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Last Updated:
Aug 13, 2009 - 5:40:49 AM |
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| From UK employment report - -see story below |
The Bank of England warned today that the UK economy still has some way to go before it recovers from the effects of the financial crisis. In its latest quarterly Inflation Report, the Bank warns that any recovery in 2010 will be"fragile."
In the budget last April, the chancellor had forecast that the UK will rebound sharply in 2010. The UK is already facing a record budget deficit of £175bn.
Last week, the central bank added £50bn to its securities purchase programme called "quantitative easing" or "printing money," to boost economic growth.
Bank governor Mervyn King was reported today to be downbeat about whether the policy had been effective and hinted that the Bank might have to consider additional measures.
However, he warned that with the public finances in such a perilous state, there was little room for further expansion to help boost economic growth.
"The pace of recovery over the next few years is highly uncertain," he added.
In a separate report today, UK unemployment was shown to have risen to the highest rate since 1996 in the three months to June, while the number of people claiming jobless benefit rose in July.
The Office for National Statistics said the ILO (International Labour Organisation) jobless rate rose to 7.8% in the months from April to June - - the highest since October to December period in 1996.
The number of people without a job on this measure rose to to 2.435 million, its highest since 1995.
Also today, Business Secretary Peter Mandelson, said Britain's stimulus measures had saved at least 500,000 jobs during the recession.
"The Treasury estimates that there would have been at least, probably far in excess of, 500,000 more jobs lost in the recession had it not been for the government's and the Bank of England's intervention," he said.
The ONS said the number of people claiming unemployment benefit rose by 24,900 in July and the narrow measure of unemployment resulted in the jobless rate rising to 4.9% - - the highest since October 1997.
Employment fell by 271,000 in April-June, matching the decline in the February to April period, which was the biggest since records began in 1971.
US hedge funds
Hedge funds as measured by the Greenwich Global Hedge Fund Index (improved during the month of July to their highest levels on the year. The GGHFI returned +2.31% while the Greenwich Composite Investable Index (G12) gained +0.70% during the month, compared to global equity returns in the S&P 500 Total Return +7.56%, MSCI World Equity +8.37%, and FTSE 100 +8.45% equity indices.
Year-to-date, the GGHFI and the GI2 have returned +11.78% and +0.40%, respectively, while the S&P 500 Total Return, MSCI World Equity, and FTSE 100 Indices have returned +10.96%, +3.93%, and +13.53%, correspondingly. 76% of constituent funds in the GGHFI ended the month with gains.
US
The majority of economists in the Wall Street Journal monthly forecasting survey, said this month that the US recession is over -- see link to story in Box below.
US markets
On Tuesday, the Dow Jones Industrial Average fell for a second day and lost 96.50 points, or 1%, to 9241.45. The S&P 500 fell 1.3%
The Fed's rate committee will end its two-day meeting Wednesday with a mid-afternoon announcement In Washington DC.
Davy economist Rossa white comments: US companies drove workers harder in Q2 - -"Last week's July labour market data were encouraging, as we commented on Monday. But they told us that the pace of firing has slowed rather than providing evidence that companies have taken on more staff. That was confirmed by the latest data on non-farm productivity showing a spike in the second quarter. It repeats the pattern seen after the end of the 2001 recession and makes intuitive sense. After such a swift economic collapse, managers were reluctant to seek new staff, but that will happen as confidence in recovery takes hold.
US firms extracted additional output from their staff in the second quarter. Non-farm productivity spiked at an annualised rate of 6.4% quarter-on-quarter in Q2. That was the fastest rate since Q3 2003. It mirrors the pattern of recovery from the 2001 recession. Back in Q4 2001, non-farm productivity jumped 6% quarter-on-quarter annualised. The next quarter, it jumped 7.2%. Similarly, there were consecutive 5.9% and 2.9% increases following the end of the 1991 recession.
