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The European Central Bank is expected to keep interest rates unchanged
at 0.75% today, avoiding a cut as annual inflation in December at 2.2% exceeded
the official target of 2%.
“Rates are definitely on hold. Nothing has been spectacular enough in recent
data to force the ECB to any action,” Gilles Moec, Deutsche Bank economist
told Reuters.
“There is a recession, but no further deterioration. Lending is weak, but
also not deteriorating further, so the ECB is not compelled to act,” he added.
Marks & Spencer has today announced a bigger-than-expected fall in
clothing sales in the holiday period.
In a trading update, the firm said that non-food sales were down 3.8%, in the 13
weeks to December 29 and overall like-for-like UK sales fell 1.8%.
Meanwhile, Tesco, the world's third largest retailer, named a new UK chief
and reported more positive results.
Tesco announced that it had appointed Chris Bush as managing director of the
British business, which accounts for two thirds of group trading profit. He is
currently chief operating officer in Britain.
Tesco said sales at UK stores open over a year, excluding fuel and VAT sales
tax, were up 1.8% in the six weeks to January 5, part of its fiscal fourth
quarter. That compares with analysts' forecasts in a range of up 0.5-1.5% and a
third quarter fall of 0.6%.
Total international sales growth was 3.4% but European sales fell by 0.6%.
In Dublin, the new Tesco Metro store in Terenure in Dublin was opened today,
creating 34 jobs in the local area and Tesco said it now employs over 2,350 in
the Dublin City area.
Liam Igoe of Goodbody commented: "Tesco reported a 4.3% increase in
sales (ex. Petrol) over the six weeks to January 5th. Lfl sales were up 1.8%
over the same period, helped by a “much stronger” performance from its food
business. The lfl growth was its strongest in three years. Guidance for the
full-year remains unchanged, with some caution on the operations exposed to
Central Europe.
The sales growth over the Christmas period should be positive for Irish
suppliers into Tesco, including Greencore and Kerry Group. Like Sainsbury, it
would appear that own label was a key contributor to growth, with its 'Finest'
and 'Everyday Value' outperforming."
Justin Doyle, Investec Bank Ireland, said today:
"China to the rescue yet again. Risk appetite took a bounce overnight as
Chinese trade figures boasted a yoy export increase of +14% against a
consensus of +5%. Very impressive indeed!
The Japanese yen has been under pressure again overnight as a major
Japanese daily has reported that the BoJ is most definitely mulling over an
additional stimulus;
As any improvement in the Chinese economy usually pulls the Australian
one with it, the Australian dollar, in a similar vein to the entire land
mass, is red hot at the moment. It is now heading toward multi month highs
close to $1.06;
The main event today however is the ECB rate decision and ensuing
statement and press conference at 12.45pm and 1.30pm respectively."
Bank of Ireland Placement of €1bn State owned co-co’s:
Eamonn Hughes
of Goodbody comments - - "BOI yesterday completed the placing of the State’s
€1bn of 10% Convertible Contingent Capital Tier 2 notes due 2016. It was 4.8x
oversubscribed and priced at 101 per cent plus accrued interest. It will
continue to supplement improving sentiment towards BOI and the State is
considering similar developments for AIB.
There is no P&L impact for BOI. From a capital perspective, based on our
forecasts and the existing Basel III timeline, we estimate the Basel III core
tier 1 ratio will be no lower than c.10.5% out to 2016 when the bonds mature,
above the conversion level of 8.25%.
The transaction will prompt investors to think about a possible transaction
on the government preference shares (€1.8bn) given the March 2014 trigger of a
25% step up on the par value of the prefs (on subsequent redemption). The
complicating factor is that the existing instruments fully qualify until the end
of 2017 for common equity core tier 1 under Basel III because they are
government owned but wouldn’t qualify in private hands.
