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News : International Last Updated: Mar 2, 2012 - 11:17 AM


Markets: Kenny signs EU Fiscal Compact Treaty; German retail sales dipped in January
By Finfacts Team
Mar 2, 2012 - 11:07 AM

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Taoiseach Enda Kenny (r) chatting with Andrus Ansip, Estonian prime minister, at the EU summit in Brussels, Friday, March 02, 2012.

Taoiseach Enda Kenny, along with 24 other EU leaders, signed theEuropean fiscal stability treaty in Brussels at an EU summit this morning.

The agreement is viewed as a first step to a fiscal union and it provides for more intrusive monitoring of a country's public finances.

The agreement has to be ratified by 12 member countries to take effect and Ireland will hold a referendum to seek public approval in coming months. From March 1 2013, any financial assistance under the permanent  rescue fund, the European Stability Mechanism, will be conditional on ratification of the treaty.

Destatis, the German federal statistics office, reported Friday that retail turnover in January 2012 in Germany increased 3.5% in nominal terms and 1.6% in real terms compared with the corresponding month of the previous year. The number of days open for sale was 26 in January 2012 and 25 in January 2011.

The January turnover was in nominal terms 1.0% and in real terms 1.6% smaller than that in December 2011.

Economic View: Strict LDR targets to be reviewed as a means of tracking deleveraging; Dermot O'Leary, chief economist at Goodbody, comments - - "While deleveraging is a necessary evil for the Irish economy and financial system in particular over the coming years as excesses of the boom years are worked off, regular readers of our work will know that we disagree with the way in which the process is being managed to date under the Troika Programme. Under current policies, the covered banks need to hit a Loan-to-Deposit ratio target of 122.5% by the end of 2013. We have argued (see Deleveraging, Banks and Economic Recovery in Ireland, 17 October 2011), that this strict target was creating perverse incentives for the banks to reduce the size of their loan books, despite the fact that the assets to be delevered were considered "non-core". We argued for a relaxation of these strict LDR targets.

Following recent speculation, the latest European Commission (EC) report on Ireland's Programme confirmed that the Irish authorities asked "to explore possible refinements of the programme's deleveraging framework", with the Irish authorities suggesting that the emphasis on LDR "causes unintended adverse consequences for the financial system and the economy as a whole". One of these unintended consequences is the perverse incentives to reduce "core" loan books to which we referred to in our paper. Another important factor, however, is an intense competition for deposits among the covered banks, thus delaying the banks return to sustainability.

We welcome the decision to review these targets. Two possibilities are referred to in the EC report. One is to assess progress on the basis of the net stable funding ratio (NFSR). The second is to assess progress on the basis of the quantum of required asset disposals. The latter looks like a reasonable proposition and would make it simpler to recognise whether or not non-core assets are the ones that are deleveraging."

Irish Financials: EU commission report indicates loan arrears through the PCAR base case; Eamonn Hughes of Goodbody comment - - "Our economist comments above on the European Commission’s review report on Ireland’s Adjustment Programme. The focus is on deleveraging for the banks, with the potential implications for credit availability in the economy. Our focus below is on arrears.

The various interested parties have agreed that the 2012 PCAR exercise (due in November) will “retain the rigour and distinctive methodological features” of PCAR 2011. In preparation for PCAR 2012, the authorities have agreed to undertake an independent asset quality review of AIB, BOI and IL&P’s loan book in H112. This will also “validate bank data and review the covered banks’ practices in relation to provisioning, income and impairment recognition, and risk weighting, as well as banks’ loan portfolio resolution strategies and systems”. The EU report comments on the 21% loan arrears across the system at the end of Q3 last year and acknowledges that loan portfolios have continued to deteriorate “in a context where some macro-economic variables are projected to be closer to the PCAR adverse rather than base case scenario”, a point which we have been making for the last eight weeks. The report highlights this in a chart showing arrears above the base case since last August and are now approaching the adverse case assumptions.

In our BOI note last week, we incorporated €2bn of the €2.7bn loan loss differential between the base case and adverse case (all Irish, with no change on international exposures) in our NAV estimates, which we cut from 23
c to 17c per share. On Tuesday, IL&P raised its loan loss guidance for FY11 to €1.4bn and we await results from AIB in late March. The EU report provides further timely evidence of the deterioration in the path of arrears and our continued cautiousness on the banks."