Companies are not yet confident enough to hire new workers, so they drive productivity from existing employees. But new orders have spiked in America, as per the ISM surveys. Further, the conditions for a recovery remain in place: financial conditions continue to improve and leading indicators are buoyant. Job growth will follow with a lag towards year-end."
Asia
The MSCI Asia Pacific Index fell 1.3% Wednesday.
Japan's Nikkei 335 fell 1.4% and China’s Shanghai Composite Index dipped 4.7%.
The Shanghai Composite has lost 10% since hitting a 15-month high on Aug. 4th.
China has formally charged four employees of Australian mining giant Rio Tinto on charges of trade secrets infringement and bribery, a downgrade from more serious claims of espionage.
China was engaged in tough negotiations with Rio Tinto, on iron ore prices at the time of the arrest.
China said preliminary investigations showed that four employees, including Australian citizen Stern Hu, had obtained commercial secrets of China's steel and iron industry through improper means, which had violated the country's criminal Law, official Xinhua news agency reported, quoting a statement from the Supreme People's Procuratorate.
Prosecution authorities also say they found evidence to prove that the accused were involved in commercial bribery, the statement said, adding that the investigations have also revealed that there were suspects in China's steel and iron enterprises who were providing commercial secrets for them.
The four were detained in Shanghai in early July on charges of stealing China's state secrets.
Asia-Pacific benchmarks
Eurostat, the EU statistics office reported today that industrial output fell at factories and refineries in the Eurozone in June compared to May, wiping out last month's rise.
Eurostat said seasonally adjusted industrial production fell by 0.6% over one month, after a rise of 0.6% in May.
Industrial output fell by 17% in June compared to June 2008.
The pan-European Dow Jones Stoxx 600 is up 0.2% Wednesday.
The ISEQ is up 0.8%.
Smurfit Kappa has gained 6% after reporting its interims this morning.
Caren Crowleyof Davy Stockbrokers commented today on a drilling update from Providence Resources: "The consortium holding frontier exploration licence 3/04 off the west coast of Ireland has agreed to enter the licence's second exploratory phase. The second phase expires in four years and carries a commitment well. The partners' decision to drill is a major endorsement of the Irish Atlantic margin in general, and particularly of the giant Dunquin target, whose potential scale and size is very material.
Providence has a carried 16% interest in the project, and its partners now include Exxon-Mobil (40%) and ENI (40%). ENI recently joined the consortium with Providence's 16% carry acquired through an earlier farm-out arrangement with Exxon.
A deepwater Atlantic margin well, in 1,600m of water and 200km off the west coast of Ireland, implies serious financial expenditure, comfortably in excess of $100m per well. Consequently, the commitment implies a strong belief in the target(s). Existing seismic in the Dunquin area indicates the presence of two deepwater exploration targets with multi-TCF potential, even using mid-case scenarios. Upside prospectivity is even more material.
Providence has been very active during 2009, with successful drilling operations in the UK and the Gulf of Mexico, and the recently announced intention to purchase 40% of Petronas's interest in the Kinsale Head complex. We value the group on a fully-diluted basis at 15c per share (13p). This takes into account a very heavy risking factor for the Atlantic margin targets, which, if successful, would alone generate valuations at a multiple of the current group valuation."
European Benchmarks
Irish Share Prices
Euribor Rates
AIB Daily Report
Bank of Ireland Daily Report
Currencies
The euro is trading at $1.4131 and at £0.8607.
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, tumbled 4.6% to 2,772 points last Friday, according to the Baltic Exchange. That took its weekly drop to 17% - - the most since the end of October. On Monday, the index fell 3% to 2,689. The index fell another 2.5% on speculation Chinese demand for iron ore may be weakening.
The Key Indicator of Global Trade - - Tudor Davies, Motley Fool UK.
Crude oil for September delivery is currently trading on the New York Mercantile Exchange (Nymex) at $69.32 per barrel down 13 cents from Tuesday's close. In London, Brent for September delivery is trading on the International Commodities Exchange at $71.95.
