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UK consumer confidence rose to the highest level in more than a year in August as evidence mounts that the economy is emerging from the worst recession in a generation, Nationwide Building Society said.
An index of sentiment rose to 63, the highest since May 2008, from 61 in July, UK’s biggest customer-owned lender said today. TNS questioned 1,000 people for Nationwide from July 20 to Aug. 23rd.
Martin Gahbauer, Nationwide’s chief economist, said:“The moderate increase in confidence this month indicates that, for the first time since April, consumers are beginning to feel more positive, not only about the future, but also about the present situation. The rise in positive sentiment across all the indices is no surprise as a number of key economic indicators continue to show that we may have reached the bottom of the current recessionary cycle.
It is likely that there will be a protracted recovery and we may see some volatility in the data as factors such as the rise in fuel duty affect sentiment. Although positive news about the housing market may have helped boost confidence, consumers’ views about spending remain relatively cautious, possibly because the level of heavy discounting seen earlier in the year has now subsided.”
The UK economy returned to growth in the three months ending August, a prominent think-tank said Tuesday, suggesting that the recession which began in the second quarter of last year has come to an end. The National Institute of Economic and Social Research said that, according to its calculations, gross domestic product rose by 0.2% over the period, following a 0.3% decline in the three months to July, but it cautioned this doesn’t mean that the U.K.’s troubles are over.
“There may well be a period of stagnation now, with output rising in some months and falling in others; the end of the recession should not be confused with a return to normal economic conditions,”the NIESR said.
Preliminary official data are scheduled to be released Oct. 23rd.
Davy chief economist Rossa White comments: UK economy growing again in August, according to NIESR - - "We have commented repeatedly in recent months on the UK's swift recovery. The economy has been revived by a bigger relative monetary response than anywhere else, major support for the banking sector, fiscal stimulus, and the pass-though from sterling's weakness at the end of last year and early 2009. The economy is growing again, according to respected think-tank NIESR. Recent data suggest that activity is strengthening by the week and that trend will likely continue into year-end.
We were particularly struck by last week's services PMI data for the UK. It read 54.1 - - well over the 50 dividing line between growth and recession - - and fully 14 points higher than at the end of 2008. That reading led the pack across Europe. It is significant because the UK's dependence on services is higher than its peers among the major European economies. It certainly highlights the pass-through from the enormous improvement in financial markets: the UK benefits directly (through its large financial services sector) and indirectly (through an uplift in demand for business services).
Yesterday's NIESR estimate of recent GDP performance confirms the turnaround. It had not signalled quarterly growth since May 2008 (albeit that the 0.2% rise is modest). That growth rate will soon accelerate however: the consensus forecast for 0.9% real GDP growth in the UK in 2010 is starting to look too pessimistic."
Bank of Ireland
Bank of Ireland said that in the region of 120,000 customers were affected by laser card transactions that were duplicated in error due to a computer fault. The transactions took place on Friday last and the erroneous duplications happened overnight on Monday. This error resulted in possible non access to funds for some customers on Tuesday. The payment of Direct Debits and Cheques were not affected. A small number of Standing Order payments may have been delayed by one day. The error has now been rectified on customer accounts and most customers will have experienced no adverse impact.
Bank of Ireland said it apologises to customers for this error. Customers who are concerned in relation to this error should contact Banking 365 on 1890 365 365 or contact their local branch.
The financial industry is healing but another Lehman-like shock could unravel the sector and that poses the a risk to the US recovery, says Illian Mihov, professor of economics at French business school INSEAD, speaking to CNBC's Martin Soong:
US banks return to risk
The Wall Street reports today that companies are selling exotic financial products similar to those that felled markets and the world economy last fall. And banks' appetite for risk has grown: The nation's top five banks collectively stood to lose more than $1 billion on an average day in the second quarter of 2009 should their trading bets go sour, a record level.
Now, the federal government is locked in a kind of regulatory limbo. U.S. officials say they are committed to preventing history from repeating and have pleaded for fresh powers to do so. But today, they have few new options -- excepting another bailout -- should financial markets seize up again or a large institution totter.
"There's no fundamental change in the way the banks are run or regulated," said Peter J. Solomon, a former Lehman vice chairman who runs an eponymous investment bank in New York."There's just fewer of them."
US markets
Gold and other commodities rose along with stocks in New York Tuesday.
The Dow Jones Industrial Average rose 56.07 points, or 0.6%, to 9497.34, its third straight gain.
The S&P 500 rose 0.9% as did the Nasdaq Composite.
Asia
The MSCI Asia Pacific Index dropped 0.8% Wednesday.
China's Shanghai Composite rose 0.54%; the Nikkei 225 dipped 0.7%.
Bloomberg reports the rate for leasing capesize ships, boats three times the size of the Statue of Liberty, will drop about 50% from the current price of $37,865 a day to as low as $18,000 before the end of the year, according to the median in a Bloomberg survey of six analysts and fund managers. Forward freight agreements traded by brokers show the fourth-quarter average price will be 7% lower.
Gold is trading at $997.60 up 90 cents from Tuesday's spot price close in New York.
The price breached the $1,0000 per ounce level on Tuesday, for the first time since last February.
