second release of UK GDP growth in Q1 to show weak domestic demand: Davy economist, Conall Mac Coille, comments  -- "The second release of UK GDP growth in the first quarter of 2011 is published at 09.30 today. In the preliminary release, growth was estimated to equal 0.5% in the first quarter, bouncing back from the 0.5% decline in Q4 but leaving overall economic activity flat over the six-month period.

Construction output is now estimated to have declined by 4.0% in Q1, an upwards revision to the 4.7% indicated in the preliminary release. The upwards revisions to the construction sector data will help to push up the second release of the Q1 GDP data published today. Industrial production is now estimated to have been a little stronger in Q1 than the data incorporated into the preliminary release. So the manufacturing sector's contribution to GDP growth in Q1 may also be revised up marginally.

However, any small upwards revision should not cloud the fact that underlying activity in the UK economy remains weak over the past two quarters. Today's release provides the first breakdown of spending in the first quarter. Consumer spending is expected to rise by just 0.1% on the quarter, bouncing back from the 0.3% decline in Q4 but remaining weak. In recent months, UK consumer confidence has continued to decline to similar levels as those seen during the worst of the financial crisis as the negative impact on real incomes from tax rises and weak nominal pay has hit consumers.

Investment spending is expected to rise by 1.0%, failing to fully offset the 1.8% decline in Q4. The bright spot is that the net trade contribution should be positive. In the main, however, it reflects a 0.7% decline in imports, indicative of weak domestic demand. In summary, although there may be a small upwards revision to overall GDP growth in Q1, the contributions to growth from spending are likely to underline the fragile prospects for UK economic growth in 2011."

'Made in America' Still Selling? Karen Mills, administrator at the Small Business Association told CNBC small businesses are selling a host of products overseas. "The bottom line is that these people are manufacturing here in America and there is demand for their products all around the world," she said:

US Markets

In New York Tuesday, the Dow fell 25 points or 0.20% to 12,356.

The S&P 500 slid 0.08% and the Nasdaq slipped 0.46%.

Asia Markets

The MSCI Asia Pacific Index dipped 0.8% Wednesday.

Japan's Nikkei 225 fell 0.57%; China's Shanghai composite index dipped 0.91%; Australia's S&P/ASX 200 dropped 0.95% and the Bombay Stock Exchange's Sensex index declined 1.05% in Mumbai.

Asia benchmarks

Finfacts Reports

Euro crisis and energy prices weigh on German consumer climate in May
European leaders maintaining pressure on Greece to deliver on €50bn privatisation programme
Bruton to propose changes to employment/ wage setting mechanisms in sectors such as retail, distribution, catering and hotels
US charges oil traders with manipulation; 40% speculator premium on price of crude oil
Trade restrictions increasing but global investment remains open says report
Markets: Volcanic ash grounds 500 of Europe's 29,000 daily flights; Eurocontrol says ash “very real risk”; Ryanair says no safety threat
Irish life insurance/ assurance cost comparison survey reveals potential savings of almost €9,600
US sales of new one-family houses in April rose 7.3% - - 23.1% below April 2010
OECD launches 'Your Better Life Index'
Annual Irish factory gate prices fell in April compared with rise in March; Movement of US dollar versus euro main factor
Bill provides for resolution regime for failing Irish financial institutions and funding levy
New industrial orders down 1.8% in Eurozone in March; 13% dip in Ireland in month and annual fall of 6.6%
German business confidence remained unchanged in May at a high level

In Europe, the Dow Jones Stoxx 600 has dipped 0.46% in early trading Wednesday.

The ISEQ is off 0.17% in Dublin.

CRH is down 1.22%; Elan has risen 2.79%; Glanbia advanced 1.27%.

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 $1.4035 and at £0.8688.

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 Tuesday this week, the BDI climbed 29 points or 2.12% to 1,398.

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 June 2011 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $98.77 per barrel, down 82 cents from Tuesday's close. In London, Brent for June delivery is trading on the International Commodities Exchange at $111.61. 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 $1,524.00, down $2.10 from Tuesday's close.

Irish Financials: New banking sector legislation to introduce levy; Goodbody's Eamonn Hughes comments  - - "The Irish government yesterday published the Central Bank and Credit Institutions (Resolution) (No 2) Bill 2011 yesterday. The bill is a permanent replacement for emergency legislation introduced last year and, according to the Minister for Finance, will help ensure the Central Bank has the necessary procedures in place to effectively resolve distressed institutions. It is claimed the bill reflects evolving EU frameworks on this process and will apply to banks, but also to building societies and credit unions.

The process of dealing with banks in difficulty in the future puts more powers in the hands of the Central Bank, however, of relevance in the current environment is the creation of powers for the introduction of a bank levy in the context of setting up a bank resolution fund. The bill gives the Minister powers to set the rate with due consideration with the need for the Fund to grow over time to a size commensurate to the costs that might be incurred in carrying out resolution activities and the need for the rate to be consistent with maintaining the financial viability and sustaining the commercial position of such credit institutions.

A levy on the banks will impact on returns and capital generated. In our recent BOI note, we valued BOI two ways, NAV based and on a “franchise value” metric, based on anticipated normalised profits (i.e. when it achieves a 13.5% ROE). In our note, we suggested that investors are likely to aspire to the latter but rely on the former, a view we think supplemented by the likelihood of a levy which may have implications on the timing of when banks get to normalised earnings. In the case of BOI, we suggested a 2015/2016 timeline and a levy on the banks adds weight to the latter timeline."

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