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Sharon Bowles, chairperson of the European Parliament's Economic and Monetary Affairs committee with Mario Draghi, at a hearing on his nomination to be the next ECB president, Brussels, June 15, 2011.
Union leaders meeting in Brussels have agreed the appointment of Italy's Mario
Draghi to be the next president of the European Central Bank, according to draft
conclusions from the EU summit, which is due to finish today.
Draghi, 63, who is currently the governor of the Bank of Italy will take over
from Jean-Claude Trichet for one eight-year term, beginning on 1 November.
"The European Council appointed Mr Mario
Draghi president of the European Central Bank from 1 November 2011 to 31 October
2019," a draft of the conclusions obtained by Reuters
Irish GDP bounces back in Q1; oil prices fall sharply: Conall
Mac Coille, Davy's chief economist, comments -- "Yesterday's national accounts release indicated that Irish GDP rose
sharply in Q1, by 1.3%, following a 1.4% decline in Q4 2010. The
erratic pattern of Irish GDP and GNP growth through the last two
quarters reflects volatile movements in multinational sector
profits. The growth of annual GDP and GNP (smooth over Q4 and Q1)
better captures the trajectory of the Irish economy. On the year,
GDP growth rose by 0.1% in Q1 and GNP was down by 0.9%. This is not
too surprising as GDP captures the strength of the export-focussed
multinational sector, whereas GNP has been pushed down by the
weakness in domestic demand.
The GDP data released yesterday indicated that the
configuration of growth is similar to that in 2011. Exports rose by
3.8% and imports fell by 0.3% so that net trade made a very large
4.0 percentage point contribution to growth on the quarter. In
contrast, domestic demand remained weak as consumption and
government spending both fell by 1.9% on the quarter. Investment
rose slightly by 1.1%.
Yesterday's GDP data are therefore something of a relief. We
had expected GDP to bounce back in Q1 because we believed that the
decline in Q4 GDP was temporary. Many forecasters may not have done
so and may now have to revise up their projections for GDP growth in
2011. The broad picture is that Irish exports continue to perform
well but there has yet to be any significant sign of a pick-up in
the domestic economy. Looking forward, GDP growth is likely to slow
as the Q1 growth rate was flattered by the temporary factors that
pushed down on GDP in Q4 unwinding in the first quarter. The planned
fiscal consolidation, weak nominal pay growth and consumer spending
and fragile confidence suggest that consumer spending will remain
Oil prices fell very sharply yesterday and have declined from
a high of $114.40 on Wednesday to $108.27 per barrel. The decision
by the International Energy Agency (IEA) to release stocks has taken
the market by surprise. The IEA intends to release 60m barrels at a
rate of 2m barrels per day to compensate for the fall in Libyan
output, which normally averages around 1.5mbd. The IEA's decision
has been welcomed as a response to OPEC's decision not to raise its
output quotas earlier in the month. Iran and Angola, which already
operate at close to full production, blocked moves by Saudi Arabia
to raise OPEC production quotas. But Saudi Arabia may still decide
to raise its oil production unilaterally."
Eurozone Crisis Still At Peak: Analyst: The crisis within the Eurozone is still at its peak and the short term outlook for equities is negative, Patrick Legland, global head of research at Societe Generale told CNBC Friday. He added that there was a need for a European finance minister to be appointed to address a lack of "real European governance"':
Economic View: Two-speed economy still the theme; Dermot O'Leary, Goodbody's chief economist, comments --
"Q1 GDP/GNP had a little for everyone, with upward revisions, an increase in GDP
and a fall in GNP, but what does it tell us about the Irish economy’s prospects?
Abstracting from the quarterly volatility (GDP up 1.3% qoq, GNP down 4.3% qoq),
it doesn’t tell us much more than we knew already. As a result, we will be
leaving our economic forecasts largely unchanged for 2011 and 2012. In 2011, we
expect GDP growth of 0.5% (previously 0.4%), while we now expect GNP to contract
by 1.0% (previously -0.4%). The latter is a reflection of our view that there
will be an increase in net factor income outflows in 2011. We are making no
change to our estimates for 2012 (1.5% GDP, 1.1% GNP).
Within these forecasts, a trend that has been in
evidence since 2008 is expected to continue. That is, net exports are expected
to offset a continued decline in domestic demand (with also a contribution from
inventories). A breakdown of the growth dynamics over the past twelve months is
illustrative; while GDP was effectively flat an annual basis in Q1, this
included a c.4% boost from net exports, with domestic demand subtracting a
similar amount from GDP in the quarter. After a 6% decline in 2010, we expect
domestic demand to decline by 4% in 2011 and a further 1% in 2012, due to the
well-discussed drags of fiscal consolidation and a weak labour market
environment. While we are pulling back our forecasts slightly for both exports
and imports on the back of slowing forecasts in some of Ireland’s main trading
partners, net exports will still be enough to push GDP into growth territory in
A key complicating factor in Ireland’s battle
against its fiscal crisis is the deflation that continues in the system, thus
pushing down nominal GDP/GNP, impacting tax revenues and also pushing up the
debt/GDP ratio. In the context of the need for a real devaluation in the Irish
economy, the trade-off is clearly deterioration in debt dynamics.
It is these debt dynamics that will be the key focus
for the foreseeable future, and it will take a significant amount of work on the
fiscal policy side, as it appears that growth and inflation will not do the job
on its own."
