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Markets News Wednesday: German unemployment fell in September; US CEOs see more sales in 6 months but no higher hiring or capital spending
By Finfacts Team
Sep 30, 2009 - 10:15:50 AM
President Barack Obama and his national security team meet Sept. 29, 2009, in the Situation Room
at the White House with Undersecretary of State Bill Burns, right, as Burns departs for P5+1 talks
with Iran in Geneva on Thursday. Secretary of State Hillary Clinton is seated at centre.
German unemployment fell unexpectedly in September, boosted by the normal seasonal decline that accompanies the end of the summer holiday period, the Labour Office said Wednesday.
Following seasonal adjustments, the number of jobless fell by 12,000, resulting in an unemployment rate of 8.2%.
The Labour Office also revised down the drop in seasonally adjusted unemployed in August to 6,000 from an initial estimate of only 1,000.
In unadjusted terms, the number of jobless fell by over 125,000 to 3.346 million, or 8.0% of the workforce.
"However, this is not a change in the trend,"the Labour Office chairman Frank-Juergen Weise said in a statement. "Overall, the effects of the economic crisis on the labor market remain palpable."
Subsidised part-time work known as "kurzarbeit," has about 1.4 million workers employed in the scheme.
Unemployment is up 266,000 from a year ago.
US CEO survey
The CEOs of America’s leading companies anticipate increased sales in the next six months, but do not see enough demand to translate into higher capital expenditures or hiring, according to the results of Business Roundtable’s third quarter 2009 CEO Economic Outlook Survey.
“Businesses depend on increased demand to drive capital investment and hiring,”said Ivan G. Seidenberg, Chairman of Business Roundtable and Chairman and CEO of Verizon Communications.“Right now, we’re beginning to see sales trending up, but not to the level that translates into meaningful gains in capital spending or jobs.”
Business Roundtable is an association of chief executive officers of leading corporations, representing a combined workforce of more than 10 million employees and more than $5 trillion in annual revenues.
UK mortgage approvals struggling to recover
Davy economist Rossa White comments:"UK mortgage approvals did beat the consensus forecast for August, but only just. Mortgage activity is still at only about half of the long-run average, despite recent recovery. It suggests that normal household credit channels are not operating normally yet in the UK — and possibly that pricing is not yet compelling enough to boost demand.
The August total of 52,317 was an improvement of about 1,000 on the July level. Since the low in November of last year, approvals have almost doubled. But increases in the last three months have been getting smaller sequentially and the total of around 52,317 is little over half of the long-run average of more than 90,000 monthly. This is not a full-functioning mortgage market.
It does seem that a chunk of capacity has been withdrawn from the market. Northern Rock and Bradford & Bingley — both in state hands — are shells of their former selves. Replacing that capacity will take time. But the demand side is probably an issue too. UK housing does not look compellingly priced with regard to rental yields or prices-to-wages. A supply squeeze has led to the recent revival in prices. But whether there is a market for 90,000-100,000 mortgages at current prices is another question entirely."
US markets
A surprise dip in consumer confidence in September, sent stocks sliding in New York on Tuesday.
The Dow Jones Industrial Average closed down 47.16 points, or 0.5%, at 9742.20. However today, the last trading session of 2009's third quarter, should see the gauge already up 15.3% for the period, set for its best quarterly performance since 1998.
The Nasdaq Composite dipped 0.3% and the S&P 500 fell 0.2%.
China's economy is shifting to the private sector, notes Andrew Economos, head of Asia equity solutions at JPMorgan Private Bank. He tells Ben Simpfendorfer of the Royal Bank of Scotland, CNBC's Martin Soong & Cheng Lei:
Asia
The MSCI Asia Pacific Index climbed 0.8% Wednesday, led by carmakers and technology companies.
The index is up 14% in the third quarter.
The Shanghai Composite Index rose 0.9% in China, ahead a week-long holiday from tomorrow, highlighted by the national day on Thursday, which will officially celebrate 60 years of communism....and maybe some capitalism.
Bloomberg reported on Tuesday that the BDI may surge more than 80% by the end of the year on increased demand for shipments to China, according to China Ocean Shipping (Group) Co.