Mark O'Byrne, director of GoldCore commented on Tuesday: "This morning..gold, as expected, broke through the psychological $1000/oz level in late Asian trading. Initially, profit taking was seen at $1004/oz and the price fell back to $1,000/oz prior to rallying to over $1,007/oz. Gold looks very good technically and some investors are putting their trust in gold to see whether it pushes to new record highs just above $1,030/oz.
Especially as extremely loose fiscal and monetary policies are likely to create an inflation headache down the road. GFMS report that there have recently been some "significant lumpy transactions" and "a degree of illiquidity" in the physical market which is a development worth monitoring. With large hedge funds and central banks (such as the Russian and People's Bank of China) diversifying into physical bullion, investment demand remains as robust as ever and looks set to overpower the significant decline in jewellery demand and demand from the Indian subcontinent. The United Nations UNCTAD report warning that the "economic winter" was not over and calling for a new global reserve currency may have led to some buying also."
Goodbody chief economist Dermot O’Leary comments: The politics of NAMA - - "When the draft NAMA legislation was published in July, the motivation was to provide an opportunity to inform debate about the agency and to give opposition parties and the wider public an opportunity to suggest amendments or enhancements to the Bill. It has become clear that the most likely material change to the Bill will be the risk-sharing mechanism proposed by Prof. Honohan, the newly appointed Central Bank Governor. However, it is also clear, one week prior to the proposed announcement on the likely amount of additional Government debt that will be needed to finance the purchase of the loans, that two of the largest Opposition parties remain unconvinced.
The largest of those - - Fine Gael - - officially voted to oppose the Bill yesterday, while the second largest - - the Labour Party - - reiterated its preference for temporary nationalisation. With a majority in the Dail, the Government can still get the NAMA vote through next week, but the majority is a very slim one and will also depend on the deliberations of its main party in Government (Green Party) at a special convention at the weekend. Currently, the Government enjoys a majority of 83 seats to 81 in the Dail, with the Ceann Comhairle also likely to vote for the Government. The upshot of all of this is that the debate on what is the biggest financial decision that the country has ever undertaken over the next week is likely to be intense. Given the amount of effort that has already gone into the agency, the key point that opposition parties are arguing is around the issue of protecting the taxpayer. The introduction of the risk-sharing provision will help in this regard (which may be contained in a new draft to be published on Friday), while the vital issue of the pricing of the assets will determine the scale of the support for the scheme. It should be an interesting, and indeed vitally important, week for Ireland Inc."
Goodbody's Anna Lalor comments: Irish Financials; Subordinate debt amongst NAMA risk-sharing options being examined - - "The Irish Times reports this morning that among several NAMA risk-sharing mechanisms being considered by the Government is subordinated debt in NAMA being issued to the banks for a “small percentage of the total sum to be paid for the loans”, in addition to Government bonds. The Government has been under increasing pressure to put further protection for the taxpayer into the NAMA legislation (see the economics piece above), with a two tiered payment being suggested by Professor Honohan. He had suggested that bonds to the value that could be reasonably achieved by the loans be transferred to the banks, with an equity stake for the remaining amount given to shareholders of the banks. An equity stake being given to shareholders may not provide sufficient incentive to the banks, which will administer the loans, to extract optimal value from them.
We do not have much detail on the subordinate debt instruments that may be issued by NAMA. Being a form of capital, they would probably allow any NAMA shortfall to be taken by the banks on wind up should long term economic value for the loans not be achieved (in a way encompassing the proposed levy within NAMA). If this value was not achieved, presumably the full amount of the subdebt would not be paid to the banks. It is unlikely that the subordinate debt would pay a coupon in the earlier years of NAMA, at least until the agency started to realise value over and above the amount of Government debt issued. It is also not clear where the taxpayer fits into the scheme of things and whether it would only gain on NAMA once the subordinate debt is repaid. Given that the subdebt would bear risk, it means that the banks would get less capital relief from NAMA (with the portion being paid for in Government bonds having a risk weighting of zero and the subdebt portion possibly as high as 100%), which would require a higher level of equity being required upfront. In addition, these securities would be very unlikely to provide liquidity to the banks. However, unlike an equity stake, the banks exposure to NAMA would be limited to the value of the subdebt, whereas with an equity stake uncertainty would remain over whether or not they would need to provide additional capital to the agency at a later date."
Anna Lalor further comments: Irish Financials; Fitch puts short term ratings of banks on watch in anticipation of revised guarantee - - "The rating agency Fitch, yesterday put the F1+ short term issuer default ratings (IDRs) of AIB, BOI, EBS and Irish Nationwide (INW) on ratings watch negative (RWN) in advance of the anticipated changes to the Irish Government guarantee post September 2010. The ratings on short term securities currently covered by the Government guarantee have been affirmed at F1+, as has the short-term IDR of F1+ on Anglo Irish, seeing as it is Government owned.
The rating action is in anticipation of amendments to the guarantee scheme (effective post-Sep-10) that are likely to see it move towards guarantees in place in other countries that are “less all-embracing”. However, Fitch notes that “an amended scheme does not imply weaker state support” for the banks.
Separately, it was reported yesterday that Bank of Ireland is planning to issue a covered bond with a 5 year maturity. The covered bond, which would be seen as lower risk than senior debt given that it is backed by a pool of (presumably mortgage) assets, has a maturity which extends beyond the period of the existing Government guarantee which ends at the end of September 2010, so we will watch its progress with interest."
