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Markets News Tuesday: Dublin Port trade rises; Irish insolvencies up 34% in Q1 2010; Australia hikes benchmark rate to 4.25%
By Finfacts Team
Apr 6, 2010 - 10:07:16 AM
The Dublin Port Company today reported the third straight monthly increase in trade through the country's main port.
Exports increased by 10.7% in February when compared with the same month in 2009, while imports increased by 3.7%, resulting in an increase in trade generally of 6.4%. The February figures were the third straight monthly year- on-year increase and according to the operator, follow a trend where trade levels at the port began to stabilise in April 2009 following several months of decline. Trade in the final quarter of 2009 was on a level with the same period in the previous year.
The company also said that as well as increased goods shipments, there was also an increase of 5.8% in the number of ferry passengers using the port. The chief executive Enda Connellan, said the figures are “encouraging” and noted that the export figures were particularly strong.
“We remain focused on ensuring that Dublin Port Company can play its role in helping to fuel the return to economic growth by keeping Ireland’s main port efficient and competitive," he said.
Irish Insolvency Statistics: The number of Creditors’ Voluntary Liquidations, High Court Liquidations, Receiverships and Examinerships in the three months ended 31 March 2010 has increased 34% on the same period in 2009. Declan Taite, FGS Corporate Restructuring & Insolvency Partner has analysed the statistics and figures compiled by FGS which show that 469 companies were placed in liquidation, receivership or examinership in the first 3 months of 2010, representing an increase (34%) on the 351 failures for the same period in 2009.
The acceleration in the number of failures in 2010 has continued from the final three months of 2009 where some 435 failures occurred. Should the trend continue for the remainder of 2010 it is probable that some 1,800 to 1,900 failures will occur compared to 1,570 failures in 2009.
Rate hike in Australia: Australia’s central bank today raised its benchmark interest rate to 4.25% and signaled further hikes, despite warnings that higher lending costs will hit consumer spending.
The Reserve Bank of Australia raised it rate from 4%. it was the fifth increase in borrowing costs in six meetings and governor Glenn stevens said: "With the risk of serious economic contraction in Australia having passed some time ago, the Board has been lessening the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. Lenders have generally raised rates a little more than the cash rate.
Interest rates to most borrowers nonetheless have been somewhat lower than average. The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process."
The Reserve Bank of Australia lifted rates by 25 bps to 4.25% -- its fifth rate hike since October 2009. Adam Gilmour, co-head FX & derivatives sales at Citi Asia Pacific, offers his instant analysis, with Graeme Maxton, chief economist at The Insight Bureau and CNBC's Oriel Morrison:
Economic View; Irish Economic Commentary – In calmer waters: Goodbody chief economist, Dermot O'Leary, commented today - -"In our latest Economic Commentary released this morning, we are leaving our forecasts largely unchanged. While the incoming data over recent months have confirmed that Ireland has not emerged from recession as yet, they have also done nothing to change our view that an export-led recovery will commence in the second half of 2010. We expect GDP to decline by 1% in 2010 (-1.1% GNP), with growth of 2.8% pencilled in for 2011 (same for GNP). Our below consensus view on the consumer means that a recovery in domestic demand will not emerge until 2011. About twelve months ago, we identified three goals that Ireland must achieve to restore the economy on a path to growth. Up until recently, we have seen progress on two, namely increasing competitiveness and tackling the budget deficit.
The third goal of restoring the banking system to health took a major step forward last week with the first transfer of loans to NAMA and the announcement of higher capital requirements by the regulator. This will lead to a healthier banking system and one that has a better chance of extending credit to the economy. It will also lead to higher state ownership and the overall cost is now becoming clearer. We estimate that the cost may come to 20% of GDP, which would put it among the most expensive banking crises in the developed world in the last forty years. Although economic activity on the ground is still quite weak and there are legacy issues associated with the downturn (high unemployment in particular), we are encouraged by the degree of progress that has been made in relation to the policies that will eventually lead to a recovery in the Irish economy."
The United States plans to fine Toyota $16.4 million for not notifying the government sooner about problems with a sticky gas pedal, with CNBC's Phil LeBeau.
Irish Financials; Over the first hurdle, with a few more to climb?: Goodbody analyst, Eamonn Hughes, comments - -"Last week was a major hurdle for the Irish banks with the revelations of the first NAMA haircuts, new regulatory capital targets and the Minister for Finance’s commentary around his plan for the banks. The next major establishment decision will be the EU ruling on the bank’s restructuring plans, which could come at any stage. BOI is then poised to raise capital when it gets this clearance, with the most likely outcome a combined, equity raise, debt exchange and conversion of a chunk of the government’s preference shares. AIB is to initially embark on a disposal programme, prior to raising equity later in the year and a likely exchange of some of the government’s preference shares by year end.
