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OECD composite leading indicators (CLIs) for November 2009 provide stronger signals of recovery than in last month’s assessment. Troughs in the underlying reference series - - the index of industrial production -- for all major seven countries, except Canada and the United Kingdom, are also visible, and the CLIs for all major seven countries have moved above their long-term trend, implying an expansionary outlook relative to trend. The outlook for major non member economies also continues to point to a recovery.
The CLI for the OECD area increased by 1.0 point in November 2009 and was 8.2 points higher than in November 2008. The CLI for the United States increased by 1.0 point in November, 6.8 points higher than a year ago. The Euro area’s CLI increased by 1.1 point in November, 10.9 points higher than a year ago. The CLI for Japan increased by 1.2 point in November, 5.4 points higher than a year ago.
The CLI for the United Kingdom increased by 1.2 point in November 2009 and was 10.7 points higher than a year ago. The CLI for Canada increased by 1.0 point in November, 9.4 points higher than a year ago. The CLI for France increased by 1.2 point in November, 11.9 points higher than a year ago. The CLI for Germany increased by 1.4 points in November, 12.3 points higher than a year ago. The CLI for Italy increased by 0.9 point in November, 13.8 points higher than a year ago.
The CLI for China increased 0.2 point in November 2009, 7.6 points higher than a year ago. The CLI for India is unchanged in November and 4.3 points higher than a year ago. The CLI for Russia increased by 1.0 point in November, 3.4 points higher than a year ago. The CLI for Brazil increased by 0.8 point in November, 1.3 points lower than a year ago.
The OECD CLI is designed to provide early signals of turning points in business cycles – fluctuations of economic activity around its long term potential level. The
A large set of component series, selected from a wide range of economic indicators, are used in constructing CLIs (224 series are used in total, about 5-10 for each country). CLIs are calculated for 29 OECD countries and 9 zones. They are calculated in three forms: amplitude adjusted, trend-restored, and year-on-year growth rate.
The OECD-Total covers the following 29 countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States.
Source: OECD
The G7 area covers Canada, France, Germany, Italy, Japan, United Kingdom and United States.
The Eurozone (only Euro area countries that are members of OECD) covers the following 13 countries: Austria, Belgium, Finland, France, Germany, Greece, Italy, Ireland, Luxembourg, the Netherlands, Portugal, Slovak Republic and Spain.
London bankers' pay
Bloomberg reports that London’s investment banks are luring back traders and analysts they lost to brokerage firms during the credit crisis, compensating for lower bonuses by as much as doubling base salaries.
“The banks are killing the boutiques,” said Daryl Bowden, co-chief executive officer of ICAP Plc’s equities unit in Europe and Asia. The London-based firm is the world’s largest broker of trades between banks. “They’re doubling salaries and offering above-average compensation. Banks today have limited risk so people can work there without fear.”
The UK's savings ratio has jumped over the past few months and is now strongly positive, Bob Parker from Credit Suisse told CNBC Friday. Parker considers the outlook for the UK consumer:
Lack of data makes interest rate sensitivity analysis unsatisfactory
Davy chief economist, Rossa White, comments: "After the Irish economy bottoms in the early part of this year, growth will be minimal. A number of factors will keep activity relatively flat overall but choppy. One of the obvious difficulties is that interest rates will rise, given the high household debt burden. Another difficulty is rising energy costs. A third relates to the ongoing negative drag from the erosion of household net worth. But the debt issue is probably the most important and yet is notoriously difficult to get a handle on thanks to inadequate data.
Our model allows us to work out the average household debt service ratio for the economy, i.e. the percentage of after-tax income eaten up by total debt repayments (mortgage and unsecured). That burden actually fell sharply in 2009 for two reasons. First, interest rates dropped sharply. Second, unsecured household debt outstanding fell by about €3bn last year. As a result, the household debt service ratio dropped from 22% to less than 19% – the lowest since 2005.
This year, that ratio may not budge at all even though interest rates will rise. Banks will widen margins slightly later this year, and the European Central Bank is likely to hike twice in H2. But further debt reduction will limit the average servicing cost, and capital repayments will fall. For someone not repaying debt or getting forbearance from the bank, that is little solace. In that regard, it is crazy that no data are available to show who has the mortgage debt: in other words, the proportion of debt that pertains to the 25-34 age group, the 35-44 group, etc. The banks themselves have the data but must be encouraged to collate and release this information."
Discussing how the upcoming US December nonfarm payrolls data will impact the dollar, with Stuart Bennett, senior European economist at Calyon, speaking with CNBC's Rebecca Meehan & Chloe Cho:
US markets
In New York Thursday, the Dow added 33 points or 0.31% to close at 10,607.