At current share price levels (13.5c) after the recent rally, BOI is trading
on 0.9x our trough TNAV or 1x incorporating the potential preference shares
step-up contingent liability. This looks rich versus most comparable peers but
we acknowledge the improving sentiment towards Ireland, most of which is
justified, which may keep valuations above fundamental levels in the near term.
On the credit side, we would expect these co-co notes to trade at a tighter
yield than the 2022’s bond and continue to trade higher."
Economic View: Breaking that sovereign/banking loop; Dermot O'Leary of
Goodbody comments - - "While the motto of the Irish Presidency over the first
six months of 2013 is “Stability, Jobs and Growth”, expect to hear the phrase
“breaking the loop between the sovereign and the banks” over the coming months.
We have heard this ad nauseam from Irish officials since it was inserted into
the European Council statement last June. However, the reiteration by European
Council President Herman van Rompuy in Dublin yesterday will be music to the
ears of Irish leaders who aim to push the case for a deal on Ireland’s bank debt
over the coming months. Another President – Jose Manuel Barroso – says in an
interview in the Irish Times this morning that the commission is “supportive of
finding a solution for the issue of the promissory notes” and that the
presidency offers a chance for Ireland to “make its case” on the restructuring
of bank debt. This is helpful, but the critical issue is getting an agreement
with the ECB on the repayment of ELA. Those discussions are proving more
difficult, but we still think that a deal will be agreed ahead of the next
scheduled payment on March 31st.
Even prior to any agreement at a European level, yesterday’s sale of Bank of
Ireland co-cos confirms that Ireland has already got on with the business of
attempting to break that sovereign/banking loop. Semi-equity risk has now been
transferred to the private sector, with the added benefit of reducing the
funding requirements for the state by €1bn. Finance Minister Michael Noonan
identified a further €7bn in co-cos and preference shares that could be
offloaded. While these remaining stakes will be more difficult to sell, the
recent interest in Irish debt suggests that it could indeed be possible at some
stage this year."
Government raises €1bn from 'CoCo' but further imminent sales seem
unlikely: Conall Mac Coille of Davy comments - - "Following on from the
€2.5bn sale of 2017 bonds, the government raised an additional €1bn through the
sale of its contingent convertible ('CoCo') bond with Bank of Ireland yesterday.
So, in total the Irish government has raised €3.5bn this week. Orders for the
CoCo bond were €4.8bn, following on from the €7bn demand for the 2017 bond,
highlighting the strong demand for Irish paper.
The sale of the Bank of Ireland CoCo reduces the overall €64bn bill for bailing
out the banking sector by €1bn. Overnight, Minister for Finance Michael Noonan
highlighted an additional €7bn of investments in Bank of Ireland, AIB and PTSB
which may eventually serve to reduce Ireland's gross debt position. However,
imminent further sales of the government's stakes in the banking sector seem
unlikely.
The €7bn of investments comprises the government's preference shares in Bank of
Ireland and AIB, and also the remaining CoCo bonds from AIB and PTSB. Both the
IMF and government continue to press European leaders to allow the ESM take
equity positions in Irish banks to break the link between the Irish sovereign
and the financial sector. Hence, ESM capital injections into Irish banks could
potentially include preference shares and the remaining CoCos."
US Markets
In New York Wednesday, the
Dow Jones rose 62 points or 0.46%, to 13,391.
The S&P 500 added 0.27%
and the Nasdaq advanced 0.45%.
Asia Markets
The MSCI Asia
Pacific Index rose 0.7% Thursday after a strong Chinese trade report.
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 rose 9 points 1.23% to 743 - - the BDI is
down 40.94 in 12 months.
Crude oil for February 2013 delivery is
currently trading on the
Chicago York Mercantile Exchange (CME/Nymex)
at $94.45 up $1.33 from Wednesday's close. In London, Brent for February
delivery is trading on the
International Commodities Exchange at
$112.88. 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.
The spot price
of an oz of gold is trading in New York at $1662.00, up $4.00 from Wednesday's
close in New York.
Gold had hit a
record high of $1,921.05 a troy ounce on Sept 06, 2011.
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