Gold spot price
Gold is trading at $943.210 down $2.20 from Tuesday's spot price close in New York.
Goodbody chief economist Dermot O’Leary comments: Banking sector stress levels no longer the key concern for equity markets - - "At the height of the financial crisis over the past couple of years, one could easily spot increasing signs of banking sector stress by taking a quick glance at the performance of the equity market. Not any more. On a day when equities fell almost across the board, there was a further improvement in our preferred indicators of financial market stress to levels not seen since well before the crisis began in August 2007. One of the indicators that we have pointed to repeatedly over the past two years is the TED spread, which measures the gap between US 3-month LIBOR rates and the rate on equivalent maturity Treasury Bills.
This spread experienced a number of separate spikes over the past two years, with the highest peak coming around the time of the collapse of Lehman Brothers, when it rose to 464bps. Since that time though this stress indicator has dropped continuously and last night it dropped to only 28bps, its lowest level since March 2007. Pre-crisis levels have returned. While central banks should not be complacent (and we will know the latest views of both the Bank of England and the Federal Reserve later today), it is clear that their efforts have done a lot in mending the banking sector to the point that it is not the primary concern for the wider equity market."
Goodbody analyst Eamonn Hughes comments: Irish Financials; Supreme Court reject property developer’s appeal for Examinership - - "Less than a fortnight ago, the High Court rejected a petition from a group of companies associated with Liam Carroll (one of Ireland’s largest property developers) to seek Examinership, a process akin to the Chapter 11 legislation in the US, which would have given the group protection from its creditors. The decision was appealed to the Supreme Court, who last night upheld the earlier High Court judgment. Presumably, this brings developments at Mr Carroll’s companies to crisis point.
The Statement of Affairs supporting the petition indicated that the liabilities of the group exceed the assets by €265m, but the petitioner proposed that the group’s assets could be worth up to €1.6bn in three years time if developed and/or disposed of in orderly disposal, which would exceed the €1.3bn of liabilities. However, the Supreme Court ruling indicated that the petitioner failed to provide enough evidence to back up the valuation reports and projections in the work-out plan.
The independent report indicated that a “fire-sale” on the assets could see the deficit widen out to c.€1bn (77% losses), so presumably the next step for the banks is that they all move on their collateral, though the complexities of the cross collateral relationships may see the various bank receivers/appointees tic-tac with each other. According to the Statement of Affairs, AIB has the largest exposure and accounts for 41% of the loans outstanding to the group of companies (c€530m and equivalent to 4.6% of its NAV at end June including the prefs and 6.5% ex the prefs) and HBOS Ireland has the second largest exposure at 27% (c€350m). Elsewhere, BOI is at 9%, Ulster at c7% and Anglo at 3% among others.
The market will fret that the Supreme Court decision creates a bit of a curveball for NAMA - and the banks - and the State was quick last night to highlight that the NAMA process remains on track. The various banks will likely move on their collateral and the risk is that any “fire-sale” disposals could set a reference rate on property valuations that could impact the taxpayer’s perception of how the NAMA valuations are set. However, from a practical perspective, we suspect the various bank appointees will firstly look to assess collateral levels and while tenders may be sought in due course for the assets, potential buyers are likely to be few and far between given current market conditions. In the meantime, NAMA becomes operational in the latter part of the year and this entity, which will have long term economic value in its valuation mandate, may practically become the main transaction conduit for these assets.
So while there may be some concerns in the short term that this decision could complicate the NAMA process, we would be of the view that these loans are likely to eventually end up in NAMA. One must also bear in mind that provisions may already have been take by some of the banks on their exposures to this developer, though it is impossible to estimate what these amounts equate to. So a headache, that may cause the banks to go easier on the newsflow (particularly AIB, given its exposure), but unlikely to be a full blown debilitating migraine!"
