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Markets News Wednesday: UK unemployment rises to highest level since 1997; Bank of Ireland changes fiscal year time; Oil price above $77; Goldman's debt swaps are "destabilizing"
By Finfacts Team
Feb 17, 2010 - 10:49:36 AM
UK unemployment unexpectedly jumped in January to the highest level since 1997 as claims for jobless benefits rose by 23,500 from the previous month to 1.64 million, the highest since April 1997, the Office for National Statistics said today.
The employment rate was 72.4% and there were 28.91 million employed people; the unemployment rate was 7.8% and there were 2.46 million unemployed people; the inactivity rate was 21.3% and there were 8.08 million working age inactive people. Total pay (including bonuses) rose by 0.8 per cent on a year earlier and regular pay (excluding bonuses) rose by 1.2 per cent on a year earlier.
The number of people in public sector employment was 6.09 million in September 2009, up 23,000 from June 2009. The number of people in private sector employment was 22.82 million, up 15,000 from June 2009.
There were 30.86 million workforce jobs in September 2009, down 127,000 over the quarter and down 649,000 on a year earlier. The sector showing the largest decrease in jobs over the quarter was construction, which fell by 67,000. There were 2.60 million employee jobs in manufacturing industries in the three months to December 2009, down 199,000 on a year earlier.
The claimant count in January 2010 was 1.64 million, up 23,500 on the previous month and up 381,800 on a year earlier. The claimant count rate was 5.0 per cent, up 0.1 percentage point on the previous month and up 1.2 percentage points from a year earlier. A comparison between the claimant count (which measures the number of people claiming Jobseeker’s Allowance) and unemployment
Goldman Sachs and Greece: Bloomberg reports that Goldman Sachs Group Inc. managed $15 billion of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit.
No mention was made of the swap in sales documents for the securities in at least six of the 10 sales the bank arranged for Greece since the transaction, according to a review of the prospectuses by Bloomberg. The New York-based firm helped Greece raise $1 billion of off-balance-sheet funding in 2002 through the swap, which European Union regulators said they knew nothing about until recent days.
MIT professor of economics and former chief economist of the IMF, Simon Johnson, said on his blog Baseline, that a single rogue trader can bring down a bank – remember the case of Barings. But a single rogue bank can bring down the world’s financial system.
He said Goldman will dismiss this as “business as usual” and, to be sure, a few phone calls around Washington will help ensure that Goldman’s primary supervisor – now the Fed – looks the other way.
But the affair is now out of Ben Bernanke’s hands, and quite far from people who are easily swayed by the White House. It goes immediately to the European Commission, which has jurisdiction over eurozone budget issues. Faced with enormous pressure from those eurozone countries now on the hook for saving Greece, the Commission will surely launch a special audit of Goldman and all its European clients.
Prof. Johnson posed 10 questions for European Commission auditors to pursue.
Despite the a rebound in the euro, Masafumi Yamamoto, chief foreign exchange strategist at Barclays Capital, tells CNBC's Anna Edwards and Maura Fogarty that he believes the downside risks still remain high:
Lower refinancing risk big help to Ireland: Davy chief economist, Rossa White, comments - - "The Irish state yesterday (February 16th) completed another auction of bonds. It brings total long-term funding to date to €8bn, or 40% of the target. That target will be reached with something to spare if the NTMA issues €1.5bn at each scheduled auction from here on in (there are nine more in the pipeline). Irish re-financing risk is low this year thanks to early issuance; less than €1bn in long-term bond redemptions; and the large carryover of pre-funding into 2010. Those factors have helped Irish bonds to outperform in recent times, especially at the shorter-end.
Yesterday's auction raised €1.5bn at lower yields than at the January auction. Two bonds were offered yesterday, of which one was also on offer four weeks ago: the 4% Treasury bond 2014. Last month it was issued at a yield of 3.11%; this time it was sold for 3.03%. Given the difficult backdrop for smaller euro-area sovereigns, it was a good result. Some ten-year bonds were also issued. The main difference between the two auctions was that the bid-to-cover was somewhat lower: 2.8 for the four-year bonds versus 3.9 at the previous auction.
