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News : International Last Updated: Feb 21, 2013 - 10:45 AM


Markets slide after Fed minutes; Eircom reports earnings, revenue dips
By Finfacts Team
Feb 21, 2013 - 10:40 AM

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President Barack Obama visits a pre-kindergarten classroom at the College Heights Early Childhood Learning Center in Decatur, Georgia, Feb. 14, 2013.

Minutes released Wednesday from the Federal Reserve's January policy meeting showed that officials were concerned that the current easy-money policies could lead to excessive risk-taking and instability in financial markets. The Fed is buying $85bn in mortgage and US Treasury securities a month to drive down long-term interest rates and has promised to keep short-term rates near zero until unemployment improves.

Major indexes fell in New York after the release of the minutes and oil futures dropped about $2 Wednesday on analysts' expectations for higher US crude supplies when the Energy Department releases its weekly inventory report on Thursday. Prices are down again Thursday.

Conall Mac Coille, chief economist of Davy, commented  - -"Central banks did their best to surprise markets yesterday. Federal Reserve policy minutes indicated that the FOMC may row back on its open-ended commitment to $85bn of asset purchases per month, even without a material improvement in labour market conditions. Similarly, the news that Governor Mervyn King had voted for additional QE at the January policy meeting surprised markets, not least given the Bank of England expects CPI inflation to remain above the 2% target through 2013 and 2014. In the event, US treasury and UK gilt yields were little changed at the close, but equity markets closed down on the fear that the Federal Reserve may withdraw monetary stimulus sooner than had been expected.

Stock indices closed down yesterday. The Euro Stoxx 50 fell 0.8% and the S&P500 declined by 1.2%. Weak earnings and dividend cuts by European companies weighed on market sentiment. However, news that the Federal Reserve might renege on its open-ended commitment of $85bn of asset purchases per month was the big surprise for markets. The minutes of the January policy meeting indicated that an on-going evaluation of the costs and risks might lead the committee to end asset purchases before an improvement in the labour market had occurred. The US 10-year yield rose to a peak of 2.05% yesterday but has now fallen back to just below 2%.

Yesterday’s UK labour market data indicated growth of 2% in the year to December, up 0.2% on the previous monthly reading. So the robust growth of UK employment stands at odds against flat-lining GDP and weak retail sales. Nonetheless, markets were also surprised by the minutes of the Bank of England’s last policy meetings, with Governor Mervyn King’s proposal for an additional €25bn of QE outvoted by other members of the committee. The pound depreciated on the news, currently 0.874 against the euro. UK 10-year gilt yields initially fell on the news, but after a volatile day’s trading closed little changed at 2.19%. Concern continues to grow that a potential ratings downgrade on the UK sovereign, or higher inflation expectations, could eventually lead to a sharp sell-off of UK gilts. Indeed, last week’s inflation report indicated that the MPC would tolerate inflation above target through 2013 and 2014.

Yesterday, the release of the February European Commission survey of consumer confidence showed a modest gain, following on from a strong German ZEW survey earlier this week. Today markets will look to the advance releases of PMI surveys for the European manufacturing and services sectors – looking for signs that the gradual recovery in confidence is leading to improving economic activity. The composite European PMI rose to 48.6 in January, its third consecutive monthly gain. Markets expect a further rise in the reading to 49 in February, indicating that the European economy is slowly emerging from recession."

Downturn in Eurozone manufacturing/ services PMI accelerated in February

Eircom, the former Irish State telco, said today that its revenue for the second quarter to the end of December dropped by €23m (6%) to €361m. Earnings for the quarter dipped by €10m to €119m, down 8% on the same time in 2011.

The company said its operating costs of €157m, were down 7% on the same time last year.

Herb Hribar, CEO Eircom said: “I am delighted to announce that today we are expanding the reach of what will be Ireland’s largest fibre network from one million to 1.2 million homes and businesses. This incorporates a further additional 78 communities throughout the country and when completed, will provide high speed broadband connections to 60% of homes and businesses in Ireland.

“The fibre broadband network has already passed more than 230,000 premises and high speed broadband services will launch later this spring. We will also trial high speed 4G data services in the coming months and anticipate a commercial offering this summer."

Justin Doyle, Investec Bank Ireland, said today:

  • "Somebody asked me the other day why the GBP/USD was still being sold at multi month lows at around $1.54, when you’re stuck for time and you need a get out / one word answer, the old gem: ‘fundamentals’ always does the trick;
  • Never a truer word uttered it seems and it most certainly was a tale of two cities yesterday as the UK’s BoE and the U.S. Fed released their February minutes, revealing two economies at the same crossroads but seemingly headed in different directions;
  • Just as the Fed seem to be considering wrapping up their QE party a bit earlier than expected, the BoE are threatening to start filling their punch bowl back up again, hence the reason behind a GBP/USD rate comfortably below $1.52 this morning;
  • As risk appetite wanes, the USD is broadly higher this morning with U.S. and Asian equity markets reacting badly to a more hawkish Fed overnight. Most of the major U.S. indices closed in or around 1% lower on the day. Asian markets fared slightly worse with European markets all following suit printing red at the open."

