International
Markets News Wednesday: Leading Economic Index for China rises
By Finfacts Team
Sep 21, 2011 - 8:52 AM

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The Conference Board Leading Economic Index (LEI) for China, a composite measure of key economic indicators, increased 0.6% in July to 158.6 (2004 = 100), following a 0.9% increase in June and a 0.4% increase in May. Four of the six components contributed positively to the index in July.

Jing Sima, economist for the Conference Board, a US research firm, said today: “July’s increase in the LEI for China signals a continuation of economic expansion through the end of this year. However, the strength in leading indicators has been concentrated in bank credit expansion and real estate investment so far this year, while the one-off effect from improved consumer expectations in June abated in July. Industrial output, employment, and consumer spending continued to drive the rising trend in the CEI (Coincident Economic Index), tracking current conditions for China through July, but their rate of growth has tapered off noticeably. Both the LEI and CEI for China suggest that the rate of economic growth will be slower in 2011 than last year.”

The six components of LEI for China include:

Total Loans Issued by Financial Institutions (source: People’s Bank of China); 5000 Industry Enterprises Diffusion Index: Raw Materials Supply Index (source: People’s Bank of China); NBS Manufacturing PMI Sub-Indices: PMI Supplier Deliveries (source: National Bureau of Statistics); Consumer Expectations Index (source: National Bureau of Statistics); Total Floor Space Started (source: National Bureau of Statistics); NBS Manufacturing PMI Sub-Indices: Export Orders (source: National Bureau of Statistics).

Economic View: IMF warnings on growth prospects;  Dermot O’Leary, chief economist at Goodbody, comments  -- "While some progress seems to have been made in sanctioning the next tranche of aid to Greece – with the Troika to make a full return to the country next week – the IMF gave the sternest warning yet to European policymakers to get their 'act together' or risk the situation spiralling out of control. The IMF Chief Economist Olivier Blanchard warned that policymakers “do not have the luxury of time” as the organisation pulled down its forecasts for the global economy.

The biggest cut in forecasts was for the US, but even after a c. 1% reduction, the US economy is still expected to grow by 1.5% this year and by 1.8% in 2012. The euro-area on the other hand is expected to grow by 1.6% and 1.1% in 2011 and 2012, respectively (after growth downgrades of 0.4% and 0.6%). More worrying for the euro-area in our opinion is the obsession with the goal of fiscal consolidation over everything else; despite the clear signs of slowing growth recently, the mantra of fiscal consolidation has continued and monetary policy has been tightened. In the US, President Obama has already proposed a stimulus package while we will find out later today if the Federal Reserve will introduce further monetary stimulus when it concludes its two-day meeting.

With peripheral euro-zone economies like Ireland attempting to engineer export-led recoveries, with varying degrees of success of course, lower growth expectations are not a welcome prospect. In Ireland, export performance has been excellent and we will get the latest update on these developments tomorrow when the Q2 National Accounts data are released. For now, we are happy with our forecasts for continued export-led recovery into 2012, but weaker prospects abroad will undoubtedly put pressure on this view."

Greek default is not imminent:

Can Irish exports weather a global slowdown? Conall Mac Coille, chief economist ay Davy, commented - - "With Irish economic growth dependent on exports, today's trade balance data should give a better picture of how the export sector has performed in light of the slowdown in euro area and UK demand. Exports continued to perform well in the first quarter, but we know that GDP growth in Ireland's key trading partners slowed sharply in Q2.

Thus far, the monthly data suggest that export growth remained reasonably robust in Q2. However, the monthly data were a very poor guide to final export contributions to GDP growth in Q4 2010 and Q1 2011. So we will have to wait until Thursday's Q2 GDP data to see how the export sector contributed to Irish economic activity in the second quarter.

However, with economic sentiment and activity indicators slowing through Q3, the key challenge for Irish exports may be a more severe slowdown in global activity in the second half of 2011. Consumer and business confidence measures tailed off very sharply as the European debt crisis intensified in July and the negotiations to raise the US debt ceiling were followed by the ratings downgrade of the US treasury.

In some respects, Ireland's export sector may be reasonably well placed to weather a global slowdown. Chemicals and pharmaceutical products account for around one-third of Irish exports. Foods, beverages and tobacco also account for a reasonably high share of exports at 5.2% compared with other developed economies. The importance of Irish services exports has grown in recent years, to the point where they finally surpassed the size of the goods export sector in the final quarter of 2010. Services exports are largely dominated by computer services and business services, which account for 18.6% and 14.6% of total goods and services exports respectively.

So a decomposition of the sectoral split of Irish exports suggests that they are concentrated in highly specialised niche sectors that may do relatively well if a global slowdown emerges. That said, Ireland's geographic exposure to the euro area, the US and the UK means that demand for Irish exports is skewed towards those economies where economic prospects are the most uncertain. With Irish domestic demand likely to remain weak, developments in the export sector remain crucial for the economy - - increasing the focus on today's trade data."

US Markets

In New York Tuesday, the Dow rose 8 points or 0.07% to 11,409.

The S&P 500 slid 0.17% and the Nasdaq slipped 0.86%.

Asia Markets

The MSCI Asia Pacific Index rose 0.3% Wednesday.

Japan's Nikkei 225 rose 0.23%; China's Shanghai Composite added 2.64%; Australia's S&P/ASX 200 rose 0.78% and the Bombay Stock Exchange Sensex 30 fell 0.33% in Mumbai.

Asia benchmarks

Finfacts Reports

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German ZEW indicator of investor sentiment fell in September for seventh straight month
Global growth will pick up only slightly in 2012 says the International Monetary Fund
US housing starts fell in August; New home construction at lowest since at least 1970
Annual Irish factory gate prices fell by 1.0% in year to August; US dollar/Euro movement a key determinant of price changes
Irish food and drink exports in 2011 expected to reach record of €8.9bn - - boosted by global commodity boom

In Europe, the Dow Jones Stoxx Europe 600 is down 0.65% in early trading Wednesday.

The ISEQ has dipped 0.78% in Dublin.

CRH is down 1.58%; Petroneft is up 4 cent or almost 12%.

Petroneft, the Dublin-listed company, said today that it has made another oil find at its Licence 61 in the Tomsk Oblast in Russia.

The find came after drilling at North Varyakhskaya. Petroneft termed the oil find as "good quality".

Gerry Hennigan of Goodbody says on Dargon Oil's production report issued this morning: "Cumulative incremental production added year to date (including B/150) is 21.3 kbopd compared to 22.5 kbopd added in 2010 and 20.3 kbopd in 2009. That means that Dragon has already breached the target of adding incremental production in excess of 20.0 kbopd annually with the latest commentary indicating a current production base in excess of 60 kbopd, implying annual production growth of 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

Currencies

The euro is trading at $1.3691 and at £0.8720.

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 rose 31 points or 1.76% to 1,795.

Crude oil for September 2011 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $86.49 down 43 cents from Tuesday's close. In London, Brent for September delivery is trading on the International Commodities Exchange at $110.39.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 $24.

The US Energy department recently said that growing volumes of Canadian crude oil imported into the United States contributed to record-highstorage levels at Cushing, Oklahomaof 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 is at $1,812.60 per oz, up $7.80 from Tuesday's close in New York.


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