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Markets News Tuesday: UK inflation accelerated in January because of VAT increase; Shares rise in Europe following Barclays Bank earnings report
By Finfacts Team
Feb 16, 2010 - 11:09:17 AM
UK inflation accelerated in January to the fastest rate in 14 months as an increase in the VAT rate pushed the rate high enough to require a public letter of explanation from Bank of England Governor Mervyn King.
Consumer prices rose 3.5% from a year earlier, the most since November 2008, the Office for National Statistics said in London today. A reading deviating more than a percentage point from the bank’s 2% target requires King to write to Chancellor of the Exchequer Alistair Darling setting out his plans to return to the goal.
The ONS said the CPI fell by 0.2% between December and January. Although negative, this is the strongest ever CPI growth between these two months (prices typically fall at a faster rate between December and January). This record monthly movement is mainly due to the increase in January 2010 in the standard rate of Value Added Tax (VAT) to 17.5% from 15% and, to a lesser extent, the continued increase in the price of crude oil. In the year to January, the all items retail prices index (RPI) rose by 3.7% up from 2.4% in December. Over the same period, the all items RPI excluding mortgage interest payments index (RPIX) rose by 4.6%, up from 3.8% in December.
Nothing explicit in help measures from ECOFIN meeting:Davy chief economist Rossa White comments: "Euro-area financial ministers did not turn the implicit guarantee to underpin Greece into explicit help last night. Instead, they stressed the need for Greece to come up with further concrete measures by March 16th. If not, it seems that further consolidation measures will be imposed by the EU. But the denouement has simply been pushed out for four weeks, giving the bond market vigilantes something to play with.
What do we know after the meetings at the end of last week and yesterday? First, the EU/euro area does not want to outline any concrete measures (such as insurance, bond purchases etc.) to help out Greece or in what exact circumstances they will use them. Second, the European administration is happy to bet that the bond market will remain convinced that action will be taken if required. Third, the EU/euro area is gambling that the pressure will be too much for the Greek government to bear, so much so that the government will announce further credible deficit-reduction measures in the next four weeks.
So the game of chicken continues: that is the hitch with the strategy of the European administration. In that regard, yesterday's action on government bond markets was not encouraging: Greece's cash yields widened by almost 10 basis points. Today will be an important test in shaping what is to come over the next four weeks. The euro area's hope is that enough investors will trust the implicit guarantee. Yet having as much faith in the Greek authorities is perhaps too big to ask, meaning that the next four weeks may prove turbulent."
ECB Vice President: Eurozone finance ministers on Monday approved Portugal's Vitor Constancio for the job of Vice President of the European Central Bank, Eurogroup head Jean-Claude Juncker said.
Constancio, 66, will succeed Greece's Lucas Papademos in May and the decision is seen as boosting the chances of Bundesbank president Axel Weber succeeding Jean-Claude Trichet as ECB president in October next year.
The former socialist lawmaker and party leader Constancio has been governor of Portugal's central bank since 2000 after having also served as governor between 1985 and 1986.
As the job of deputy has gone to a southerner, Germany is likely to see off Italian central bank governor Mario Draghi.
The economic rebound is likely to speed up in the US this year, Barclays President Bob Diamond told CNBC Tuesday. Diamond also said his bank's forecast-beating profit reflected its strong performance:
US markets
US markets were closed on Monday for the Presidents' Day public holiday.
Asia
Australia’s S&P/ASX 200 Index rose 0.5% in Sydney Tuesday; Japan’s Nikkei 225 Stock Average gained 0.2% and South Korea’s Kospi Index advanced 0.5%.
India's Bombay stock Exchange Sensitive Index climbed 1.17%.
Markets were shut in in China, Hong Kong, Taiwan, Singapore, Vietnam and Malaysia for the Chinese Lunar New Year.
Bloomberg reports that the Bank of Japan will probably refrain from easing monetary policy further at a board meeting this week because the recovery remains intact even as deflation intensifies, economists said.
Governor Masaaki Shirakawa and his colleagues will keep their lending program for banks and monthly purchases of government bonds unchanged, according to 14 of 16 economists surveyed by Bloomberg News. The key interest rate will stay at 0.1 percent at the Feb. 17-18 gathering, all 16 analysts said.
As Eurozone finance ministers met in Brussels Monday, investors wait to see if any financial help will follow the series of political pledges for Greece. Linda Yeuh from Oxford University has analysis:
In Europe, the Dow Jones Stoxx 600 has risen 0.84% Tuesday.
