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News : International Last Updated: Apr 19, 2011 - 3:42 AM


Markets News Monday: Moody's downgrades Irish banks to junk status; Permanent tsb offers bonus deal on tracker mortgages
By Finfacts Team
Apr 18, 2011 - 8:59 AM

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Bank Downgrades: Moody's Investors Service on Monday cut its ratings on five Irish banks to junk status following its downgrade of Irish sovereign debt last week.

The rating agency said the cut reflected the reduction in the level of systemic support embedded in the deposit ratings following the downgrade of the sovereign rating.

The long-term bank deposit ratings of Allied Irish Banks (AIB), Bank of Ireland (BoI), EBS Building Society (EBS) and Irish Life & Permanent (IL&P) was lowered by two notches, while that of ICS Building Society (ICS) was cut by one notch.

Also, the unguaranteed senior unsecured debt ratings of AIB, EBS and IL&P was downgraded by one notch to Ba3 and that of Bank of Ireland to Ba2.

The outlook on the long-term bank deposit and unguaranteed senior unsecured debt ratings of these institutions is negative, the agency said.

Last week, Moody's downgraded Ireland's sovereign ratings by two notches, citing weakening financial position of the government amid subdued economic activity. The outlook on the ratings remains negative.

The downgrade means some investors will no longer be allowed to buy Irish bank under the terms of their investment mandate. It will also hit corporate deposits

Bank to offer 10% bonus payments to customers reducing their outstanding mortgages: Permanent tsb bank said will reward tracker mortgage customers who make additional payments off their outstanding mortgages by adding a 10% bonus payment to whatever extra amounts are paid subject to certain terms and conditions. The offer will be open to customers who make additional payments of €5000 [or multiples thereof] up till the 17th June next. The bank has set a ceiling of €500 million on the amount of additional repayments it will receive under the scheme at which point the initiative will be reviewed.

The initiative is open to all of the bank’s tracker mortgage customers whether they have Residential, Investment or Commercial mortgages. Customers can avail of the offer on payments made up to a maximum of 50% of the outstanding balance on the mortgage. The offer is also available to customers who are currently in arrears and the bonus payment will apply to any payments made once the arrears have been cleared.

Customers availing of this offer will continue to enjoy their current tracker product benefits after any extra payments are made.

Speaking today, David Guinane, chief executive of Permanent tsb bank said; “This is a significant innovation by the bank which will offer benefits to both customers and to the bank. It’s in both parties interests to reduce the amount of outstanding balances on tracker mortgages. We will continue to look for further innovations in relation to these and other products in the months ahead.”

India Economic Outlook: Taimur Baig, chief economist, India at Deutsche Bank, expects the Reserve Bank of India to hike 50 basis points on the 3rd of May to combat inflation:

CPI inflation rates rise on oil prices: Davy economist Conall Mac Coille comments  - -"Consumer price inflation data released on Friday illustrated that both in the US and euro area inflationary pressures are being driven by energy prices. CPI inflation in both the US and euro area was 2.7%, slightly stronger than expected. In the euro area, the core rate was 1.3%, largely driven by a sharp rise in the clothing component. In the US, CPI inflation excluding food and energy was 1.2%.

As in 2008, when oil prices rose to close to $160 per barrel, the current divergence between core and headline rates of CPI inflation is causing disagreement among central bankers on the appropriate path for monetary policy. In 2008, the ECB decided to increase its main policy rate just as the financial crisis began to intensify. Central banks cut rates sharply as the disinflationary pressure from the global financial crisis became clear, not least through the sharp decline in oil prices to €40 per barrel.

In the US, attention will be focused on the first of FOMC chairman Ben Bernanke's press conferences next week. Bernanke is expected to indicate that monetary policy will remain on hold despite comments to the contrary by several regional Federal Reserve presidents. Over the weekend, two ECB council members indicated that future rate rises are likely in the euro area. Council member Edwald Nowotny said that expectations for further increases in rates by 50 basis points in 2011 are well founded, and Belgian Luc Coene indicated that monetary conditions are too accommodative. These comments stand in some contrast to those of ECB President Trichet that last month's 25 basis point rise did not necessarily indicate a sequence of rate rises.

With oil prices maintaining levels in excess of $120 per barrel, the upward pressure on headline measures of CPI inflation will be maintained in the near future. But current levels must in part reflect a risk premium relating to political unrest in the Middle East. If current political tensions dissipate, oil prices could fall sharply – helping to ease disagreements among central bankers and delaying the tightening of monetary policy."

