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News : International Last Updated: Jul 27, 2010 - 8:57:36 AM


Markets News Afternoon: European Commission begins anti-trust action against IBM; Irish exports account for over 90% of GDP - - growth of multinational profits will dampen GNP
By Finfacts Team
Jul 26, 2010 - 5:13:49 PM

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The Bank of Ireland said today in its Quarterly Review that in its  upturn has been led by the external sector and exports will continue to be the main driver of activity, boosted by global demand, with sales to the UK also supported by the past year’s rally in sterling against the euro. A range of monthly indicators are now pointing to a broadening of the Irish recovery, including retail sales, which look set to record very strong growth in the second quarter. As a consequence, the bank expects overall consumer spending to increase in Q2 and to rise further as the year unfolds, although the carry-over effects of last year’s 7% fall will leave average growth for the year flat in 2010.

The recent data also points to a possible cycle floor for house completions, although this still implies large annual falls in building and construction, with business spending on machinery and equipment also set to decline further. Total investment spending in 2010 will amount to only 12.5% of real GDP, less than half its share at the peak of the boom in 2006. The depth of the Irish recession can therefore be seen as primarily due to a collapse in capital spending, with the fall in consumer outlays the other main factor.

Exports now account for over 90% of GDP, and the accompanying growth of multinational profits will dampen GNP 9gros national product), which is expected to contract by 1.5% this year. Uncertainties abound, both domestic and international, but at this stage BoI still expects GDP to grow by 3% next year, which is in line with the consensus view.

The pace of job losses has slowed and the unemployment rate may be at or near the peak, with many unemployed non-Irish nationals leaving the country, as employment is unlikely to rise until 2011. Gross pay in Ireland did not fall as much as some expected and Ireland’s experience of price deflation may be coming to a close - -- a return to positive annual inflation is expected by year-end.

Finally, the underlying fiscal deficit (i.e. excluding capital injections to Anglo and INBS) may emerge below the Budget projection: tax receipts are broadly on target, capital spending is likely to undershoot, debt service payments may be lower than projected and the Central Bank surplus is running well above expectations. Moreover, fees for the 2010 ELG guarantee on bank deposits is not included in the Budget arithmetic and may well amount to around €1bn by year-end, which is similar to the fees for the 2008 guarantee, which is incorporated.

BP CEO Tony Hayward may be replaced in the wake of the Gulf oil Spill. James Barty from Arrowgrass Capital Partners, Ralph Silva from Silva Research Network and Allister Heath from CityAM discuss:

EC/IBM: The European Commission has decided to initiate formal antitrust investigations against IBM Corporation in two separate cases of alleged infringements of EU antitrust rules related to the abuse of a dominant market position. Both cases are related to IBM's conduct on the market for mainframe computers. The first case follows complaints by emulator software vendors T3 and Turbo Hercules, and focuses on IBM's alleged tying of mainframe hardware to its mainframe operating system. The second is an investigation begun on the Commission's own initiative of IBM's alleged discriminatory behaviour towards competing suppliers of mainframe maintenance services.

The EC says mainframes are powerful computers which are used by many large companies and government institutions worldwide to store and process critical business information. It is estimated that the vast majority of corporate data worldwide resides on mainframes. In 2009 approximately €8.5bn worldwide and €3bn in the European Economic Area were spent on new mainframe hardware and operating systems.

IBM is alleged to have engaged in illegal tying of its mainframe hardware products to its dominant mainframe operating system. The complaints contend that the tying shuts out providers of emulation technology which could enable the users to run critical applications on non-IBM hardware.

In addition, the Commission has concerns that IBM may have engaged in anti-competitive practices with a view to foreclosing the market for maintenance services (i.e. keeping potential competitors out of the market), in particular by restricting or delaying access to spare parts for which IBM is the only source.

The EC said the initiation of proceedings does not imply that the Commission has proof of infringements. It only signifies that the Commission will further investigate the cases as a matter of priority.

"The really important thing about these tests is that you have higher transparency," Andrew Palmer from The Economist told CNBC after the EU's bank stress test results. Yuwa Hendrick Wong from MasterCard Worldwide joined the discussion.

US

In New York Monday, the Dow Jones rose 69 points or 0.67% to 10,494.

The S&P 500 rose 0.84% and the Nasdaq added 0.81%.

US sales of new single-family houses in June 2010 were at a seasonally adjusted annual rate of 330,000, according to estimates released jointly today by the US Census Bureau and the Department of Housing and Urban Development. Although June sales rose, they were the second-lowest since 1963.

US sales of new single-family houses rose in June but were at the second-lowest since 1963

Live US Indices

"We really want the credit to start flowing," Danny McCoy, director general of the IBEC, told CNBC when discussing the outlook for the Irish banking sector after the EU's stress tests.

The pan-European Dow Jones 600 gained 0.27% Monday.

The ISEQ has climbed 0.94%.

CRH which accounts for about 30% of the market cap, is up 1.70%. Elan has dipped 1.53%; DCC added 4.53%, AIB has climbed 5.22% and BoI advanced 5.40%.

European Benchmarks

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Oil

On the New York Mercantile Exchange, oil for August delivery is trading at $79.12, up 14 cents from Friday's close. In London, Brent crude for August delivery is trading at $77.57 a barrel.

Currencies

The euro is trading at $1.2879 and at £0.8375.

For live currency updates, check the right-hand column of the Finfacts home page. The dollar traded at a record low $1.6038 per euro on July 15, 2008.


© Copyright 2010 by Finfacts.com

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