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News : International Last Updated: Dec 13, 2012 - 10:58 AM


Markets: Noonan signalls Irish deal with EU on Anglo promissory notes is now likely
By Finfacts Team
Dec 13, 2012 - 10:52 AM

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Mario Draghi, ECB president, at the special meeting of EU finance ministers which agreed on common Eurozone bank supervision under the control of the ECB, Brussels, Dec 12, 2012.

Justin Doyle, Investec Bank Ireland, said today:

  • "They just keep on giving. The US Federal Reserve last night announced further expansion of their balance sheet while at the same time linking that expansion with lower unemployment and inflation targets.
  • Moving away from the usual timeframe guidelines, the Fed taken the novel approach of saying rates will stay at current low levels if the Fed inflation projections stay below 2.5 percent over the next year or two and “at least as long” as unemployment remains above 6.5 percent. Fed forecasts don’t see unemployment below 6.5% until at least 2015.
  • Reaction has been fairly muted with US equity markets closing flat on the day and European markets looking to perform similarly. In Asia the Japanese Nikkei closed over 1% on the day with JPY and the NZD the only significant movers in the currency space."

Glanbia Co-op approves share sale: Liam Igoe of Goodbody comments - - "Glanbia Co-op yesterday approved the rule change that permits the co-op to reduce its shareholding in the plc below the current 51%. After registration with the Register of Friendly Societies in the coming weeks, the co-op will place 3% of its shareholding in Glanbia plc on the market, while the 7% spin-out to its members is expected to be completed next March.

The motion was carried by 84% of the total members voting and by 79% of the active dairy farmers, from whom a 75% majority was also needed. There was some dispute in relation to whether, so called, A2 members such as recently retired dairy farmers, were eligible to vote.

According to the Irish Farmers Journal this morning, however, the Glanbia chairman confirmed that had they been excluded from the first vote two weeks ago, approval would still have been attained by over 79%. Finally, a motion was also passed which means that a 66% majority will be required in the future (not 75%) if the Co-op’s ownership were to fall below the new threshold (set at 38% versus 41% as it will be after the 3% placing and 7% spin-out).

The approval by the Co-op is a positive move for Glanbia, assuming there is not any successful legal challenge to the outcome, as it will alleviate potential barriers to raising capital on the market should it need to fund future growth in the nutritional sector."

Economic View: A welcome move in the direction of a banking union; Dermot O'Leary of Goodbody comments -- "Given the gulf in opinions that existed on the next steps towards a banking union between the various countries involved, the latest agreement struck in the early hours of this morning by European finance ministers can be seen as a pleasant surprise. In line with the conclusions of the October European Council summit, this should now pave the way for adopting the legislation by the end of the year.

Under the proposals the ECB will have direct responsibility for euro area banks with assets of more than €30bn or a fifth of national output in a particular country. The plans also set out that at least the biggest three banks in each country will be under ECB supervision. March 2014 is set out as the earliest possible date at which the ECB will take over supervision of these banks. In terms of the banks involved, the FT reports that between 150 and 200 French banks will be involved, but most of Germany’s retail banks will be excluded and remain under the control of the domestic regulator. This was the compromise that always appeared likely. In Ireland, all of the functioning covered banks will be under ECB supervision.

The plan for a banking union, agreed in June, was heralded as the policy measure that would break the loop between the sovereign and the banking system. There are gradual moves in this direction and last night’s decision is the latest. These proposals are likely to be approved by European leaders over the next two days. Importantly, the question of “legacy assets” is not mentioned in the statement. These moves may be enough to ensure burden-sharing in the euro area in the next banking crisis. It remains to be seen whether it applies to the current one."

United Drug FTSE 250 inclusion confirmed: Dónal O'Neill of Goodbody comments -- "FTSE last night released the constituent list for inclusion into the FTSE indices at the upcoming index review on December 21st. As widely expected, United Drug will become a member of the FTSE 250 index with a free float weighting of 100%.

As we understand, United Drug will be a member of the retail sub-index, which is presumably as a result of its revenue exposure to retail pharmacies. This change has been anticipated by the market and has seen a significant increase in average daily traded volumes of the stock in recent weeks. Despite this, we would expect the buying pressure to persist into the index change on Friday week."

Bank of Ireland Subordinated debt issuance: Eamonn Hughes and Colm Foley comment -- "In a surprise move yesterday, BOI looked to sell €200m of subordinated bonds in an issue that appears to have been oversubscribed by 3-4x with the bank raising the issue to €250m given the interest. This is the first subordinated issue by an Irish bank since the financial crisis. The 10 year Tier 2 bond (bullet payment) carries a 10% coupon and follows the recent €1bn ACS issuance.

Whilst not cheap, the issue of subordinated bonds indicates that investors are continuing to look favourably on the gradual improvement in the Irish banks. Given the surprise nature of the issuance, there is likely to have been some form of reverse order enquiry aspect to the transaction. The coupon on the bonds compares to the coupon on the government’s preference shares of 10.25% and our long term cost of equity of 11% for the bank. However, on the latter, with no income return in prospect for the foreseeable, we discount our fair value multiple at 20% per annum out to the achievement of low teens ROEs (2017)."

Irish finance minister indicates deal on promissory notes now likely: Conall Mac Coille of Davy comments - - "Attending the Ecofin summit of EU finance ministers, Michael Noonan indicated that a deal on Ireland's promissory notes is now likely and the government does not expect to make the next €3.1bn payment in March. The remaining negotiations seem to surround legal obstacles, perhaps suggesting that the ECB's €27bn of lending to the Irish government (via IBRC) will be reformulated in such a way as not to breach the ECB's legal ban on primary financing of euro-area sovereigns.

Overnight, the Federal Reserve decided to replace Operation Twist, swapping short-term securities for longer-dated bonds, with outright QE. The $45bn of QE per month announced was in line with expectations, and in addition to existing plans to purchase $40bn of mortgage-backed securities. This means that the Fed's balance sheet will expand sharply from around $2.8 trillion to close to $4 trillion, 25% of GDP, by the end of 2013. Furthermore, for the first time the Fed explicitly linked plans to keep interest rates on-hold to the labour market, indicating that rates will not rise until unemployment falls to 6.5%, as long as projected CPI inflation remains below 2% on the two-year horizon, and inflation expectations remain unchanged."

Eurozone finance ministers agree on common European bank supervisor

Federal Reserve in big policy move links interest rates to specific inflation and unemployment rates

UK underemployment rises by 1m; Most new jobs growth at top and bottom of economic pyramid

US Markets

In New York Wednesday, the Dow fell 3 points or 0.02% to 13,245.

The S&P 500 added 0.04% and the Nasdaq fell 0.28%.

Asia Markets

The MSCI Asia Pacific Index gained 0.3% Thursday.

Japan's Nikkei 225 closed up 1.68%; China's Shanghai Composite Index fell 1.02%; South Korea's Kospi rose 1.38%; Australia's S&P/ASX 200 fell 0.02%; in Mumbai, the Bombay Stock Exchange's Sensex 30 dipped 0.65%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is down 0.33% in morning trading Thursday.

The ISEQ  is off 0.40%.

CRH is down 0.38%; Glanbia is up 0.24%.

European Benchmarks

Irish Share Prices

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3049 and at £0.8096.

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 Wednesday this week the BDI plunged 74 points or 8.22% at  826 - -  the BDI is down 52.47% 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 $86.24 down 53 cents from Wednesday's close. In London, Brent for January delivery is trading on the International Commodities Exchange at $109.08. 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 $1696.70, down $14.90 from Wednesday'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.


© Copyright 2011 by Finfacts.com

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