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Markets News Tuesday: Aer Lingus reports improved results in Q1 2010; German retail sales dip in March; NAMA takes 55% 'haircut' on Anglo loans; Shares slide
By Finfacts Team
May 4, 2010 - 11:15:38 AM
President Obama at the Coast Guard Venice Center in Louisiana, on Sunday, May 02, 2010, where he spoke about the BP oil spill in the Gulf of Mexico.
Aer Lingus said today the group's financial performance for the next three months will be significantly impacted by recent airspace closures after the volcanic eruption in Iceland last month. In an interim management statement, it said its initial estimate of the cost of the disruption is about €20m.
Christoph Mueller, Aer Lingus' CEO said:"Our Q1 2010 operating result represents a significant improvement over the corresponding period in 2009. We have also achieved meaningful progress on several of the key strategic objectives set out at our Investor Day in January: 1) We have adopted a disciplined approach to yield management, which has arrested the decline in average fare per passenger that we experienced in 2009. 2) We enhanced our network with the launch of our extended code-share with United Airlines and the Aer Lingus Regional franchise in March. 3)The Greenfield programme is now underway and staff savings with an annual value of €18m have already been achieved. While we are very encouraged by first quarter trading, it is nonetheless appropriate to remain cautious on full year 2010 performance."
German Retail Sales: The German federal statistics office, Destatis, reported today that retail sales in March 2010 in Germany increased 3.9% in nominal terms and 2.7% in real terms compared with the corresponding month in the previous year. The number of days open for sale was 27 in March 2010 and 26 in March 2009.
When adjusted for calendar and seasonal variations, the March turnover was in nominal terms 1.8% and in real terms 2.4% smaller than that in February 2010. Compared with the previous year, turnover in retail trade was in the first three months of 2010 in nominal terms equal to that (0.0%) and in real terms 0.8% smaller. The ending of a car scrappage in late 2009, which had boosted car sales, has had an impact on this year's retail sales.
US Manufacturing: Economic activity in the manufacturing sector expanded in April for the ninth consecutive month, and the overall economy grew for the 12th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.
Norbert J. Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee commented: "The manufacturing sector grew for the ninth consecutive month during April. The rate of growth as indicated by the PMI is the fastest since June 2004 when the index hit 60.5 percent. Manufacturers continue to see extraordinary strength in new orders, as the New Orders Index has averaged 61.6% for the past 10 months. The signs for employment in the sector continue to improve as the Employment Index registered its fifth consecutive month of growth. Overall, the recovery in manufacturing continues quite strong, and the signs are positive for continued growth."
NAMA: The National Asset Management Agency (NAMA) has begun the transfer of part of the first tranche of some €10bn loans from Anglo Irish Bank. The discount applied to Anglo’s first tranche is expected to be close to 55%, subject to additional data checks and foreign exchange rates at time of the final transfer. In order to reduce operational risk, the loans are being acquired in two phases. Over the past weekend, the Agency acquired loans with a nominal value of €4bn. The transfer of the residual Anglo loans in the first tranche (some €6 billion) is expected to be completed next weekend.
Taking the €4bn into account, loans with an aggregate nominal value of €10 billion have been acquired by NAMA from five institutions -- AIB, Bank of Ireland, Anglo Irish Bank, Irish Nationwide and EBS. When the residual of Anglo’s first tranche is fully completed, the total transfer will be €16bn and the overall discount is expected to be of the order of 49%.
Greek protesters draped banners on the walls of the Acropolis Tuesday to protest new austerity measures brought in to cut the country's public deficit. Matteo Pusineri from BCM & Partners considers the outlook for the Greek economy:
Economic View: Ireland has luxury of staying out of jittery debt markets in May; Goodbody chief economist, Dermot O'Leary comments - - "Given the unprecedented scale of the €110bn bailout agreed for Greece over the weekend, and indeed the ECB's relaxing of collateral rules for Greek debt yesterday, European policymakers may have been hoping for a more favourable response by markets. Greek 10-year bond yields did indeed fall by c.50bps and 2-year yields by c.240bps, but spreads still remain uncomfortably high for a country which has been given a window of opportunity to reduce its budget deficit over the next eighteen months or so without having to be concerned about having to access the markets for funding. There were other indications that markets refuse to give the weekend's announcements a ringing endorsement too; Firstly, spreads on other peripheral economies' debt still remain worryingly high, with Portugal and Ireland standing out for particular mention, where ten-year yields stand at 5.1% relative to 3.06% for German 10-year bunds. The euro also had a poor day too, standing at below $1.32 this morning.
