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