Tanaka Says IEA 'Filling the Gap': "In 2008 it was a very hard landing for the oil price, so we have tried to build some sort of soft landing," Nobuo Tanaka, Executive Director of the IEA told CNBC Friday after the organization agreed to release 60m barrels of emergency oil stockpiles:
Bank of Ireland (Closing Price €0.12): Good
progress on liability management; Eamonn
Hughes of Goodbody comments - - "Bank of Ireland has indicated the early bird take-up for its liability
management exercise (LME) saw 72.4% acceptances, with 95% of these bondholders
opting for the equity option, the balance for cash. We had previously
anticipated a reasonably high take-up of the equity offering in the LME, but are
now nudging up the equity acceptance level in our model to 80-85% (from c.75-80%
previously and implying a share count c.30bn). In our view, the capital
generated from the LME is likely to be approaching the €2.5bn level. We have
done some additional work modelling out our trough NAV estimates (out to FY13)
for the bank (using PCAR base case).
Our trough NAV rises to €5bn, which implies our
NAV per share moves up to 16.5c from 14c mid-point previously. However, the
higher NAV dampens the ROE profile, so we don’t see the achievement of early
teens ROEs until 2016. As such, our comfort on valuations is now only at the
bottom end of our previous guided range of 0.5-0.6x. The higher NAV in
combination with the lower ROE profile means our NAV based fair value for BOI is
unchanged from previously, at 8-8.5c per share.
on our estimates, we struggle on the BOI investment case.
For investors to be interested, they must accept
lower implied compound returns than our target (20% p.a.), expect normalised
ROEs quicker than we envisage (2016), or believe the Central Bank PCAR to be
overly conservative (BOI believes loan losses will €1.4bn lower than the PCAR),
or some combination of all three. As a reference level, our P/NAV multiple of
0.5x compares to Italian, Greek and Portuguese banks on 0.4-0.5x and speculation
that the upcoming Bankia IPO in Spain could also be priced at a similarly low
level, posing a headwind reference level for BOI’s valuation. Should the wider
macro picture in Europe deteriorate further, particularly around Greece and any
knock-on consequences for Ireland, then presumably all valuation bets are off."
In New York Thursday, the
Dow fell 60 points or 0.49% to 12,050.
The S&P500 slid 0.28% and
the Nasdaq added 0.66%.
The MSCI Asia Pacific Index
rose 1.1% Friday.
Japan's Nikkei 225 gained 0.85%;
China's Shanghai Composite index climbed 2.16%; Australia's S&P/ASX 200
0.17% and the Bombay Stock Exchange's Sensex index advanced 1.77% in Mumbai.
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
July16th, the BDI rose 20 points or 1.12% to 1,700 to break the 35-session
On Thursday this week, the BDI
rose 8 points or 0.57% to 1,414.
Financial Times reported 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.
The margin between the US
benchmark WTI (West Texas Intermediate) used on the New York Mercantile Exchange
and Brent is $16.
Oil prices plunged on Thursday after the International Energy
Agency announced that the big industrialised countries would release 60m barrels
of oil from their emergency stockpiles over a 30-day period - - see story
link in Box above.
The US Energy department recently said that growing volumes of Canadian crude
oil imported into the United States contributed to record-high
levels at Cushing, Oklahoma of over 41m barrels at the end of March 2011
(86% of working capacity at Cushing), and a price discount for WTI compared with
similar-quality world crudes such as Brent. A discount for WTI is expected to
persist until transportation bottlenecks impacting the movement of mid-continent
crude oil to the Gulf coast are relieved. Consequently, the projected US refiner
average acquisition cost of crude oil, which was about $2.70 per barrel below
WTI in 2010, is $1.60 per barrel above WTI in 2011 and $1.10 per barrel above
WTI in 2012.
The spot price of an oz of
gold is trading in New York at $1,517.70 per oz, down $3.70 from Thursday's
close in New York.
Irish Financials: Further commentary on AIB and IL&P;
Goodbody's Eamonn Hughes added:
BOI was making reasonable progress with its LME yesterday (see above), AIB
released its own statement indicating that “while discussions remain ongoing
[with the government], it is evident to AIB that any subscription for shares by
the State would likely be at a very low price, being a very significant discount
relative to the current share price. If this is the case, it is likely that the
State's shareholding in AIB would increase substantially beyond its current c.
AIB indicates that it expects discussions with
the Government will finalise within the next week, at which point it should be
in a position to announce the final terms and structure of any capital raising
transaction with the State. It expects to remain as a listed company.
Elsewhere, press reports this morning carry coverage
of a speech by the Minister for Finance at the Financial Services Ireland annual
lunch in which he appears to prefer a trade sale of IL&P’s life company. Reports
over the last few weeks appeared to indicate that the timelines on IL&P’s
capital raise were tight enough, so that the IPO route was probably the quickest
option. However, the latest commentary appears to be going down the disposal
route “in the first instance”. A memorandum of understanding is anticipated to
be sent to parties who have expressed an interest in “the next couple of weeks”,
which presumably kick starts the process.
Either way, disposal or IPO, the extent of the recap
required to be raised by IL&P, as we have been saying for some time, implies de-minimis
value in the current shares given the extent of dilution."