Exchequer Returns to show February tax-take: David McNamara, economist at Davy comments  -- "Exchequer Returns for February will be released by the Department of Finance at 16.30 today. January's tax-take came in 17% ahead of January 2011, and today's returns should be ahead of the February 2011 out-turn by 8%. The main drivers of the growth in tax returns in 2012 are expected to be income tax (+€1bn) and VAT (€250m). While the VAT rise may help receipts in 2012, the extra billion in income tax receipts may be a less attainable target if activity continues to falter in the coming months. Nevertheless, continued spending cuts should help to offset any shortfalls in taxation with government spending expected to fall by 3.4% from €45bn in 2011 to €44bn this year.

German retail sales for January, released this morning, revealed a drop of 1.6% on December and an upturn of 1.6% on January 2011. While the comparison to January 2011 may be flattering due to last year's very cold winter, this is a greater fall than forecast from December, and could be a sign of weakening consumer spending in Germany. February data should reveal the trend in retail sales and will be an important indicator for the Q1 GDP out-turn.

Italian GDP will also be released today and should show that the economy grew by 0.3% in 2011 after a contraction of 0.7% in Q4 2011. The country's exchequer deficit will also come in at 4%, well below Ireland's 10.1% in 2011 and close to the EU Stability and Growth Pact limit of 3%. However, the Italian sovereign faces a solvency problem rather than a liquidity problem with a debt/GDP ratio of 120%. Nevertheless, austerity measures enacted at the end of 2011 should bring the country's deficit closer to that 3% target."

Fruit and vegetable distributor Total Produce, a Fyffes spinoff,  has announced the completion of a deal to increase its stake in South African company Capespan Group.

Total Produce announced last year that it had sold its 50% shareholding in the European distribution business Capespan International Holdings to Capespan Group in exchange for an additional 20 million shares in Capespan Group and €8.5m in cash.

Bloomberg reports that Barclays Plc, the U.K.’s third- largest lender by assets, took €8.2bn of three-year loans from the European Central Bank to provide “funding stability” for its units in Spain and Portugal.

Banco de Espana will access 6.2 billion euros from the auction on Feb. 29 and the remaining 2 billion euros via Banco de Portugal, London-based Barclays said in a statement today.

“The funds provided through this facility will be used to manage the risk associated with mismatches between Barclays Euro-denominated assets and deposits in markets where Barclays has significant local operations,” Barclays said in the statement.

Are We Addicted to Liquidity Injections? John Authers, senior investment columist at the Financial Times, told CNBC, "when will the periphery begin to weigh on the markets? Probably when the supply of easy money dries up, it is very unclear exactly when that moment is going to come because you have central banks around the world playing from much the same script":

US Markets

The Dow rose 28 points or 0.22% to 12,982 on Thursday.

The S&P 500 added 0.62% and the Nasdaq advanced 0.64%.

Asia Markets

The MSCI Asia Pacific Index rose 0.2% Friday.

Japan's Nikkei 225 declined 0.16%; China’s Shanghai Composite Index gained 1.75%. South Korea's Kospi index climbed 0.07%. Australia's S&P/ASX 200 added 0.41% and the Bombay Stock Exchange Sensex 30 index in Mumbai advanced 0.41%.

Asia benchmarks

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is up 0.16% in early trading Friday.

The ISEQ has gained 0.31% in Dublin.

Sitserv is up 3 cents or 500%.

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 $1.3242 and at £0.8317.

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 Thursday this week, the BDI rose 13 points or 1.73% to 763 - -  the BDI plunged a full 70% from its recent mid-October peak of 2,173 to an all-time low of 647 on February 3.

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 $108.12 down 72 cents from Thursday's close. In London, Brent for February delivery is trading on the International Commodities Exchange at $124.91. 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 $16 - - 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 $1,715.10 down $2.60 from Thursday's close in New York.

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

Check out our new subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.

It's a simple fact that in the prevailing economic climate, the provision of high quality content cannot be sustained through advertising alone. 

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

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