China Hikes RRR Again: Peter Esho, chief market analyst at City Index thinks that the PBOC hike on Sunday is no surprise but expects more moderate tightening in the next few months:

Economic View: Ireland passes its first test by the Troika; Goodbody chief economist, Dermot O’Leary, comments  -- "Over the past two weeks, Ireland faced its first examination from authorities in the IMF/EU/ECB in relation to the programme set out in December. On Friday, it was revealed that Ireland has passed this first test, with the IMF stating that the 'program is on track but challenges remain and steadfast policy implementation will be key”. Given that the main reason for the Troika’s arrival in Ireland was the fragility of the banking sector, the measures taken to address this area were always going to be the most important. On this, the IMF is unsurprisingly complimentary of the measures announced at the time of the stress tests, saying they are a “major step towards restoring the Irish banking system to health.'

On the public finances, the IMF state that targets thus far have been met 'by a comfortable margin.' This is certainly the case but the trends in income tax and VAT receipts are a cause for concern, and may be an issue in the next review in July if these trends continue. The IMF also noted the Irish authorities “strong commitment” to the 3% of GDP budget deficit target in 2015. Given that the IMF’s forecast in its Fiscal Monitor last week put Ireland’s deficit at 4.3% of GDP in 2015, it then must also believe that it will be discussing further fiscal consolidation measures with the Irish authorities over the coming years.

A lot of water has to pass under the bridge by that time though. The most important will be the introduction of the European Stability Mechanism (ESM) in mid-2013, where, should Ireland be unable to finance itself in the markets by that time, it will need to apply for financing. At this time, a debt sustainability test will be completed. Clearly, Ireland’s immediate concern is to close its primary deficit (budget deficit excluding interest payments). Any amount of restructuring will not solve this particular problem.

Nevertheless, we note that authorities, including German officials and the IMF (according to the Wall Street Journal) are now actively considering restructuring of Greek debt, with Brady Bond-type lengthening of maturities being considered. Greek debt levels, at over 150% of GDP this year, are much higher than Ireland, but it is interesting nonetheless to hear that the topic is being discussed at high levels. It is a topic we will be returning to a lot, we would imagine."

Asia Markets

The MSCI Asia Pacific Index fell 0.1% Monday after China increased its banks’ reserve requirements on Sunday and the People's Bank of China Governor Zhou Xiaochuan said monetary tightening will continue for some time.

Japan's Nikkei 225 slid 0.36%; China's Shanghai composite index rose 0.22%; Australia's S&P/ASX 200 Index added 0.22% and the Bombay Stock Exchange's Sensex index dipped 0.93% in Mumbai.

Asia benchmarks

Finfacts Reports

Support for anti-bailout party jumps in Finland's election; IMF said to believe that Greek debt should be restructured
IBEC says May jobs budget must provide confidence boost; Irish economy to grow over 1% in 2011
Bruton heads trade missions to India and Saudi Arabia; Irish exports to India a decimal point
The Real Housewives of Wall Street: Rolling Stone asks about dubious Federal Reserve lending of $220m
US core inflation remained subdued in March despite a 0.5% rise in headline rate in the month
EU-ECB-IMF troika says Irish bailout program is on track; Steadfast policy implementation will be key
Bruton announces 170 jobs at Shannon
Eurozone annual inflation revised up to 2.7% in March; ECB monitoring prices 'very closely'

In Europe, the Dow Jones Stoxx 600 is off 0.10% in early trading Monday.

The ISEQ has risen 0.09% in Dublin.

CRH is off 0.99%; Elan has risen 2.82%; AIB has dipped 4.26% IL&P is up 5.88%.

Kenmare Resources has gained 1.68%.

Kenmare has announced results to end-December 2010. Production of heavy minerals was up 16% to 956,900 tonnes, of which ilmenite made up 678,400 tonnes (+44%); zircon was 37,100 tonnes (+76%); and rutile was 4,700 tonnes (+161%). This production generated sales of $91.6m and EBITDA of $17.4m. After finance and other costs the group returned a net loss before tax of $16.3m. Net debt at the end of the year was just under $100m compared to $339m at the end of 2009.

SEE: Davy analysis

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Currencies 

The euro is trading at $1.4378 and at £0.8829.

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 slipped 13 points or 0.99% at 1,296.

The Financial Times reported earlier in January, that Australia’s flooding and fears of ship oversupply has pushed down a gauge of the cost of hiring ships to carry coal, iron ore and other dry bulk by nearly half since October to the lowest level since the aftermath of the financial crisis. The Baltic Dry index, the widely watched measure of dry bulk charter rates, fell to 1,453, nearly half the 2,784 peak reached on October 27, 2010.

Crude oil for May 2011 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $108.74 per barrel, down 92 cents from Friday's close. In London, Brent for May delivery is trading on the International Commodities Exchange at $122.80. The North Sea benchmark accounts for two-thirds of the global market.

The margin between the US benchmark WTI (West Texas Intermediate) used on the New York Mercantile Exchange and Brent is over $14.

The FT said in early February that a surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America’s pipeline system, has depressed the value of the benchmark against other yardsticks. The International Energy Agency said on Thursday that with “few relief valves” to cut the stock overhang in Cushing, the price dislocation “may persist for months [or years] to come”.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,485.20, down $2.20 from Friday's close.

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