Further out the curve, Irish longer-term spreads still look too wide. Favourable demographics (in 2020 Ireland's old-age dependency ratio will still be by far the best in Europe), faster trend productivity growth and improving relative competitiveness make Ireland look attractive compared with Greece, Italy, Spain and Portugal. It can only be that lack of clarity on the banking system is keeping Irish ten-year cash spreads wider than Portugal's and much wider than those of either Italy or Spain."
Bank of Ireland: The Bank of Ireland today announced a change of its fiscal year end from 31 March to 31 December. This change in financial calendar brings the Bank into line with its peer banks. Accordingly, the next Annual Report and Accounts to be published by the Bank shall cover a period of nine months from 1 April 2009 to 31 December 2009.
The Bank of Ireland will announce its preliminary results for the nine months ended 31 December 2009 in late March 2010. The date of this announcement will be published shortly.
Goodbody analyst, Eamonn Hughes, commented: "BOI was scheduled to report an IMS this morning, but has instead notified the stock market that it is changing its year end from March back to December. As such, since the group is now technically in a closed period, there is no IMS and the final results are now pencilled in for late March.
The announcement today is very unusual and while messing up all our models (I’m just being bitter!!), it does have a certain logic to it. Firstly, a March year end would have put the bank into a closed period until mid-May. With the EU to come back at some stage over the next couple of months and NAMA rolling forward, it would appear that the bank has deemed an earlier period end as offering the maximum amount of flexibility to deal with any fund raising as and when they get further details on these two issues. The existing year end would have constrained those options. With both BOI and AIB on December year ends with March results, and closed periods that commence again on July 1, it now appears they will both be coming to the market at the same time as and when the mists of NAMA and the EU clear."
Insight on whether there is a tea party return to Reaganism, with Arthur Laffer, former Reagan economic advisor:
US markets
In New York Tuesday, the Dow Jones rose 170 points or 1.7% to 10,269.
The S&P 500 advanced 1.8% and the Nasdaq gained 1.4%
Asia
The MSCI Asia Index surged 1.9% Wednesday.
The Nikkei 225 added 2.72%; Australia’s S&P/ASX 200 Index rose 2.2%.
Chip Salyards, vice president at BMC Asia Pacific sees Asia as an engine of growth for the business software firm. He speaks to CNBC's Oriel Morrison following its record third-quarter earnings:
Currencies
The euro is trading at $1.3747 and at £0.8715.
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.
Goodbody economist, Deirdre Ryan, comments: Economic View; A vote of confidence - - "Given the funding concerns that continue to dominate equity and bond markets, it is very encouraging to see Ireland continuing to tap bond markets with relative ease. The NTMA raised a further €1.5bn in two separate bond issues yesterday, bringing the total raised in the year to date to circa €8bn. The €0.6bn raised in a four year issue was completed at a slightly higher spread than was achieved in January (118bps versus 105bps).
However, the spread on the 10 year bond was less than that seen in last September’s issue of the same maturity (155bps versus 162bps). Indeed, the rise in the spread at the shorter end of the curve was relatively muted given the escalation in sovereign debt concerns over recent weeks. Coupled with the €5bn that was carried over in longer term funding as well as the significant holding of short term liquid assets in place at the start of the year, the NTMA is comfortably placed at this early stage of the year to meet its funding needs for 2010 (approx €20bn).
More importantly, however, yesterday’s issue signals a vote of confidence in Ireland from the bond markets, at a time when sovereign concerns remain firmly in the spotlight (Greece 10 year bonds rose 16bps yesterday). Following the difficulties Portugal faced earlier this month in accessing short term funds, yesterday’s issue clearly highlights the differentiation which is becoming apparent between Ireland and the other so called ‘PIIGS’ countries, with the stringent measures which Ireland has taken to address its deficit continuing to bear fruit. With Spain due to tap the bond markets today in a 15 year issue, the outcome here will be closely watched. For its part though, Ireland is doing its best to drop the unwanted nametag."
-- However, it shows how far Ireland has fallen, given that it's an achievement to be able to borrow money - Finfacts.
