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News : International Last Updated: Jan 10, 2013 - 11:18 AM


Markets: ECB expected to keep rates on hold: Tesco reports improved holiday sales; M&S disappoints
By Finfacts Team
Jan 10, 2013 - 11:11 AM

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Tesco, Kuala Lumpur

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.

Chinese trade --- exports and imports -- rebounded sharply in December; Trade surplus jumps 48.1%

Japan’s Nikkei 225 Stock Average increased 0.70%; China's Shanghai gained 0.37%; South Korea's Kospi added 0.75%; Australia's S&P/ASX 200 climbed 0.31%; in Mumbai, the Bombay Stock Exchange's Sensex 30 dipped 0.02%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is up 0.13% in morning trading Thursday.

In Dublin, the ISEQ  has risen 0.38%.

Ryanair has climbed 0.80%.

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 $1.3100 and at £0.8163.

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 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.

Gold spot price

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.

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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