British Bank Barclays reported today that net profit more than doubled to almost £9.4 billion sterling in 2009, largely due to the sale of its investment unit.
A 49% jump in bad loans hit underlying earnings, Barclays said, adding that the group's chief executive and president had declined a bonus for a second year in a row amid 'intense public interest and concern' over bankers' pay.
Barclays said that net profits surged 114% to £9.393 billion last year after the bank had sold Barclays Global Investors (BGI) to US asset manager BlackRock in late 2009. Net profit had stood at £4.382 billion in 2008.
Barclays said that annual pre-tax profit was up 92% at £11.642 billion, beating expectations of profit totalling £11.31 billion. However, excluding the £6.331 billion gain from the sale of BGI, profit before tax stood at £5.311 billion, down 13% compared with 2008.
Impairment charges for the year jumped 49% to £8.07 billion, however the figure was below the bank's own estimate of £9 billion.
The share price has risen 6.34% in London.
Goodbody analyst, Ken Darmody, commented: "Barclays reported FY09 results this morning, with an underlying PTP of £5.6bn (excluding the sale of BGI) ahead of consensus, with the main performer being Barcap. Most of the businesses won’t sit easily with reference to the Irish banks, though the bank highlights that in its UK Retail business, income decreased, reflecting the impact of liability margin compression, a factor we have seen at the Irish banks. In terms of outlook, BARC indicates that it has had a good start to 2010, with group profit well ahead of 2009. Impairments were 23% lower in H209 than H109 and the company is guiding a moderate decline in 2010. Barclays have also announced a dividend (small but helpful in direction at this stage). Within the statement, the references to regulation, high levels of capital and the impact of the overall cost of the same will keep these topics high on the radar of all concerned."
In Dublin, the ISEQ has gained 0.57%.
CRH is up 1.44% and Elan has dipped 3.44%.
Oil exploration company Providence Resources has risen 11% after announcing it has been awarded a licensing option for the Baltimore heavy oil discovery in block 48/19 in the North Celtic Sea Basin.
The discovery well is situated about 30 kilometres off the south coast of Ireland in about 100 metres of water. Initial estimates suggest a resource potential of up to 300 million barrels of oil.
Providence says that while technically challenging, the Baltimore oil accumulation deserves further review given the current sustained higher oil pricing environment.
The telecoms industry's largest annual gathering kicked off in Barcelona Monday and CNBC's Louisa Bojesen spoke to Microsoft CEO Steve Ballmer about the company's mobile-phone strategy:
Crude oil for March 2010 delivery is currently trading on the New York Mercantile Exchange (Nymex) at $75.07 per barrel up 94 cents from Friday's close (Monday was closed for a public holiday). In London, Brent for March delivery is trading on the International Commodities Exchange at $73.68.
Goodbody chief economist, Dermot O'Leary, comments: Economic View; Mortgage lending remains mired close to the lows - -"Statistics released yesterday from the Irish Banking Federation confirm that mortgage lending activity continued to contract in Q4 2009. Mortgage volumes fell by 47% yoy (-56% in Q3), with the value falling by 50% yoy (-62% in Q3). The most notable trends in the data are the easing rate of decline in the first-time buyer segment, which now represents 35% of mortgages issued (relative to 21% a year earlier), and the collapse in buy-to-let mortgages issued (which now represent only 5% of total, from 11% a year ago).
There has also been some easing in the rate of decline in the owner-occupier segment (from -55% to -38%), while top-up mortgages and re-mortgaging activity continue to be extremely weak. The numbers overall are in line with our forecasts, but analysis of the annual data reveals the extent of the collapse in mortgage lending. For the year as a whole, total gross mortgage lending came to €8bn, some 80% below the level reached in 2006. Within this, buy-to-let mortgages were down by the most (-90%), while first-time buyer mortgages were down by the least (-68%).
The recent bank lending survey for Ireland showed that credit standards for house purchase were basically unchanged in Q4, but this came after significant tightening since the beginning of the credit crisis in 2007. Interestingly, demand for mortgages actually increased somewhat in the quarter. As we discussed in our note last week, the stock of mortgages (net lending) is likely to fall for some time. The goal though, for financial institutions and, indeed, the Government, is to increase gross lending, especially for first-time buyers, in a market where prices have already fallen by c.40% in our view. "
