Rossa White, Chief Economist at Irish broker Davy, commented today:  "Yesterday's data highlight the depth of the recession in the US and euro area. Take your pick from jobless claims, durable goods orders or new home sales for the worst US data point. In the euro area, there was a more interesting, and perhaps more worrying, number: the level of the money supply fell for a second straight month in December.

The authorities want to avoid shrinking money supply at all cost. Yet no amount of flooding the banking system, from the Fed to the ECB, has worked so far. Commercial banks are saying no thanks and returning the excess funds to sender. Intuitively, it seems inevitable that ready funds for businesses and households are bound to shrink due to tight credit and wealth destruction. That dynamic is more pernicious in the US, but it is pervasive in parts of the euro area too.

As for the impact of the sickly global banking system, the evidence is clear. New home sales in the US have all but dried up. They plunged 14% to a new low in December — some 75% lower than the peak three-and-a-half years ago. Businesses and consumers have cut back on spending and investment: durable goods orders have plunged 19% over five straight months of decline. We are still convinced that the challenge the authorities face has not been fully discounted by equity markets."

In Asia, the MSCI Asia Pacific Index dropped 1.6%.

The Nikkei dropped 3.1% after a report that industrial production fell almost 10% in December.

Asia-Pacific - benchmarks

Finfacts Reports

Davos World Economic Forum 2009: Trichet warns financial markets to stop putting pressure on banks to hold more capital; Risk of making global recession worse

US "bad bank" could cost as much as $4 trillion - - the equivalent of nearly 1/3 of US gross domestic product

Top bond fund manger Bill Gross says to end "this deflationary delevering and mini-depression" -- stop the ongoing decline in asset prices

Japanese industrial production fell a record 9.6% in December; Manufacturing PMI slumped in January

US sales of new one-family houses in December fell to annual rate of 331,000 - - the lowest since 1982; US jobless claims jump to record high

Greed Incorporated: Obama slams "irresponsible" and "shameful" bonuses for Wall Street bankers

European stocks have risen Friday.

The Dow Jones Stoxx 600 is up 1%.

GfK NOP UK Consumer Confidence Barometer - January 2009

• GfK NOP Consumer Confidence Index has dropped four points to -37.  
• Confidence in the "general economic situation over the next 12 months” measure has dropped seven points. 
• Confidence in the "now being a good time to save” measure dropped ten points to -18.

Rachael Joy in the Consumer Confidence team at GfK NOP commented:  "One of the most noticeable changes in overall confidence was apparent when we looked at the 16-29 year olds; taking this segment on their own, they showed a large confidence drop of ten points over the last month. This perhaps is a reaction to the recent spate of reported job losses, with fears that those wanting to enter the job market will be unable to do so. The Saving measure also took a significant hit this month, a clear reaction to the interest rate drops, which are aimed at rejuvenating the economy. While there was a small improvement in the Major Purchase measure, we are still nowhere near the levels seen in 2007.”

UK Consumer Confidence Measures – January 2009

The overall index score this month has dropped four points to -37, twenty-four points lower than this time last year. Four out of the five measures, which make up the Index, recorded a drop this month.

The annual moving average has dropped three points to -30.

Bloomberg says commercial-property companies in the U.K. are unlikely to get new financing from banks bailed out by the government when lending resumes because the banks will probably favor industries that win electoral votes.

Banks that sold stakes to the government are “running scared” of commercial-property lending, said Mark Jenkins, head of commercial lending at Nationwide Building Society.

In Dublin, the ISEQ is up 0.4%.

AIB Bank is down 5% and BoI is up 8%.

Goodbody economist Dermot O'Leary today comment son the property tax issue: "In presenting a view of the current difficulties facing the Irish economy, the latest assessment from the Central Bank provides little in the way of new information. The CB now expects GDP to decline by 4% in 2009 (-4.7% for GNP), a forecast which we produced last October, and have subsequently revised downwards modestly further. Given the increased risks to global economic growth and the explicit need for fiscal retrenchment in the coming twelve months, the bias to our own forecasts still remains on the downside in our view.

There are no forecasts provided by the CB for 2010, but poor momentum as this year progresses is likely to lead to a further contraction in output in 2010. In truth, given the problems in the financial sector, the CB’s focus should remain elsewhere, coming up with solutions, along with the department of Finance, to solve them. There were some comments in relation to the widening of the tax base contained in the Quarterly Bulletin that we have been putting thought into recently. It posits the suggestion of an annual residential property tax to bridge some of the shortfall in government revenues that has emerged recently. There is growing support for this type of tax in policy circles here in Ireland.

