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Markets News Thursday: Shares slide in Europe and Asia on Thanksgiving Day; IBEC confirms no Irish pay rises in 2010
By Finfacts Team
Nov 26, 2009 - 9:37:18 AM
President Obama at the traditional official pardoning of the Thanksgiving White House turkey. The ceremony took place in the Rose Garden, Wednesday, Nov 25, 2009, and one lucky turkey has a second chance at life.
IBEC and pay agreement
The National Council of Irish business representative group IBEC has announced that it has decided to formally withdraw from the terms of the current national pay agreement before the end of December. The group reiterated its position that there should be no pay rises before 2011.
It said it still supported an agreed partnership approach to the current economic challenges, but said efforts must focus on keeping companies in business and supporting jobs.
IBEC will take unilateral action if no agreement is reached with ICTU between now and mid-December on an alternative pay agreement that is appropriate for the economic and commercial environment of 2010.
IBEC director general Danny McCoy said: "Protracted efforts over the last year to reach an agreement on suspending the pay terms have proved unsuccessful. We now owe it to ourselves and to future generations to act decisively and face up to the challenges ahead. Everyone’s priority must be to ensure that companies stay in business so that jobs are protected to the maximum extent possible.
"The terms of the current pay agreement were agreed in a radically different economic context and are now utterly inappropriate. It would be reckless to attempt to apply those terms in the current circumstances, with so many employers fighting for their very survival.
“The real casualties of the economic downturn are the many thousands who have lost their jobs. This is where all our efforts should focus. IBEC has proposed a set of measures that would redirect public funds towards keeping people in jobs, rather than allowing a drift into spending equivalent funds on social welfare payments.
"We need to work together to get ourselves out of this crisis quickly so that we restore our own confidence, and international confidence, in our country. Lack of jobs is the single biggest issue facing our economy, but only competitive businesses can sustain and create employment.
"The business community is willing and able to play its part in getting the country back onto a sustainable path. Pay expectations must however reflect the overriding need to restore competitiveness and protect existing employment."
Fine Gael Deputy Leader & Finance Spokesman Richard Bruton said the warning highlights the lack of any Government jobs strategy: “At the root of the difficulties plaguing Social Partnership is a rudderless Government which has no clear strategy to create new jobs and tackle Ireland’s competitiveness problems.
“There is a void at the heart of the Fianna Fáil Government in the shape of a jobs strategy. Hundreds of businesses are hanging on by their fingernails. Unemployment is at record levels. But the Government refuses to draft a credible jobs strategy.
“Fine Gael is the only Party to draft concrete proposals for job creation. Our proposals will protect and create up to 100,000 new jobs in small & medium enterprises, and in green and hi-tech projects.”
The Thanksgiving holiday will give investors a chance to take stock and consider the state of the markets, David Yarrow from Clareville Capital told CNBC Wednesday. Maurice Pomery from Strategic Alpha joined the discussion:
US consumer on the rebound?
Goodbody economist: Deirdre Ryan comments today: "After registering modest growth in the third quarter, personal spending data for October indicate that a relatively resilient start has been made to the final quarter of the year by the US consumer. Personal spending increased by 0.7% mom in October, registering its fifth increase in the last six months. While the government car scrappage scheme has distorted the aggregates and is likely to remain a factor in the near term, outside of this, spending is also displaying resilience.
For instance, services spending increased by 0.5% mom in October, its fastest rate of growth since April 2008. In addition, core spending (i.e. less food and energy) grew 0.6% monthly in October. Similar to the recent retail sales data (which indicated 3 consecutive increases in core spending), the latest update on the US consumer points to one that is managing to emerge from recession. Incomes too, have stabilised and have now recorded modest positive gains over the past four months, albeit with the aid of continued government support.
With the peak in unemployment edging closer given the ongoing moderation in the initial jobless claims, also released yesterday (to pre-Lehman levels), the labour market backdrop is likely to become more benign in the months ahead. Given that spending as a share of US GDP has actually risen slightly throughout the recession and now stands at over 70% of GDP, the fate of the US consumer will obviously play a major role in determining the trajectory of the US economic recovery that is now in train."
Evidence suggests that business investment is barely stirring
Davy chief economist Rossa White comments today: "The UK business investment figures on Tuesday were better than expectations for the third quarter. But they still showed a decline on the second quarter, albeit at a more moderate pace. Yesterday's US proxy for future business investment in machinery and equipment was disappointing. Credit conditions are not tightening at the same pace as before (evidenced by the US Fed senior loan officer survey). But the lag before that improvement feeds through to business investment has typically been about a year. Renewed investment is vital to sustain this recovery.
UK business investment slipped only 3% in Q3. That is from a vastly reduced base, so hardly looks like a good number. Yet the collapse in investment seems to have been stemmed somewhat: the drops in the two previous quarters were 8.9% and 10.2% respectively. Credit spreads have tightened hugely, which is a help for big business. But the UK banking market (capacity is reduced) is surely still constraining smaller firms' expansion plans for now.
