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President Barack Obama walks to his desk in-between meetings in the Oval Office, Oct. 20, 2009.
UK Manufacturing PMI moved back above 50.0, as growth in output and new orders regained momentum
The UK manufacturing sector started Q4 2009 on a solid footing, according to the latest data from CIPS (Chartered Institute of Purchasing & Supply) and Markit. The seasonally adjusted Purchasing Managers’ Index (PMI) posted a reading of 53.7 in October, to move back above the 50.0 no-change mark and reach its highest level since November 2007.
The 3.8 point gain in the PMI from September’s revised figure of 49.9 was the third greatest in the series history.
The headline PMI provides a single figure indication of operating conditions in the manufacturing sector. The index is calculated using data collected on new orders, production, employment, supplier performance and stocks of purchases.
Underlying the improvement in the headline PMI were marked rebounds in the rates of expansion for both production and new work received. Output increased to the greatest extent since November 2007 as growth of new orders hit a sixty-nine month peak. However, the improvements in both of these components should still be viewed in the context of the unprecedented reductions in their levels seen during the recession.
Budget-airline Ryanair posted an 80% jump in first-half profit Monday, but expects losses ahead. "Europe needs a strongly growing low-fares airline so that we can rescue everybody from the nightmare of high fares and fuel surcharges," CEO Michael O'Leary told CNBC Monday:
UK home prices
UK house prices rose for a third month in October as increased demand for homes triggered by historically low interest rates and a shortage of properties for sale, pushed up values, Hometrack Ltd. said.
The average cost of a home in England and Wales climbed 0.2% from September to €156,400, the property research company said today. House prices fell 4.2% from a year earlier.
CIT
US finance company, CIT, which has over 400 employed in Dublin, on Sunday sought bankruptcy court protection.
Bloomberg says it will probably keep money flowing to bondholders and 1 million customers of the 101-year-old commercial lender. Shareholders and taxpayers won’t be as fortunate.
CIT’sChapter 11 bankruptcy may give bondholders new notes at 70 cents on the dollar plus new common stock, and Chief Executive Officer Jeffrey Peek said clients will be able to get funds. Common stock owners could be mostly wiped out, and the US Treasury Department said it won’t recoup much, if any, of the $2.33 billion of taxpayer money that went into CIT, the largest firm to go bankrupt after getting a federal bailout.
Fed and Bank of England may soothe nerves about Central Bank intentions this week
Davy chief economist Rossa White comments: "Equity markets have taken quite a jolt over the last two weeks. It seems that speculation about central bank exit strategies has spooked some investors, twinned with actual monetary tightening by Australia, Norway and India (with plans by China to tighten consumer credit standards too). But those moves relate to economies that have long emerged from recession and where country-specific factors (commodity recovery, secular internal dynamics) are at play. Developed economy central banks cannot afford to exit yet; in fact, this week's meetings will either increase emergency measures or make clear that they are here for a while.
The Fed statement is due for release on Wednesday evening. Even though decisions at Bernanke's Fed are much more driven by consensus than under Greenspan, it is extremely hard to see him and his fellow doves not getting their way. We do not expect it to hint at exit strategy, especially in the context of recent equity market weakness. The main change after the last Fed meeting was the apparent limit set for asset purchases. That may not be the case with the Bank of England: the market anticipates that the Committee will raise its target to £225bn from £175bn. The Committee is split, so it is far from a done deal. But if it happens, it would certainly remind investors that western central banks will remain supportive for quite some time.
The slight increase in rate expectations for end-2010 over a two-week period from their lows of early October may have been a catalyst for recent market weakness. But rate expectations have been pared lower again in the last ten days. UK repo rate expectations have been cut by almost 20 basis points, back towards the 2% mark. The downward change in the euro area was just over 10 basis points last week (implied rate of about 1.75%). Implied short US rates (as per the Fed funds and Eurodollar contracts) have also dropped. Fears among equity market investors about hiking by the UK, US and euro area early next year are overdone."
US companies holding more cash
US companies are continuing to hold more cash, even as the economy begins to recover the Wall Street Journal says, citing its analysis of company filings.
In the second quarter, the 500 largest non-financial US companies by total assets held about $994 billion in cash and short-term investments, or 9.8% of their assets, according to the Journal's analysis of corporate filings - - and a greater percentage of assets in cash, than at any time in the past 40 years.
In contrast, the companies held $846 billion, or 7.9% of assets, a year ago, the paper said.
At the end of the second quarter, the 54 biggest information-technology firms held $280 billion -- or 27% of their assets -- in cash, according to the Journal's analysis, a higher percentage than any other industry group. Cash balances grew further in the third quarter for the 34 companies in that group that have reported results.
The Journal says Google's cash and short-term investments rose 53% to $22 billion in the third quarter from a year earlier, accounting for 58% of its total assets.
The cash provides "operating and strategic flexibility," Google Chief Executive Eric Schmidt told analysts last month. "We're very happy to have it sit in our bank account and earn a modest interest rate."
The cash hoards may hopefully be put to use when nerves settle!
China is emerging as the locomotive that's pulling the whole emerging market forward, says Kingsley Jones, international portfolio manager at Macquarie Funds Management Group. He tell CNBC's Lisa Oake how he is capitalizing on this:
Asia
The MSCI Asia Pacific Index dipped 1.1% Monday and is up 63% from a more than five-year low on March 9th. The measure lost 1.3% in October.
Japan’s Nikkei 225 Stock Average fell 2.3%; Australia’s S&P/ASX 200 Index dropped 2.2% and China’s Shanghai Composite Index rose 2.7% after a report showed the nation’s manufacturing industry expanded at the fastest pace in 18 months - - see link in Box below.
Gold is trading at $1,054.10 up $9.40 from Friday's spot price close in New York.
Goodbody chief economist: Dermot O’Leary comments: Economic View; The slow process of deleveraging: "As we dealt with in our recent Economic Commentary, high private sector debt levels are the most important medium-term concern for the Irish economy. The link between credit growth and growth in domestic demand has been quite strong in Ireland over the past quarter of a century, and it is now clear that falling credit levels will restrain growth somewhat over the coming years. According to the Central Bank statistics, annual private sector credit growth has been in negative territory since June.
However, the more important metric, which includes securitisations and excludes lending to the IFSC, saw negative growth (-0.1% yoy) for the first time in September, for which data was published on Friday. This trend is likely to continue. Mortgage credit declined again in September, with the annual growth rate falling to only 0.3%. (See below for further detail). At the end of 2008, private sector credit (including securitisations and excluding IFSC lending) was equivalent to 220% of GDP. Despite falling credit levels this year, the ratio is expected to rise to 230% of GDP by the end of 2009, as GDP is in decline.
Further writedowns and falling outstanding credit will lead to a decline in this ratio over the coming years but this will be a slow process, with the ratio unlikely to drop to 200% until the end of 2011. The goal for policy is to ensure that credit is making its way to the sectors that need it most. This is where NAMA comes in of course, as taking the most troublesome loans off the balance sheets of the banks will allow them to concentrate on other parts of the loan book. It also came out last week that the NAMA legislation will contain provisions to ensure the banks meet certain targets around lending, although it is uncertain as to how this will work in practice. One thing is for sure though; trends in credit will continue to play an important role in the trajectory of the economy over the coming years."
