Markets News Monday: Yoshihiko Noda, Japan's finance minister, set to become sixth prime minister in five years
By Finfacts Team
Aug 29, 2011 - 9:03 AM

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Yoshihiko Noda, 54, Japan's finance minister (second from right in group of five DJP candidates) is set to become Japan's sixth prime minister since 2006, on Tuesday, Tokyo, Aug 29, 2011. Source: DJP

Yoshihiko Noda, Japan's finance minister is set to become Japan's sixth prime minister in five years, after beating industry minister Banri Kaieda in a runoff Monday in the Democratic Party of Japan's leadership election.

The ruling Democratic Party of Japan's election was held after Naoto Kan, the party chief for 14 months and prime minister, announced his resignation last Friday amid criticism of his leadership in the aftermath of the March 11 devastating earthquake and tsunami that triggered the ongoing nuclear crisis at the Fukushima Daiichi power plant.

In the initial round, Kaieda, 62, supported by Ichiro Ozawa, the controversial party founder and his allies, won 143 votes, the biggest number among the 398 DPJ lawmakers, followed by Noda, 54, with 102 votes.

In a run-off after the elimination of three other candidates Noda and Kaieda immediately faced each other in the runoff, which Noda won by 215 votes to 177.

The winner will serve out Kan's term as head of the DPJ until September next year (giving rise to more instability) and will be named as Japan's new prime minister as early as Tuesday in the Diet, the lower House of Representatives.

Economic View: Some welcome news on the banking system;  Dermot O’Leary, chief economist at Goodbody, comments - - "A rare piece of good news emerged from the half-year results of Anglo Irish Bank on Friday. The bank has cost the Irish state €29.3bn to date, while government estimates suggested that this bill could have risen to €34bn. Comments from Chief Executive Mike Aynsley now suggest that the bank (now renamed Irish Bank Resolution Corporation after its merger with Irish Nationwide) may be able to return up to €4bn in capital to the State when it is finally wound down. Media reports this morning also suggest that the wind-up period for the institution may be much shorter than previously estimated, with a time period of 3-4 years mooted, although the results themselves pencilled in a 2020 date for the final closure.

Both of these developments should be welcomed. Concerns around the possible bill for Anglo in 2010 were a major factor in the increased concern around Ireland Inc., which, of course, culminated in the sovereign being shut out of funding markets. This occurred as estimates for the "final" bill continued to drift ever higher. The bill for the recapitalisation of the banking system, still estimated at over €65bn, is enormous, but it is somewhat comforting that estimates for that bill are now going in the opposite direction.

Better news from Ireland’s banking system has been rare over recent years (and there are still issues if one looks at the mortgage arrears data to be released today). News this morning that Greece’s second and third lenders are to merge and receive outside capital, following the private capital injection into Ireland, confirm that the “peripherals” are no longer a no-go area for investors. Liquidity problems still remain of course, as evidenced by the still large dependence on central bank funding. With the State still the majority holder in most of the domestic institutions, further international investor interest would be very much welcomed here too."

Irish Financials 1: Central bank figures to show rising mortgage arrears; Eamonn Hughes, head of research at Goodbody, comments  - -- "Press reports this morning (in the Irish Times) indicate that the Government is considering setting up a new agency, between the banks and struggling home owners, to deal with mortgage arrears. As in many instances of the discussion around debt forgiveness, official commentary indicates proceedings will be on a case by case basis and a report into such a proposed agency is due before government at the end of next month.

In the meantime, the report indicates that mortgage statistics due out later today will show that 7% of mortgages were in arrears at the end of June, up from 6.3% in March and 5.7% in December. This implies a c.70bps deterioration after the c.60bps rise in the first quarter and c.50bps rise in the previous two quarters, so the pace of deterioration is accelerating. The report doesn’t reveal the level of restructured mortgages, so presumably we’ll have to wait till mid-morning to get that figure as well. Last quarter, restructured loans were 4.7% of total, up from 4.5% in the previous quarter.

Elsewhere, this morning, press reports indicate that a report from the Credit Review Office (CRO) which oversees lending to small to medium sized enterprises indicates demand is so low that the banks are unlikely to meet lending targets of €3bn apiece for the 2 pillar banks.

The issue of debt forgiveness has been kicked about for months now at this stage, so the revelation that an expert group is looking into the matter is unlikely to be much of a surprise. We are still very doubtful of the proper workings of such a scheme and the risks for an easing of commitments by customers on a wider basis to repay, notwithstanding that arrears continue to rise. Finally, we were never big fans of credit targets for banks, so the CRO data showing SME credit targets are failing to be met is no surprise. Setting targets in the depths of the UK recession didn’t work then and setting them in the midst of our recession was always destined for the same result."

