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News : International Last Updated: Dec 12, 2012 - 11:09 AM


Markets: 'Europe is facing 10 years of economic stagnation'; German consumer inflation dips to 1.9%
By Finfacts Team
Dec 12, 2012 - 11:04 AM

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Bloomberg reports Paul Polman , Unilever CEO, said on Tuesday that Europe is facing 10 years of economic stagnation while the US grapples with the rise of an “emerging poor” class dependent on government benefits.

“We are in for at least 10 years of slow economic growth in Europe, and I don’t see that changing,” Polman said in an interview yesterday at Bloomberg’s New York office. “If you run a business like mine and don’t assume that, you are fooling yourself. I hope for the benefit of Europe I am proven wrong, but even then we are in a better position by taking that as our starting point. The key thing is to see reality in the eye.”

The London- and Rotterdam-based consumer products company has adapted to deteriorating economic conditions by cutting costs, expanding in emerging markets and pushing lower-cost brands such as Suave shampoo, according to Polman.

In November 2012, consumer prices in Germany were up 1.9% on November 2011, so the general rise in prices slowed down somewhat. In October and September 2012, the inflation rate as measured by the consumer price index amounted to 2.0%. An inflation rate below 2.0% had last been measured in July 2012 (+1.7%). Compared with October 2012, the consumer price index fell by 0.1% in November 2012.

Destatis, the federal statistics office, said the slight decrease of the inflation rate in November 2012 is largely due to energy prices (household energy and motor fuels): the price of energy rose 3.8% in November 2012 on November 2011; that is a smaller increase than in the months before. Excluding energy prices, the rate of inflation has remained constant at +1.6% since October 2012. It is increasingly determined by higher food prices: within a year’s time, food prices went up by as much as 4.2%.

Justin Doyle, Investec Bank Ireland,  commented today:

  • "Could it be QE4? We’ll just have to wait and see. The FOMC announcement is at 5.30pm today and we expect the Fed to replace Operation Twist with an outright asset purchase programme in longer-dated MBS purchases somewhere in the region of $40-$50bn per month. We also expect them to confirm their shift to objective led guidelines (unemployment levels, inflation etc.) as opposed to their current format of date focussed.
  • Staying with the U.S., budget deficit negotiations are ongoing with one commentator aptly describing them as a ‘slow dance’. Time is of the essence but we do feel that the levity of the situation is not being overlooked and a deal of sorts will be hammered out in the next week or so.
  • So potentially if we take additional QE and a US fiscal deal in the bag, one has to look at the New Year in a slightly more positive tone and should lead to increased appetite and a weaker USD and maybe even a break out of the tight FX ranges we have been trading in over the last few months."

Economic View: Some tweaks to Ireland’s Troika targets; Dermot O'Leary of Goodbody comments -- "Following the eighth successful review of Ireland’s programme by the Troika in October, an updated Memorandum of Understanding (MoU) was released yesterday. This updates the Government’s targets for 2013 on a quarterly basis. Unsurprisingly, the broad outline is similar to the MoU released following the seventh review. However, there are some changes in emphasis for the fourth quarter of 2012 in particular in relation to the SME sector, which were partly dealt with in Finance Minister Michael Noonan’s Budget 2013 speech last Wednesday.

These measures include: (1) Improving access to finance for the sector; (2) developing key performance indicators to specifically assess the workout of non-performing SME loans; and (3) improving the efficiency of the corporate insolvency framework for SMEs. The overspend in Health also comes in for specific mention with the Government committed to taking “structural measures” to tackle it. As we noted last week, the targeted savings in this department are likely to be under heavy scrutiny by the Troika over the coming twelve months.
Amongst the actions required in the first quarter of 2013 is the “remedying” of the legal issues related to the 2009 Land and Conveyancing legislation. These have prevented banks from repossessing certain properties since a High Court ruling in 2011. A resolution to this would be helpful to the banks in dealing with arrears.
Staff reports from the IMF and the European Commission relating to the eighth review remain outstanding. These usually contain further details in relation to growth forecasts and the funding position of the sovereign. In addition the IMF, on the request of the Government, is preparing a paper, due shortly, outlining Ireland’s path to regaining full access to financial markets and exiting the bailout programme. Access to a precautionary credit line is expected to be a key feature."

Banks: Stress tests in Q3 next year; Eamonn Hughes and Colm Foley comment - - "The Programme of Financial Support for Ireland memorandum of understanding was published yesterday (dated November 29). Our economics team look at the macro implications above and here we consider the implications for the banks.

Beyond the on-going reviews, in Q412 the main focus will be ensuring that the draft personal insolvency bill provides a framework for the appropriate licencing and regulation of personal insolvency practitioners ahead of what looks like Q1 implementation. In addition, for Q1 the Irish authorities need to finalise the Capital Requirements Directive legislative text and draft guidelines for the creation and subsequent holding of liquidity buffers by the banks. Also, having secured adequate protections for debtor’s principal private residence in the Personal Insolvency Bill, the authorities must address the unintended constraints on banks of repossessions identified in the Dunne ruling. Finally, the authorities must ensure prudent provisioning of loan modifications. For Q2, there must be agreement on the methodology for PCAR 2013 and a review of progress in undertaking mortgage arrears. Also, Ireland will review an EU directive on a resolution fund levy. PCAR 2013 is anticipated to complete in Q3 and results discussed with the troika and aligned with the timing of the next EBA exercise. Given a budgeted exit from Ireland by end 2013, many wrap-up reports are targeted in Q4.