Gold is trading at $997.00 up $5.30 from Tuesday's spot price close in New York.
Interview with J. Vernon Henderson, Professor of Economics at Brown University:
Goodbody chief economist: Dermot O’Leary comments: Economic View; Spotting the turning points in the Irish economy - - "For those looking for turning points in the Irish economy, there are a few short-term indicators that should be focused on, mainly because they are so timely relative to many other Irish data releases. Two of those timely indicators are to be published over the next three days, with the first up being the Live Register later this morning. While not a strict gauge of unemployment, it is a decent indicator of trends in the labour market.
For example, it was first to confirm the large scale job losses seen in the first quarter of the year, when the numbers signing on for unemployment benefit increased by 26%, while the unemployment rate went from 8.6% to 10.7%. Since the peak in January, however, the amount of people signing on the Live Register has fallen for seven consecutive months. In August, the increase was 5,400, only one-sixth of the increase in the first month of the year. There are two reasons that we are seeing this trend slow: (1) the loss of jobs has indeed slowed, and; (2) an increased outflow of migrants has started to occur. For both of these reasons, we reduced our peak unemployment rate assumption from 17.5% to 14.5% last week. We also upgraded our view on consumer spending on the back of the change in these assumptions. It certainly seems like we have reached a key inflection point and today’s labour market data, along with tax returns to be released on Friday, will add to that debate."
Goodbody's Eamonn Hughes comments: Irish Financials; More capital raisings in prospect - - "A UK fund manager yesterday talked about a fund raising a day in the banking sector and it certainly feels that way with confirmation that Unicredito is following BNP yesterday. UCI is set to raise €4bn. Intesa is going down the hybrid route, which was the other Italian bank on the capital raising radar. Lloyds and RBS are also on the radar among the UK banks. The Lex column today tackles the capital issue in banks, taking its lead from its earlier pieces. A good operating or trading environment in the short term is ensuring returns on capital at banks are high as regulators debate over appropriate capital levels.
While they dither, banks are making hay in the sunshine. However, at some stage, we’ll get a sense what the new guideline numbers will become and the G-20 set a deadline of new coordinated rules by end 2010 and implementation by end 2012. Our own view is that the banks need no less than 4% core equity at the trough of the cycle (the US and UK stress tests) which sees AIB and BOI need €1.3bn and €0.7bn respectively on our figures, moving up to 8% in due course to a more normal level. This will require the banks to raise a further €2.0bn and €2.5bn at BOI and AIB respectively at some stage in the medium term.
As with all things, time will tell, though the Minister for Finance indicated his view in an interview yesterday that it is “inevitable” that the banks will need new capital after they sell loans into NAMA. We would believe that to be the case for AIB, EBS and Irish Nationwide. Bank of Ireland is not as impacted immediately post NAMA, but will need some capital as the credit cycle unfolds. Anglo Irish has already received some and likely more post NAMA. IL&P’s permanent tsb needs capital to extricate itself from the life company if the “third force” materialises."
Goodbody analyst Anna Lalor comments: Bank of Ireland; Issue of non-guaranteed unsecured bond - -"Bank of Ireland yesterday sold a €1bn unsecured non-Government guaranteed bond with a maturity of four years and seven months. The issue was priced at 245bps over mid-rate swaps and follows the successful €1bn unsecured non-guaranteed issue by AIB last week. The issue was oversubscribed to the tune of €1.5bn (so orders for €2.5bn in total), with 92% of orders from foreign investors and over 220 investors participating from 26 countries.
The maturity of the bond is 1.6 years longer than AIB’s and the pricing compares favourably with the 250bps over mid-rate swaps achieved by AIB. Although somewhat cheaper than AIB’s issue, the cost remains very high compared to similar issues by UK peers, that for guaranteed issues, BOI’s recent non-guaranteed ACS issue and against historic norms. However, as in the case of AIB, the ability to get a non-guaranteed unsecured bond issue away has to be welcomed, as it shows continued improving sentiment towards the Irish banks.
It also allows BOI to term out its funding base, with the current guarantee only for issues one year out, and the legislation to extend the guarantee not yet in place. Once NAMA is up and running and both banks have been recapitalised we would expect the non-guaranteed borrowing cost for both to begin to improve."
