International
Markets: Bank of Russia raises rates as ruble resiles in response to Putin recklessness
By Finfacts Team
Mar 3, 2014 - 2:02 PM

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The Bank of Russia on Monday raised interest rates after President Putin's decision to seize Crimea, an automonous region in Ukraine.

Russia would be vulnerable to tough economic sanctions

The bank raised its rates by 1.5 percentage points, bringing the key rate to 7% from 5.5%.

The dollar hit an all-time high of 37 rubles and the euro reached its record high of 51.2 rubles at the market opening.

"Given downside risks for fixed investment growth and potential economic sanctions by Western nations on Russia, this monetary tightening could send Russia into recession in 2014," Danske Bank said in a research note.

Moscow News reported that Russia’s currency fell to a historic low on Monday as stock markets in Moscow lost more than 9%  of their value within minutes of the opening of trading.

Such a crash was widely predicted by experts after Russia approved the use of military force in Ukraine on Saturday, prompting widespread condemnation from the international community.

Responding to what it described as “risks to financial stability,” Russia’s Central Bank increased interest rates by 1.5%  on Monday. The regulator has left interest rates unchanged for the last 18 months.

The falling ruble was accompanied by sharp declines on Russia’s stock exchanges.

The MICEX bourse was down more than 9%  under an hour after trading began at 10:00 a.m., while the dollar-denominated RTS lost over 10% .

Major Russian companies saw millions of dollars of value wiped out.

Shares in state-owned gas giant Gazprom, which is considered particularly vulnerable to events in Ukraine because of its extensive pipeline system in the country, fell by almost 11% .

Bank of Ireland reports “significant” improvement in 2013 results

Irish Economy 2014: Manufacturing PMI up again, excluding patent drug cliff falls

Irish Economy 2014: Quarter of additional jobs in 2013 went to foreign nationals

Eurozone manufacturing PMI recovery continues in February 2014

China's manufacturing showed more weakness in February; Services PMI rose

UK manufacturing: The strong upswing in the UK manufacturing sector was maintained during February, as levels of production and new business continued to rise at robust and above-trend rates. The solid performance of the sector again filtered through to the labour market, with jobs added at the fastest pace since May 2011.

At 56.9 in February, from a revised reading of 56.6 in January, the seasonally adjusted Markit/CIPS purchasing manager’s index (PMI) ticked higher and signalled improved operating conditions for the eleventh straight month.

The strengthening domestic market remained the primary driver of the manufacturing recovery, underpinning an eleventh successive monthly rise in production volumes. Companies also linked higher output to promotional activity, new product launches and investment in new machinery.

FBD Holdings, the Irish insurance group, today reported profit before taxation of €51.5m in 2013, down €800,000 on its 2012 outturn.

FBD said its capital base has improved with its solvency lever standing at 78.1% compared to 73.8% in the previous results.

FBD Holdings FY13 results in line with guided range: Eamonn Hughes of Goodbody commented - - "FBD has reported FY13 operating EPS of 136c, in line with the 135-140c guided range in an RNS in early January (Goodbody 138c). Operating profit was €52.7m (-19% yoy, but 1% ahead of expectations), with Insurance at €46.3m (-23% yoy and compared with our €46.9m forecast) and non-underwriting activities at €6.4m (vs. our forecast of €5.4m). Expenses were 2% higher than anticipated though was largely made up on higher than expected investment income. The dividend increase of 16% to 49c was ahead of estimates of 47.7c. The dividend brings the pay-out ratio up to 36%, compared with 25% in FY12. FBD is reiterating its medium term dividend pay-out target of 40-50%. NAV p/s at 823c was up 14% yoy and compares to our 815c estimate.

FBD has indicated that whilst the February wind storms will not exceed its budget for catastrophic weather events, persistent bad weather in January will lead to an increase in the cost of claims. In addition, increased economic activity will lead to a higher frequency of claims ahead of this being reflected in premiums, impacting short term profits in 2014 and early 2015. As such, FBD is initially guiding FY14 operating EPS in the range of 120-130 cent (Goodbody 154c). We will pare our estimates back to these levels, though the impact on NAV will be more muted."

Conall Mac Coille, chief economist at Davy, commented - - "The key macroeconomic data today are manufacturing PMIs for Europe and the UK, and also the US ISM manufacturing survey. Some commentators had attributed the sharp drop in the ISM to 51.3 in January to poor weather conditions. However, the consensus is only for a small rebound to 52.0 in February. However, political events will also play a role. Stock index futures indicate losses in excess of 1% at the European open, following developments in Ukraine over the weekend.