The memorandum gives some clarity on the next stress test timing. Its alignment with the EBA also hints at likely capital and funding targets that are closer to EBA levels than was the case in PCAR 2011, a point highlighted in our recent Stand and Delever note. Elsewhere, the move to close the loophole on repossessions will likely see a material uptick in repossessions in the buy to let space in 2013."

Glanbia Second Co-op vote today: Liam Igoe of Goodbody comments - - "Members of Glanbia Co-op vote for the second time today on whether to allow their ownership of Glanbia plc to fall below 51%. If 75% of members vote in favour, the Co-op will sell a further 3% of the stock to bolster the equity of the newly formed Glanbia Ingredients Ireland JV (60% owned by the Co-op, 40% by the Plc). 75% of the members need to vote in favour, though the milk suppliers sub-group also need to vote in favour by a similar majority. While the first vote was carried by an 82% majority, the milk sub-group voted in favour by a smaller majority of 77%.

If the vote is not carried by the required 75% of members, it may act as an impediment to the pace of the plc expansion through acquisition. Any plc placing of shares would require the Co-op to subscribe for 51% of shares. The Co-op will be more focused on the expansion of its dairy activities in Ireland in advance on the 2015 elimination of milk quotas. The results may be known later this afternoon."

Legal loophole on repossessions finally to be addressed: Conall MacCoille of Davy comments  -- "Stocks markets rose sharply yesterday, with the Euro Stoxx 50 up 1.1% and the S&P 500 up 0.7%. The German ZEW survey of investor sentiment was far better than expected, with the reading moving into positive territory for the first time since May. In addition, demand for risk assets was supported by expectations that the Federal Reserve will announce today that it is replacing Operation Twist with outright quantitative easing, worth $45bn of Treasuries per month.

Yesterday, the Irish Department of Finance published a new memorandum of understanding (MOU) with the EU/IMF. The new MOU includes a commitment by the government to address by end-Q1 2013, through new legislation, the legal loophole exposed by the Dunne judgement impeding banks from repossessing properties associated with mortgage loans in arrears.

In Q1 2012, there were 83,000 owner-occupiers and 29,000 buy-let-investor in 90+ day arrears. Both the draft personal insolvency legislation and official commentary from the Central Bank suggest that banks' focus should be on repossessing buy-to-let loans. We expect buy-to-let arrears to continue rising in 2013, as investors' interest-only tracker mortgages move to principal and interest payments, to close to 40,000. However, the stabilisation in private sector employment since the beginning of 2011 should lead to a flattening-off in new owner-occupier arrears.

Had Ireland followed UK rates of repossession on delinquent mortgages, there should have been close to 20,000 repossessions. Clearly the Dunne judgement has been an impediment. However, banks may be reluctant to repossess and sell properties into a market starved of new mortgage lending. Nonetheless, we would expect repossessions to rise from exceptionally low levels, providing some additional supply into the housing market."

US Markets

In New York Tuesday, the Dow rose 79 points or 0.60% to 13,248.

The S&P 500 added 0.65% and the Nasdaq advanced 1.18%.

Asia Markets

The MSCI Asia Pacific Index gained 0.5% Wednesday.

Japan's Nikkei 225 closed up 0.59%; China's Shanghai Composite Index added 0.39%; South Korea's Kospi rose 0.55%; Australia's S&P/ASX 200 rose 0.17%; in Mumbai, the Bombay Stock Exchange's Sensex 30 dipped 0.16%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is up 0.04% in morning trading Wednesday.

The ISEQ  is off 0.02%.

CRH is up 0.55%

.

 

European Benchmarks

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Currencies

The euro is trading at $1.3027 and at £0.8072.

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 Tuesday this week the BDI closed down 37 points or 3.95% at  900 - -  the BDI is down 48.22% in 2012.

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 January 2013 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $86.25 up  46 cents from Tuesday's close. In London, Brent for January delivery is trading on the International Commodities Exchange at $108.67. The North Sea benchmark accounts for two-thirds of the global market.

Bloomberg reports that for the first year since the futures were created, Brent crude is poised to overtake West Texas Intermediate (WTI) oil as the world’s most-traded commodity.

Daily trading in Brent jumped 14% to average 567,000 contracts in the year to November 20 compared with all of 2011, while WTI fell 17% to 575,000, according to data from the ICE Futures Europe exchange in London and New York Mercantile Exchange compiled by Bloomberg. The number of Brent futures changing hands has exceeded those for WTI every month from April through October, the longest streak since at least 1995.

Brent, produced in the North Sea, is gaining favour among traders because of its role as the benchmark for energy prices from Saudi Arabia to Russia. Prices have climbed 34% in the past two years, reflecting everything from war in Libya to the embargo on Iran. WTI, the main grade in the US, has risen 9% as the nation, which prohibits crude exports, has struggled to clear a glut at Cushing, Oklahoma, the delivery point for Nymex futures.

Gold spot price

The spot price of an oz of gold is trading in New York at $1713.30, up $2.90 from Tuesday's close in New York.

Gold had hit a record high of $1,921.05 a troy ounce on Sept 06, 2011.

Check out our 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.

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