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News : International Last Updated: Jan 31, 2012 - 9:47 AM


Markets News: EU25 leaders agree to sign fiscal compact agreement in March
By Finfacts Team
Jan 31, 2012 - 9:34 AM

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Mario Monti, Italian prime minister, Nicolas Sarkozy, French president, and Angela Merkel, German chancellor, Brussels, Jan 30, 2012.

Twenty-five of the European Union's 27 member states agreed on Monday to a fiscal governance pact that would cede much control of national budgets to the European Commission.

The United Kingdom had already opted-out from the so-called "fiscal compact," which will require countries to introduce balanced budget rules into their laws or constitutions. The Czech Republic also said it would not sign the agreement.

The leaders also approved the early introduction of the €500bn ($656bn) European Stability Mechanism (ESM). The fund is now set for activation on July 1, one year before its original launch data. It is to run parallel to its temporary predecessor, the European Financial Stability Facility (EFSF) for one year.

The current rules limit the combined lending power of the two funds to €500bn, but there is hope that it will be raised to €750bn.

Bloomberg reports that European governments moved toward a confrontation over a second rescue package for Greece, just as a dimming fiscal outlook in Portugal opened a new front in the debt crisis.

Euro leaders left a Brussels summit late yesterday with no accord over how to plug Greece’s widening budget hole and German Chancellor Angela Merkel voicing frustration with the Athens government’s failure to carry out an economic makeover.

“Greece’s debt sustainability is especially bad,”
Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”

Economic View: Fiscal Compact finalised, but little new on growth policies; Dermot O'Leary, chief economist, at Goodbody comments  -- "Unlike the previous two EU summits, yesterday’s meeting of EU leaders was a rather tame affair, with no frantic late night ultimatums or arguments. It is no coincidence that while market pressure was intense prior to the final two meetings of 2011, the market backdrop to the latest meeting was much more relaxed, helped by the actions of the ECB over the past two months. The lack of urgency is also picked up in the statement coming from the meeting.

Under the catchy title 'Towards growth-friendly consolidation and job-friendly growth,' the statement tries to deflect from what are clearly policies aimed at fiscal consolidation in the euro-zone by talking about efforts to stimulate the economy. Importantly though, there is little in the way of concrete proposals and nothing in the way of additional resources. The proposals come in three areas. Firstly, stimulating employment, particularly for the young, where unemployment remains exceptionally high, through an increase in apprenticeship schemes for example and redirecting some EU financial resources towards that goal. Secondly, it aims to complete the single market, while, thirdly, it aims to boost financing to the European economy, particularly for SMEs. This is to prevent problems that are likely to stem from significant deleveraging in the banking system across Europe. All of these proposals are laudable, but until specifics are available, they simply look more like political rhetoric than anything concrete.

A separate statement was also released last night by the euro-zone members. As expected, the Fiscal Compact was finalised and will be signed in March. The ESM, the new rescue facility, will become fully operational in July (In Ireland, the Attorney General will give an opinion on whether a referendum will be required within two weeks). Importantly, the pledge to provide support to countries in a programme until they have regained market access was reaffirmed. Two key issues remain, however. Firstly, the December pledge that EFSF “leveraging will be rapidly deployed” has not come about, and there are still arguments over whether the resources of the EFSF will be combined with the ESM when that comes into force. Secondly, although it is noted that progress is being made on Greek PSI negotiations and a second aid package, it is painfully slow and the March 20th bond redemption looms large.

We would expect these issues to be resolved and also think that progress has been made in the euro-zone crisis in the past two months, but only due to the actions of the ECB. Meanwhile, European leaders continue to persist with policies that will lead to, at the very least, slow growth in the euro-zone, thus making it more difficult for countries in difficulty to engineer an export-led recovery."

Stock prices fall as concern about Greek debt deal mounts: Conall Mac Coille, chief economist at Davy, comments  -- "Stock markets fell yesterday (January 30th) as concern mounted that a new deal to write down the value of Greek sovereign debt may not be found soon. The negotiations appear to have progressed beyond agreement on the magnitude of private sector involvement, although the package has yet to be finalised. However, talks have now stumbled on the details surrounding a new Greek fiscal austerity package, with the government balking at proposals for an EU budget commissioner with veto power over national spending and taxation decisions.