Data released on Friday show Irish mortgage approvals equal to €216m in January 2014, up 69% from the €128m recorded in January 2013. However, approvals were especially weak in early 2013 following the rush to take advantage of expiring mortgage interest reliefs at the end of 2012. Smoothing through the volatility, on a three-month basis, approvals are up 16.0% on the year, suggesting a more modest pace of growth. However, on an annualised basis, approvals were €2.7bn in January, below the €3.2bn recorded in calendar year 2013. So Friday's stronger mortgage approvals data provide only tentative evidence that Irish mortgage lending may pick up this year, after the disappointing 5.3% fall to €2.5bn recorded in 2013.

In contrast, this morning's Irish manufacturing PMI was 52.9 in February, up from 52.8 in January. This is the ninth consecutive reading above the 50 no-change level. Employment in the sector also expanded for the ninth consecutive month. Rising new business from the UK and European markets was reported as driving an eighth successive rise in new orders. Overall, today’s survey reinforces our view that output in the Irish traditional manufacturing sector continues to recover – broadly in tandem with the euro area – but with headline industrial output figures held back by multinational companies in the pharmaceutical sector."

Economic View: Fast track NAMA wind-down increasingly likely; Dermot O'Leary of Goodbody said  -- "NAMA Chairman Frank Daly failed to dampen speculation of an earlier than expected wind-down of the institution when he gave a speech on Friday. He said that the Board was “actively considering” that possibility, but the actions of the agency of late suggest that an early wind-down is more likely than not.

Firstly, NAMA is to redeem €3bn of NAMA senior bonds this week and expects to have redeemed €15bn (50%) of the total by the end of the year. Secondly, NAMA is clearly accelerating its asset disposals. In the speech on Friday, Frank Daly stated that NAMA plans to sell packaged property portfolios, with a minimum value of €250m, at rate of one per quarter in 2014. This is in addition to the €1.5bn in property assets that are currently for sale and in addition to loan portfolios which will be offered to the market this year. Thirdly, earlier expectations of a large transfer of assets from the IBRC liquidation do not seem likely at this stage. Fourthly, NAMA has begun to pay coupons on its subordinated debt for the first time. Fifthly, Minister Noonan has asked for the possibility of an early wind-down to be examined.

Given the improvement in market conditions, some may question why NAMA would not hold on to achieve higher prices for the assets in the future. However, while state involvement was required at the start of the crisis, governments are not, in general, the right entity to be managing property. Moreover, a removal of the contingent liability of NAMA would be a positive for the sovereign."

US benchmark updates

Asia Markets

The MSCI Asia Pacific Index lost 0.7% Monday.

Japan's Nikkei 225 fell 1.27%; China's Shanghai Composite rose 0.92%; South Korea's KOSPI dropped 0.77%; Australia's S&P/ASX 200 slid 0.38% and in Mumbai, the Bombay Stock Exchange the S&P BSE India Sensex Index slipped 0.88%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600  is down 2.04% in early afternoon trading Monday.

In Dublin, the ISEQ  has slid 1.70%

Bank of Ireland is off 4.88% and FBD slipped 3.80%.

European Benchmarks

Irish Share Prices

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3774 and at £0.8234.

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 May 21, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

On Thursday, July 15, 2010, the index fell for the 35th straight session, by 9 points, or 3.11%, to 1,619 points, Bloomberg report.

On Friday in London the BDI closed up 11 points or 0.95% to 1,175.

The index rose by 220% in 2013 to 2,237.

Global rebalancing — the tanker scrapyard index?

Crude oil for April 2014 delivery is trading on the Chicago York Mercantile Exchange (CME/Nymex) at $104.03 up $1.70 from Friday's close. In London, Brent for April 2014 delivery is trading on the International Commodities Exchange at $111.45. The North Sea benchmark accounts for two-thirds of the global market.

Finfacts, July, 15, 2013: US West Texas Intermediate oil benchmark jumps in July - - margin between WTI and Brent falls.

Gold spot price

The spot price of an oz of gold is trading on the CME in Chicago at $1,344.80 up $23.40 from Friday's closing - - the gold price fell 28% in 2013, the biggest annual plunge since 1981.

Gold had hit a record high of $1,921.15 a troy ounce on Sept 06, 2011.

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