While the package is a necessary condition of Greece getting through its difficulties, it is far from sufficient, with the aid package contingent on Greece being able to implement reforms that will reduce its budget deficit to 3% of GDP by 2014, a 2 year extension on the previous timeframe. With the economy now forecast to contract by 4% this year and 2.6% in 2011, this will not be an easy task. Policymakers will be hoping that a line has now been drawn in the sand in this crisis, but it will be interesting to assess the markets' view when sales of European debt continue over the coming months. Both Portugal and Spain have funding requirements over the summer months. The NTMA (Irish debt agency), for its part, hinted over the weekend that it might postpone its scheduled auction on 18th May given the current high cost of funding. Fortunately, Ireland has the luxury of doing this, given that 60% of its long-term funding has already been completed and it also has significant cash reserves. Nevertheless, it will be hoping that markets take a more favourable view of the European crisis solution over the coming weeks."
The world is focusing on China and all countries are bringing their best creativity to China, says Robert Lawrence Kuhn, author of "How China's Leaders Think". He speaks to Fang Xinghai, director-general, Office of Financial Services of Shanghai Municipal Government and CNBC's Bernard Lo about the two major themes surrounding the Shanghai Expo- green technology and the emergence of China:
Lukewarm reaction to Greek deal: Davy chief economist, Rossa White, comments - -"It is fair to say that market reaction to the Greek bailout was lukewarm yesterday. The euro failed to make headway, bonds of the 'core' euro area nations providing the bulk of bailout funds suffered somewhat as expected, while European stock markets posted small gains on a day when the US was strong. Ireland's government bonds did not trade thanks to the holiday. But they have been unfairly caught up in contagion in recent weeks: 10-year spreads are 70bbps wider than three weeks ago, a period in which Irish macro conditions have improved.
The euro area has committed €80bn to the Greek bailout package, of which €30bn is the first-year total envisaged. That equates to a potential outlay to Ireland of around €500m this year and up to €1.3bn ultimately. The assumption of course is that the loans will be repaid. How Eurostat ultimately accounts for the package will be of interest. It is, of course, frustrating that Irish taxpayers have to shell out, given the austerity measures taken here since July 2008 (in effect a two-year head-start). But the risk of doing nothing is far greater: the contagion of the last few weeks is only a taster of the worst-case scenario.
Let's hope that the austerity measures are adhered to. Certainly, the official Greek projections now look far more realistic. The economy is expected to find a lower path, meaning that deep recession in 2010 is followed by another difficult year in 2011. The recession is unlikely to end until late-2011 based on these forecasts, delaying return to average annual growth until 2012. The problem is that state revenues will be lower as a result. So, even with bigger projected cuts (supposedly with another €30bn added to the fiscal consolidation), the deficit will not dip back to 3% of GDP or lower until 2014 (now in line with Ireland's timescale). Whether this fiscal plan is viable in Greece where there is no history of retrenchment (Ireland did it in the late-1980s and is well along the path this time too) is still debatable."
US markets
On Monday, the Dow added 142 points or 1.30% to 11,152.
The S&P 500 gained 1.31% and the Nasdaq rose 1.53%.
Asia
The MSCI Asia Pacific Index ex-Japan fell 0.6% Tuesday.
Japan was closed today for a holiday; the Shanghai Composite dropped 1.23%; Australia’s S&P/ASX 200 Index dipped 1.01% and India's Sensex Index declined 1.27%.
Australia’s central bank today increased the benchmark interest rate for the sixth time since early October after policy makers raised their outlook for inflation.
The Reserve Bank of Australia hiked the overnight cash rate target to 4.5% from 4.25% it said in a statement in Melbourne today.
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.
On Monday, the BDI lost 5 points 3,354.
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.”