In the US, business investment has stabilised but there remains little sign of growth. The proxy for future business investment - - capital goods orders ex-defence and aircraft - - slid 2.9% month-on-month in October. A longer-term perspective is better, and orders are 5.5% above the April low seasonally adjusted. The problem is that the April low was the worst seen since the 2001-2002 shake-out after the over-investment of the late-1990s. The good news is that the net balance of banks tightening credit to US firms is at its most favourable point since H2 2007 and heading in the right direction. However, it won't boost investment until H2 2010."
Dubai shocks investors
The FT reports that Dubai has shocked investors by asking for a debt standstill at Dubai World, the government’s flagship holding company that has developed some of the world’s most extravagant real estate projects.
The move raised the spectre of default in the Middle East’s trading hub just as early signs of economic recovery have emerged. During the boom, Dubai rode the wave of easy credit generating phenomenal economic growth but was badly hit by the global credit crisis.
Dubai’s surprise move angered some investors who had been reassured by local officials for months that the city would meet all obligations on its $80bn (£48bn) of gross debt in spite of recession and a real estate crash.
US dollar
Bloomberg reports the US dollar dropped to a 14-year low against the yen. Asian stocks declined, led by Japanese exporters, and European stocks fell.
The yen strengthened 0.5 percent versus the dollar to 86.89 in London.
The dollar fell to the lowest since July 1995 after the Federal Reserve said on Nov. 24th that its drop was “orderly,” a signal to traders that the US won’t prop up the currency as the world’s largest economy recovers from the first global recession since World War II. The dollar’s decline threatens profits for Asia’s exporters after the MSCI Asia Pacific Index gained 32% this year to trade at 1.5 times book value, up from 1.03 in March, according to data compiled by Bloomberg.
US deficit
The Wall Street Journal reports that the White House is considering a bipartisan commission to tackle the nation's swelling deficit, as it seeks to show resolve on a problem that threatens its broader agenda.
Top White House officials, including budget director Peter Orszag, met Tuesday with Senate Budget Committee Chairman Sen. Kent Conrad to discuss establishing such a commission, which has been pushed by Mr. Conrad, a North Dakota Democrat, and his Republican counterpart on the committee, Sen. Judd Gregg of New Hampshire.
The federal budget deficit swelled to a post-World War II record of $1.4 trillion in fiscal 2009 and isn't expected to shrink much this year. The White House budget office has already asked each cabinet department, except for defense and veterans affairs, to submit two budgets for fiscal 2011 -- one freezing spending at current levels, the other cutting spending by 5%.
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.
Over the coming year, Stuart Shrimpton, director at Intelligent Investments, sees commodity prices edging up across the board. He tells CNBC's Karen Tso & Martin Soong why:
Davy's Stephen Furlong comments today: Winners and losers in aviation downturn - - news from Ryanair, Budget Travel and BMI - - "This downturn will, in many industries (but notably in aviation), have both winners and losers. We see Ryanair continuing to expand (not in Ireland, however, where the travel tax makes it prohibitively expensive) all over Europe. It has now extended its Sicilian base with two new aircraft (four in total) and is opening up 12 new routes (34 in total).
Within Ireland, the announcement of the closure of Budget Travel – a business which has been in existence for almost 35 years – clearly shows the difficulty that the travel industry is facing. This can clearly be seen in the CSO September bulletin on overseas travel. Overseas trips to Ireland in September are down 13.9% and back to 2004 levels. Trips to Ireland by residents of Great Britain fell by 14.8%, while those from Other Europe were down 17%. Irish residents made 628,800 overseas trips in September 2009 – down by 13.4% year-on-year.
In the UK, BMI British Midland is axing 600 jobs and is to stop flying to cities such as Tel Aviv and Kiev in order to cut costs. It also reduced its low-cost subsidiary, bmibaby, by 158 employees last month. This is part of the restructuring which is taking place through its new owner, Lufthansa. We still think that BMI – which is really three airlines – the mainline, regional and low-cost subsidiary – will ultimately be sold off, not least for the £600m-plus value of its Heathrow slots."
Davy's John O'Reilly comments: World dairy context still improving - - "A firming world dairy market and the prospect of an increase in milk prices would be a timely boost to sentiment in the Irish farm sector, oppressed as it is by falling income and the impact of weather. The latest data for Oceania milk production show milk output running behind the seasonal norm. As the key global dairy exporting region, the slowdown in production is reportedly firming dairy product still further. If the demand side stays robust, then the elevated price level of recent months has every chance of persisting into next year and assuring a rise in Irish milk prices next year. For Glanbia especially, but also Kerry and Donegal, this too would be positive."