In our note published on Thursday, (entitled, imaginatively, The Irish Banking Plan), we attempted to put all these variables together and capture the valuation implications. Our base case for BOI sees a market cap. sized rights issue (€1.9bn), raising €500m from a further capital exchange and conversion of €800m of the government’s preference shares and purchasing the warrants. Our valuation model generates c.13% upside and would see the State with a c.23% stake. However, we estimate that BOI is already trading on c.0.9x its recapped end 2010f TERP adjusted book value, approaching its post-recapitalisation peers, notwithstanding that BOI is still this side of its recap. Our base case for AIB is that it sells its UK subsidiary (1x P/NAV) and US & Poland stakes (at market cap valuations) for a combined €4.7bn capital gain, bringing its €7.4bn requirement down to €2.7bn. We raise 1x its market cap (€1.1bn) and solve for the preference shares and warrants (current market price). This generates 37% upside (on a prospective 2014f PE based model) and implies a state shareholding of 49%. On more traditional valuation parameters, we estimate AIB is trading on 0.7x its TERP adjusted recapped end 2010f book value (adjusted for capital raises & disposals). AIB may trade up in the short term (we moved it to a Trading Buy on Thursday), but our model tells us to take money off the table at 0.9x."
Discussing whether a trade war with China has been averted, with Andrew Busch, BMO Capital Market; Alan Tonelson, US Business & Industry Council and CNBC's John Harwood:
US economy growing at typical early cycle rate: Davy chief economist, Rossa White, comments - -"The sustainability question is fading away. Employment and services activity data show that the US economy is growing at a healthy rate and that the pace of expansion is accelerating. Payroll growth has reverted to an early 2007 rate (albeit from a depressed base), but services activity has reached mid-2006 levels. The reaction of the US bond market is informative: many are betting that the Fed will feel comfortable enough to raise its funds rate in H2.
Last Friday's payrolls didn't get their usual attention given the market holiday (half-day in the US). Non-farm employment (in the establishment survey) rose by 162,000. That did not quite meet market expectations, although revisions to previous months were favourable. The detail did excite somewhat, though. Only two sub-sectors saw employment decline: financial services and IT. Crucially, manufacturing, construction, retail and leisure all experienced job growth. Meanwhile, the separate household survey showed that the unemployment rate remained unchanged at 9.7% (employment rose for a third straight month, while the labour force increased for a second consecutive month).
Yesterday's data were perhaps more useful in pinpointing the stage of economic recovery. The services ISM is catching up with its manufacturing counterpart. It surprised by jumping to 55.4 (consensus was 54.0), the best reading since May 2006. It suggests that the sector has surpassed the tentative beginning of recovery to reach healthy early cycle growth rates. Do not be surprised to see the index climb towards 60 in the next six months. Risk markets continue their solid grind higher, but the strong data of the last month have not gone unnoticed by the bond market. The worry for risky assets is that the bond market sell-off will extend, leading to much higher market interest rates. The Fed is quiescent for now, but pressure is steadily building."
US markets
In New York Monday, the Dow Jones rose 46 points or 0.43% to 10,973.
The S&P 500 climbed 0.79% and the Nasdaq added 1.12%.
Asia
The MSCI Asia Pacific rose 0.4% Monday - - the highest level since August 2008.
The Nikkei 225 dipped 0.50%; the Shanghai Composite inched up 0.02%; Australia’s S&P/ASX 200 Index advanced 0.94%, despite the rate hike and India's Sensex Index climbed 0.21%.
The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index averaged 59% lower in 2009 than a year earlier.
The BDI fell 7 points to 2,991 on Thursday April 1st.
In the Financial Times on Wednesday, Feb 17th, Javier Blaswrote that the weakness in the Baltic Dry Index, long seen as an indicator of global economic activity, does not reflect a downturn in global trade. Instead, the measure of freight costs is showing a strong supply of new vessels that helps explain the 40% drop in three months. “New supply is astonishingly high and it is overwhelming the otherwise robust demand for bulk commodities from China,” he wrote. “On the other hand, bullish investors should be cautious of any near-term turnround. Rather than a sign of stronger economic activity and commodities demand, it is likely to reflect cancelled orders, scrappage and port congestion.”
