ECB’s exit strategy should not affect NAMA

Goodbody chief economist Dermot O’Leary comments: "Among the criticisms that have been pointed out in relation to NAMA (Irish State bad bank for toxic property loans) by some of its detractors has been the notion that an end to the ECB’s emergency liquidity operations would put the whole scheme in doubt. With this in mind, the ECB’s decision on Friday to amend some of the rules on eligible collateral will be seen by some as the beginning of the so-called “exit strategy”.

In truth though, the changes announced on Friday were very small; from 1st March, all asset-backed securities must have at least two ratings that pass the minimum threshold to be allowed as eligible collateral at the ECB. When the NAMA process gets up and running, the financial institutions that will be transferring assets to the new agency (which may now also include Ulster Bank, according to reports this morning), will have Government securities that can be used as eligible collateral. With Ireland’s credit rating now stabilised, at least following Fitch’s decision to take Ireland off negative outlook, Government securities will remain as eligible collateral at the ECB, even after emergency measures are withdrawn. In any case, both the ECB and the European Commission have been kept informed of the way in which the whole NAMA process will work. The NAMA process is not devoid of risk, but fears about the ECB refusing to play ball are probably overdone, despite signs that it is slowly moving towards the exit on its emergency liquidity measures for the banking system."

Still awaiting Irish wage data, but latest release provides some colour

Davy chief economist Rossa White commented: "Ireland is the only EU country that is not yet providing wage data for the whole economy. That will finally be rectified next month. In their absence, it was useful to at least get Irish Q2 numbers for industry and financial services. Weekly wages were up slightly in industry but down sharply in financial services. When the data are finally released, they will show that Ireland has partly closed the wage gap with the rest of the euro area.

This latest data provided insight into wages for just over 310,000 of a workforce where 1.9m were employed as of Q2. So it is a small sample, and keep in mind too that multinational industry has held up better than any other part of the economy. That has helped keep industrial wages growing: they were up 0.7% on a weekly basis in Q2. Hourly earnings rose over 4%, but hours worked dropped sharply. Financial services and insurance suffered on the other hand due to the severe impact of the crisis. Hourly wages fell by 12% and weekly wages by fully 13% in the year to Q2.

In the absence of the data for the year to Q2, we can only make a rough stab at the trend in Irish labour costs. The euro area data are available: hourly wages rose 4% in that 12-month period. Wages fell in financial services (data already available) and in construction. They probably declined in the private services sector too given the trend to year-end 2008. In public services, there was most likely a marginal increase thanks to increments. Putting it all together and weighting by employment share, hourly wages may have slipped about 2% year-on-year in Ireland in Q2 – closing the gap with the euro area where wages inflated."

-- See link to data in Box below.

Accurate dollar forecasters

Bloomberg reports that the most accurate dollar forecasters predict the world’s reserve currency will continue sliding even when the Federal Reserve begins to raise interest rates, which policy makers say is an “extended period” away.

Standard Chartered Plc, Aletti Gestielle SGR, HSBC Holdings Plc and Scotia Capital Inc. say the dollar will depreciate as much as 7.1 percent versus the euro. About $12 trillion of fiscal and monetary stimulus, the world’s lowest borrowing costs and a record $4 trillion of government bond sales between 2009 and 2010 will weigh on the currency, they said. So will the nation’s 10.2 percent unemployment rate and signs that the economic recovery may falter, they said.

US jobs

The Wall Street Journal reports that the White House is lukewarm about proposals by congressional Democrats to introduce broad legislation to create jobs, instead favoring targeted measures that would be less likely to inflate the deficit, administration officials said.

There is as yet no agreement within the White House or in Congress on how to try to curb the US jobless rate. But the differences in opinion suggest that rifts could emerge among Democrats as they wrestle with how to beat back the highest unemployment rate in a generation.

The Journal says the jobless rate, which hit 10.2% in October, has continued to climb despite the implementation of a $787 billion stimulus package in February.

Democrats' fates in 2010 midterm elections could hinge in part on the success of their efforts to curb unemployment. Recessions historically have cost incumbents in an election year. Heavy losses could threaten Democratic majorities in the House and Senate, and affect the party's chances of passing legislation addressing President Barack Obama's priorities.

Asia

With Japan's markets closed, the MSCI Asia-Pacific Excluding Japan Index added 0.7% Monday and is up 66% from a five-year low in early March.

China’s Shanghai Composite Index rose 0.9% and Australia’s S&P/ASX 200 Index gained 0.7%.