Looking at international practice, property taxes usually range from 0.5%-1.0% of the house value. While average house prices in Ireland reached over €300,000, prices are quickly dropping to close to the €200,000 level. Assuming a housing stock of 1.882m (latest figures from the Government), such a tax would provide a net yield of between €1.5bn and €3.4bn (including lost revenue from abolishing stamp duty). While increased taxes are unfortunate, they will be needed to plug the significant hole in the public finances (€16.5bn or 8% of GDP) over the next five years, thus instilling confidence to international investors that Ireland is willing and able to return to a sound fiscal setting. There are also benefits to the removal of stamp duty, as it acts as an inhibitor to transaction activity in what is essentially still a frozen housing market."

Goodbody banking analyst Eamonn Hughes comments -Irish Financials; Forbearance, please gentlemen, forbearance : "The UK Treasury kicked off the debate at the start of last week with its liquidity proposals, asset guarantee scheme and comments on forbearance on capital ratios. By the latter, we mean that the FSA indicated that it would allow core capital ratios to ease back to 4% at the bottom of the credit cycle thereby allowing banks to use some of their capital base to absorb oncoming credit losses. With most UK banks in a 6.0-7.5% zone, this was an importance disclosure.

Post the UK proposals (and amplified by the ING deal with the Dutch government on Monday this week), the main focus has been around the issue of finding some way to offer insurance over weak assets to give both equity and credit markets a greater level of certainty over bank capital ratios, although sovereign credit has still weakened. We have written each morning this week on the options for government here and have promoted the insurance-type scheme as something to seriously consider when the government launches its economic plan next week. However, we would highlight that any proposal here must also be supplemented by the Irish Regulator (as the UK Treasury/FSA has indicated for the UK) with forbearance on capital ratios. Presumably, the UK 4% figure sets an example.

So it is with no surprise that ECB President Trichet hammered this point home at the World Economic Forum in Davos yesterday. Most papers pick up on it this morning, though we quote from the FT. When asked by Deutsche Bank’s CEO whether markets were right to press banks to hold more capital, Mr Trichet insisted three times that “what the markets are suggesting is not appropriate”. It was “very important, as far as authorities are concerned”, he added, that the route forward was “not in line with the idea that banks should now augment capital ratios”. Even in central banker-speak, that’s pretty clear! So we would offer the suggestion that if the Irish government moves on some form of insurance scheme next week (as speculated in the media here in recent days) then part of the overall proposal may incorporate some commentary from the Central Bank as well."

Goodbody analyst Ian Hunter comments - Merrion Pharmaceuticals (Buy, Closing Price €3.95); Step change in business prospects : "This morning we have issued a 26-page note on Merrion Pharmaceuticals. We believe that the recent deals with Novo Nordisk (the world leader in the insulin market with a 52% share of the $11bn market) for the development of orally administered diabetes products, using its GIPET drug delivery platform, mark a step change for Merrion. The deals, worth up to $116m, include unspecified upfront fees and several milestone payments. The strategic importance of the deals for Novo is reflected in the equity stake (1.8%) it also took in company. The upfront fees cover the use of Merrion's technology for all products under the (i) diabetes; and (ii) GLP-1 drug categories, but the milestone payments only relate to one drug candidate from each category.

Development of subsequent candidates could generate further fees. These payments do not include development fees, which Novo Nordisk will also cover. As and when the drugs come to the market, Merrion will enjoy an undisclosed royalty on sales. In addition to the Novo deal, the potential of one of Merrion’s own drug candidates, Orazol (MER 101) has increased considerably. Currently used for the treatment of bone metastases, data recently released show that the patented drug on which it is based can: (i) significantly reduce the risk of recurrence of, or death from, breast cancer in pre-menopausal women with hormone-sensitive early stage cancer; and (ii) can help reduce breast cancer tumours. We believe this could increase the drug’s revenue potential by up to 17%.

The Novo deals, and Orazol potential, mark large step changes for Merrion. The deals: (i) validate the company's drug delivery technology; (ii) raises the profile of its GIPET system with other drug manufacturers; and (iii) ensures that the company has cash reserves to continue both this programme and the development of its other product lines well out to FY11. The Orazol potential makes the product more valuable to Merrion and should attract more competitive tension when the company looks to out-licence Phase III development and subsequent commercialisation. Merrion's progress since flotation in late 2007 has given substance to our projections, with forecast potential converting into commercial business.

Applying appropriate weightings to each revenue line to reflect the stage of development of each project, we value the company at €8.68 per share, which is a combination of a DCF analysis and a valuation relative to its peers. Given Merrion’s track record of delivering on its stated goals, the potential it now has to drive significant growth through various product development projects and the cash reserves to back that development, we believe it deserves to trade at a premium to its peers. We are, therefore, retaining our Buy recommendation with a price target of €8.70."