Last night's news that 25 EU countries have agreed to tighten budgetary rules so that members are required to balance national budgets over time is unlikely to have a material impact on market sentiment. The treaty has still to be implemented and does not change the stark reality of the enormous fiscal adjustments already being implemented in Italy and Spain. Furthermore, the new EU agreement comes at a time when the 'austerity' strategy is increasingly questioned. If private sector investment fails to pick up in 2012 and 2013, as spending and tax adjustments are being implemented, there are likely to be growing calls for more activist fiscal measures sustained by loose monetary policy.

The impact of the debt crisis on the European economy was underlined yesterday by the 0.3% decline in Spanish GDP in Q4, following on from the news that the UK economy contracted by 0.2% in the final quarter. The European measures of consumer and business confidence for January, released later in the day, showed some small improvement but remained very weak.

Concerns about the strength of the global economy were reinforced by news that US consumer spending was flat in December as savings rose. Overnight, the GfK measure of UK consumer confidence showed a small improvement but remains at similar levels to those during the worst of the financial crisis in 2009. German retail sales data released this morning for December showed a 1.4% monthly decline following a 0.9% fall in November. So concern around the ability of the consumer to sustain spending in the economy is likely to continue weighing on market sentiment today."

Withdrawal From the Eurozone Is Dangerous Talk: Expert: Moorad Choudhry head of business treasury at the Royal Bank of Scotland, told CNBC, "people talk about an orderly withdrawal from the euro zone, no such think, you can have a withdrawal but the instant you announced it you'd have a bank run in that country and then of course that would have a knock on affect on the rest of the EU's banks":

US Markets

In New York Monday, the Dow fell 7 points or 0.05% to 12,654.

The S&P 500 dipped 0.25% and the Nasdaq dropped 0.16%.

Asia Markets

The MSCI Asia Pacific Index rose 0.4% Tuesday.

Japan's Nikkei 225 gained 0.11%; China’s Shanghai Composite Index added 0.33%. South Korea's Kospi index advanced 0.58%. Australia's S&P/ASX 200 dipped 0.24% and the Bombay Stock Exchange Sensex 30 index in Mumbai climbed 1.26%

Asia benchmarks

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is up 0.70% in early trading Tuesday.

The ISEQ has risen by 0.35% in Dublin.

Aer Lingus is up 3.63%.

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 $1.3205 and at £0.8377.

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.

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 last week, the BDI fell 27 points or 3.59% to 726 - -  down 28 days in a row.

Freighter Oversupply Weighs on Shipowners and Banks - - Jan 26, 2012: The New York Times says vessels bought during the global commodity boom are only now being delivered, putting pressure on the European banks that financed the purchases.

The skyscrapers and immaculate beaches of Singapore's seaport look out on one of the world’s largest parking lots: mile after mile of empty cargo ships, as far as the eye can see.

Similar fleets bob at anchor, with empty cargo holds, off the coasts of southeast Malaysia and Hong Kong. And dozens of newly built ships float empty near the giant shipyards of South Korea and China, their owners from all over the world reluctant to accept delivery during one of the worst markets ever for the global shipping industry.

As recently as six weeks ago large freighters that can carry bulk commodities like iron ore or grain were fetching charter rates of $15,000 a day. Now, brokers and owners say, the going rate is $6,000 a day. If any customers can even be found.

Crude oil for February 2012 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $99.90 up $1.12 from Monday's close. In London, Brent for February delivery is trading on the International Commodities Exchange at $111.74. 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 $11 - - The Globe and Mail says that for the past 10 months, Canadian producers - - whose prices are tied to WTI - - have been taking steep discounts for their oil compared with international crude prices that are benchmarked against North Sea Brent, which can be shipped more readily. In the past, WTI tended to trade at a small premium to Brent, because it is easier to refine.

That spread hit a peak of $28.08 (US) on Oct. 14, but has fallen dramatically since then. After plans for more pipeline capacity at Cushing, Oklahoma, the differential narrowed.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,745.20 up $13.10 from Monday's close in New York.

Gold had hit a record high of $1,921.05 a troy ounce on Sept 6.

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Business executives who put a premium on time and value high quality information, should use our service.


© Copyright 2011 by Finfacts.com

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