Economic View: Fiscal union continues to take shape; Dermot O'Leary, chief economist of Goodbody comments - - "Fiscal union continues to take shape gradually in the euro area. According to this morning’s Irish Times, agreement was reached yesterday on the so-called “two-pack” proposals at the European Commission. These proposals aim to strengthen the surveillance mechanisms that were originally contained in the Stability and Growth Pact. This surveillance will take the form of the 'European Semester”, which sets out the new annual budgetary process for member states. This was first introduced in 2011, but will be further enhanced this year. As a result, Ireland’s Budget Day is likely to move from its original early-December date to early October at the latest. This is to ensure that the draft budget is sent to the European Commission and the euro group by 15 October each year for assessment.
The legislation also provides specific proposals for countries emerging from a programme. These countries will face “enhanced surveillance”, including regular missions, until at least 75% of the loans borrowed are paid pack. Given that Ireland and Portugal are pushing for loan term extensions, this enhanced surveillance is likely to be a feature for years into the future.
This should not come as a major surprise. The quid-pro-quo for continued support from the larger economies in the euro area, particularly Germany, is closer coordination on policies and enhanced scrutiny of fiscal policies in particular. Indeed, given the mistakes of the past, it should probably be welcomed.

Banks: PTSB downgraded by Moody’s/Irish Life on ratings watch positive; Eamonn Hughes and Colm Foley of Goodbody comment - - "PTSB has been downgraded by Moody’s. The standalone rating of the bank is reduced from b3 to b1 and Moody’s has retained its negative outlook. Its long term deposit rating moved to B1 from Ba2 and the unguaranteed senior unsecured debt rating cut from Ba3 to B3.

The move reflects the challenges the bank still faces on returning to profitability and funding in the wholesale markets according to the agency with losses anticipated in 2013 and a return to profitability not yet in sight. Moody’s highlights the risks around the group’s restructuring plans and rising mortgage arrears. The concerns were mitigated to some extent by the high capital ratios at the banks with an 18% core tier 1 ratio.

Elsewhere, Fitch placed Irish Life on ratings watch positive following the acquisition by Great Western, indicating that the closure of the deal (subject to competition reviews) would likely improve Irish Life’s credit profile.
With a large tracker loan book, the margin continues to be pressured at PTSB. Whilst high reliance on monetary authorities provides some protection on funding costs, in due course, PTSB will fully wean itself from this support which will provide headwinds to margin progression and a profit recovery later than its peers."

Bank of Ireland: BOI moving to tackle its pension deficit; Eamonn Hughes adds - - "Press reports this morning indicate that BOI’s CEO wrote to staff yesterday outlining that “difficult choices and decisions” would be required this year to deal with the pension deficit at the bank. In June last year, the pension deficit was €1bn, but by the IMS last November this figure had widened to c.€1.6bn as bond yields continue to compress. The pension scheme covers 12,000 staff and comes after earlier attempts in 2010 and 2011 had reduced the deficit from €1.5bn to €0.4bn. Under existing capital rules the deficit is fully added back to capital though the new Basel III accord will require this add-back to be phased out over 2014-2018.

The €1.6bn figure grabs the headlines but was already flagged to the market in the November IMS and is reflected in our capital calculations. In the upcoming stress tests (in Q3) the bank will be required to outline its mitigation strategies for the pension deficit as it transitions to Basel III. However, any benefits to the capital position may come with some headwinds on the cost line for the bank."

US Markets

In New York Wednesday, the Dow fell 108 points or 0.77% to 13,927.

The S&P 500 slid 1.24% and the Nasdaq Composite slipped 1.27%.

Asia Markets

The MSCI Asia Pacific fell 1.5% Thursday having reached its highest level since August 2011 on Wednesday.

The Nikkei 225 dipped 1.39%; China's Shanghai Composite Index plunged 2.97%;  Korea's Kospi index dropped 0.47%; Australia's S&P/ASX 200 declined 2.33% and in Mumbai, the Bombay Stock Exchange's Sensex index slid 1.51%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is down 0.90% in early morning trading Thursday.

In Dublin, the ISEQ  is down 0.95%.

Grafton is off 3.32%.

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 $1.3204 and at £0.8696.

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 fell 3 points or 0.41 to 735 - -  the BDI is up 5.15% in 2013.

Crude oil for March 2013 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $93.75 down $1.47 from Wednesday's close. In London, Brent for February delivery is trading on the International Commodities Exchange at $114.43. 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 $1565.90 down $1.60 from Wednesday's close (markets were closed Monday) 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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