The S&P 500 rose 0.4% and the Nasdaq dipped 0.05%.
Asia
The Nikkei rose 1.09% and the Shanghai Composite gained 0.10%.
The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009.
On Monday, the BDI rose 135 points or 4.49% to 3,140; On Tuesday, the index rose 140 points to 3,270; On Wednesday, the index fell 11 points or 0.45 to 3,259; on Thursday, the index fell 110 or 3.4% to 3,149.
NBC's Brian Moore has the full report on President Obama taking the rap for the intelligence breakdown that led to the Christmas airplane terrorist attack.
Goodbody chief economist, Dermot O’Leary, comments: Economic View; Resources are available to recapitalise the Irish banking system - -"Arguably, the most important state body in Ireland at the current time is the NTMA. Not only is it responsible for securing financing for Ireland’s large budget deficit but, with NAMA, its ranks are now responsible for setting up and overseeing Ireland’s answer to the domestic banking crisis. It is also charged with managing the National Pensions Reserve Fund, which has already been called upon to inject funds into the domestic banking system and is likely to be used again in the coming months. Its 2009 Review, released yesterday, highlights the major challenges that the agency faced last year, especially given the poor investor sentiment that prevailed in the first quarter of the year. Despite the challenges, the NTMA managed to raise €35bn last year, enough to fund the Exchequer deficit of €24.6bn and refinancing requirements of €5bn, leaving a further €5bn to ensure no near-term funding concerns for 2010. Ireland’s government debt level is now estimated at 65% of GDP, (although excluding cash balances held by the Exchequer at the year end amounting to €20bn, this falls to 51% of GDP), relative to a euro-area average of 78%, although we expect Ireland’s debt level to match that of the rest of the euro-area by 2011.
The NTMA announced that it would raise up to €20bn in funding this year to cover an expected Exchequer deficit of €18.7bn and refinancing of €1.2bn. This funding requirement though does not cover the yet unknown costs of recapitalising the banking system. In 2009, the Government directed the NTMA to purchase preference shares worth €7bn in the two main banks. These may be converted into ordinary equity capital, but further capitalisation into the big two and also into the “third force” is likely to be required, not to mention any additional funds required for Anglo Irish Bank. The Government, therefore, has a decision to make on the future of the NPRF. Outside of the holdings of preference shares in the two major banks, the NPRF is currently valued at €15.3bn, after a strong performance from its equity holdings after reaching a low in March. We have stated repeatedly that while this fund was originally set up to cover future pension liabilities, some of it could be used to recapitalise the banking system, as the costs of not having a fully functioning banking system are likely to be greater, given the effect it would have on the broader economy and thus on tax revenues and social transfers. Our analysis of banking crises reveals that an “average banking crisis” in a developed economy since 1970 can cost 11% of GDP (although with big variations). In Ireland’s case, however, with holdings worth 13% of GDP in the NPRF, resources for adequately recapitalising the banking system to ensure adequate credit provision should not be an issue."
Goodbody analyst Eamonn Hughes comments: Irish Financials; NAMA estimate of haircut holds - - "As noted above by our Economics team, the NTMA published its 2009 business review yesterday. However, of interest to us were a number of comments in relation to NAMA. It appears that NAMA is now to acquire loans of about €80bn, up from the earlier estimate of €77bn, though it is unclear what has driven the uptick. That’s a small negative, but having said that, it’s not a huge number across the industry. EU approval for NAMA - which we all expect to come through - may happen in “weeks” and NAMA should be open for business in February. The top 100 borrowers look likely to be in NAMA by “early April” (this will be circa half of the total) and we presume this figure will be the benchmark by which investors gauge the haircut on the loans for each bank in order to determine capital requirements. The transfer of all loans will be complete during Q310.
On the haircut point, probably most importantly, the NAMA people indicated that there was no change to the earlier guidance of the haircut of 30%. The guidance from the companies shifted upwards in late November, which created further uncertainty for investors. We moved BOI up from 18% to 26.5% at that stage and AIB from 28% to 33%. We are still of the view that AIB needs to raise €4.1bn in equity which will help it in due course get to an 8% core equity ratio, though the recent move in M&T’s share price could nudge this figure down by circa €0.2bn. This €3.9bn figure equates to 2.7x its current market cap (or 1.8x if sold Poland as well). At BOI, we estimate a figure of €3.3bn, which equates to 1.9x its market cap. These are still big figures, though the multiples of market cap are well down on month ago levels and many risks remain, which means the stocks are likely to be highly volatile in the short term. However, yesterday’s comments may add an element of comfort that this figure may not drift up any further and may help the banks to consolidate recent gains from the year end, though share prices are now only back to where they were late November/early December. But we are obviously getting closer to the point of being able to make proper long term investment decisions."