Irish Financials 2: Haircuts on loan books: Eamonn Hughes added - - "Press reports over the weekend and this morning indicate that Anglo Irish Bank secured an offer on Friday averaging 80c in the dollar for its $9.1bn US loan book. The winning parties have a 2-week period before signing a contract at which stage phased deposit payments must be made, with October 14 set as the final deadline. The portfolio comprises 251 loans of which more than half are non-performing. A consortium of JPMorgan Chase and Wells Fargo is to buy the top three of eight pools, with Lone Star taking the balance. The former are believed to have paid close to par value.

Anglo appears to have written down its US loan book by €1bn to €5.6bn in its H1 accounts, released last week. This would equate to roughly a 15% haircut, so it looks like further provisions are needed here, though it appears that the Department of Finance was anticipating a figure closer to 75% of par, so the final hit is likely to be slightly less than anticipated.

Investors are likely to look at the 20% haircut on the US loan book as an interesting reference point. We note that PLAR imposes a c.30% haircut on loan disposals by the main Irish banks. Bear in mind that includes disposals of Irish assets as well and the domestic haircuts were always going to be higher than the international ones. We suspect one of the key attractions for the recent investors in BOI was the equity leverage they would get from any disposals less than PLAR. We continue to use the base PLAR assumptions for our NAV estimates for the banks."

Qatar Puts Up Cash for Greek Bank Merger: CNBC's Guy Johnson reports from Greece on the proposed merger between the country's second and third largest banks, Alpha Bank and Eurobank:

US personal spending to bounce back in July: Conall Mac Coille, chief economist at Davy, comments  -- "The second release of UK GDP growth released on Friday (August 26th) reinforced the view that the UK economy slowed sharply in the second quarter. Overall GDP growth was unrevised but manufacturing sector output growth was revised down by 0.2 percentage points to -0.5% on the quarter. The contraction of the sector in Q2 brought to an end six consecutive quarters of expansion in manufacturing, averaging around 1.0% per quarter. With revisions to manufacturing sector output offset by upward revisions to utilities, the view that weak UK GDP growth in Q2 was due to temporary factors such as warm weather depressing electricity demand has now been undermined.

US GDP growth in Q2 was revised down from an annualised rate of 1.3% to 1.0%. The expansion of GDP was primarily driven by investment which rose by 2.1% on the quarter. However, the US economy has been reliant on robust consumer spending in recent quarters, so the slowdown in consumption to just 0.1% suggests that Q3 GDP is likely to remain weak.

Today, markets are likely to focus on the monthly US personal spending data for July. Personal spending fell by 0.2% in June, the first contraction since June 2010, and is expected to bounce back to growth of 0.5% in July. Recent equity price falls are likely to depress consumer spending further as households see the nominal value of their wealth decline. And consumer confidence fell back around the time of the protracted negotiations to raise the US debt ceiling. So, if markets do not see a bounce back in July, sentiment towards the US consumer is likely deteriorate, ahead of the headwinds likely to buffet spending in August."

Asia Markets

The MSCI Asia Pacific Index gained 1.5% Monday in reaction to the speech (see Box below) by Ben Bernanke, Fed chairman, on Friday in which he hinted that the central bank may take new measures to aid the US economy.

Japan's Nikkei 225 climbed 0.61%; China's Shanghai Composite index dipped 1.37%; Australia's S&P/ASX 200 rose 1.51% and the Bombay Stock Exchange's Sensex index climbed 2.83% in Mumbai.

Asia benchmarks

Finfacts Reports

Bank and Ireland and AIB not expected to meet lending targets of €3bn each to SME businesses this year
Lagarde says global economy in a "dangerous new phase"
US economy is becoming more vulnerable to hurricanes
Bernanke says Fed ready to deploy more tools to help US economy but no signal of imminent measures
US GDP in second quarter of 2011 revised down to annualised rate of 1.0%
Anglo Irish Bank reports H1 2011 loss of €101m
UK economy grew by 0.2% in the second quarter of 2011 confirmed in second estimate

In Europe, the Dow Jones Stoxx 600 is up 0.78% in early trading Monday.

The ISEQ has risen 1.01% in Dublin.

CRH is up 2.90% and Ryanair has climbed 2.65%.

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 $1.4536 and at £0.8861.

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 fell 41 points or 2.56% to 1,541.

Crude oil for September 2011 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $85.80 up 43 cents from Friday's close. In London, Brent for September delivery is trading on the International Commodities Exchange at $111.27. 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 over $25.

The US Energy department recently said that growing volumes of Canadian crude oil imported into the United States contributed to record-high storage levels at Cushing, Oklahoma of over 41m barrels at the end of March 2011 (86% of working capacity at Cushing), and a price discount for WTI compared with similar-quality world crudes such as Brent. A discount for WTI is expected to persist until transportation bottlenecks impacting the movement of mid-continent crude oil to the Gulf coast are relieved. Consequently, the projected US refiner average acquisition cost of crude oil, which was about $2.70 per barrel below WTI in 2010, is $1.60 per barrel above WTI in 2011 and $1.10 per barrel above WTI in 2012.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,822.30 per oz, down $6.80 from Friday's close in New York.

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