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News : International Last Updated: Oct 12, 2010 - 5:04:29 AM


Markets News Monday: China's currency reserves may have risen by $48bn to $2.5trn in Q3 2010; Irish domestic banks owed ECB €68bn at end of September
By Finfacts Team
Oct 11, 2010 - 9:07:40 AM

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China Reserves:  Bloomberg reports that China’s foreign-exchange reserves, the world’s largest, may have climbed to a record $2.5trn, adding fuel to complaints that the nation’s currency intervention is undermining the global economic recovery.

Currency holdings rose about $48bn in the third quarter, according to the median estimate in a Bloomberg News survey of eight economists. That would compare with a $7bn gain in the previous three months, the smallest increase in 11 years. The central bank may release the number this week, Bloomberg said.

The Wall Street Journal reported on Saturday that Asia’s forex reserves ex China climbed 3.1% to a record in September as the region’s central banks bought dollars aggressively to temper the rise in their own currencies: Reserves reported by 11 key Asian central banks, excluding China’s, rose to $2.963trn at the end of September from $2.875trn at the end of August, as compiled by Dow Jones Newswires.

SEE: Currency report in Box below.

Bank Funding: Data released on Friday showed how dependent Irish banks are on funding from the European Central Bank.

The outstanding borrowing from the ECB from the end of August to September 24th, rose by more than €24bn to just over €119bn - -  a week before the State two-year banking guarantee expired.

Irish institutions accounted for €68bn of the €119bn and foreign banks at the IFSC offshore centre had borrowed €51bn.

Economic View: Time to end talks about talks and get on with it; Goodbody's chief economist, Dermot O’Leary, said -  -"They say that a week is a long time in politics, but the process of getting domestic political parties to come together in the national interest to thrash out an agreement on the upcoming four-year budget plan seems to be taking an age. Importantly, all parties are now in agreement that Ireland must come up with a plan that will reduce the budget deficit to 3% of GDP by 2014, in line with the target set out with the European Commission.

However, to agree a common approach on how to get there and thus convince international markets that Ireland can realistically meet these targets, cross-party talks are a must.

With the latest reports suggesting that the four-year plan will be announced in the second week of November, time is of the essence. While Opposition parties would favour an immediate General Election, they are willing to attend talks with the Government. On the Government side, the Green Party, the junior coalition partner, is the one that seems most intent on getting all of the political parties around the table, although the Finance Minister, speaking in Washington yesterday (and who is speaking to investors in New York today) was quite open to the idea of discussions, without going as far as saying that a national government should be formed.

Now is the time to end talks about talks and get together with the aim of showing sceptical bond markets that Ireland can restore stability to the public finances on its own."

David Blanchflower, former member of the monetary policy committee, and Fred Bergsten, director of the Peterson Institute for International Economics joined CNBC to discuss currencies at the end of the first day of the IMF/G7 meeting:

Bergsten said this month that an improvement of $50bn to $120bn in US trade balance would generate 300,000 to 700,000 new US jobs.

CSO issues a timely reminder of Ireland's attractiveness to investors; Davy economist, Aidan Corcoran, commented  - -"Data released by the CSO on Friday show investment in Ireland by foreign investors increasing by over €30bn to €169bn in 2009 after showing little change in 2008. Some of this move may be due to Ireland's 12.5% corporation tax, a policy that is always contentious and would not survive should the Irish government have recourse to the European Financial Stability Fund or the IMF. We consider this to be an unlikely outcome, meaning the low corporation tax will be around to aid the struggling recovery. Increasing competitiveness will also support continued foreign investment in the coming years, providing some compensation for painful wage cuts.

Negative net factor income, arising partly from repatriation of profits by multinational corporations with investments in Ireland, is one consequence of Ireland's open door policy. Net factor income in Q2 alone was €7.7bn, representing a significant drag on national income growth. While it is unfortunate to watch much of the profits of Irish resident operations fly abroad, there is no doubt that the net effect of Ireland's openness to foreign investment is positive.

The investor-friendly environment developed since the 1960s will continue to represent a significant upside to Irish growth prospects, particularly as Irish labour and other factor prices retrace some of the inflation seen during the Celtic Tiger years."

A consumer-led recovery in the US will take months - if not years, to achieve, believes Tai Hui, regional head of economic research, SE Asia at Standard Chartered Bank. He shares his outlook, with CNBC's Karen Tso & Sri Jegarajah:

Asia Markets

The MSCI Asia Pacific Index ex Japan rose 0.9% Monday.

The Tokyo market was closed and China's Shanghai Composite added 2.49%; Australia's S&P/ASX 200 Index climbed 0.34% as did India's Sensex.

Asia benchmarks

Finfacts Reports

IMF meeting fails to defuse global currency tensions
US Economy: It may take 12 years for employment to return to pre-recession level based on average jobs growth in the 2000s
HSBC Emerging Markets Index: Weakness persists in emerging markets economic growth
Rate of decline in activity at Irish construction firms accelerated in September
US lost 95,000 in September; +64,000 in private sector; -159,00 in public sector; Broad unemployment rate jumps to 17.1%

In Europe, the Dow Jones Stoxx 600 is up 0.23% Monday.

The ISEQ has risen 0.53% in Dublin.

CRH has gained 0.44%; Elan has jumped 7.50%; BoI is up 1.38%.

European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies 

The euro is trading at $1.3970 and at £0.8760.

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.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

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 Thursday, July 15, 2010, the index  fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points, Bloomberg report.

On Friday July16th, the BDI rose 20 points or 1.12% to 1,700 to break the 35-session losing streak; on Friday last week, the BDI rose 34 points or 1.28% to 2,696.

Crude oil for November 2010 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $83.12 per barrel up 46 cents from Friday's close. In London, Brent for November delivery is trading on the International Commodities Exchange at $84.45.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,349.50, up $2.50 from Friday's close

Irish Financials: No “aggressive moves on Irish senior bonds"; Goodbody's Eamonn Hughes commented  - - "At the IMF conference over the weekend, the Irish Central Bank governor indicated that the Irish government is “not intending any kind of aggressive action to be taken against senior bondholders” in Anglo Irish and Irish Nationwide. However, as previously flagged, 'they are interested in arrangements that could be made in regard to subordinated debt holders. I don’t think the other matter arises at all.'

Prices of senior debt have drifted in the past fortnight after the announcement of the updated PCAR arrangements for the banking system on concern that the Irish government may impose haircuts on senior bondholders. However, it appears the Governor is setting the record straight on the position of the State on the matter. Elsewhere, we note that ECB borrowings attributed to Ireland from ECB data on Friday rose from €95bn to €119bn. The previous months figure of €95bn compares to Irish Central Bank data for August of c€65bn to the domestically covered banks.

Therefore, while the full increase is unlikely to be fully attributable to the main domestic banks, it still shows a material uplift on ECB drawings at the end of September. Having said that, with circa €32bn of term funding having rolled in September, it is no surprise that a large chunk will have found its way into ECB drawings. While helpful on the margin in the very short term, the banks will need to term out higher levels of their wholesale funding in due course. The data for the September drawings of the main domestic banks will be published at month end by the domestic Central Bank."

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