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News : International Last Updated: Apr 16, 2013 - 2:45 PM


Markets: Brent North Sea crude oil benchmark dips under $100 a barrel
By Finfacts Team
Apr 16, 2013 - 12:19 PM

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BP's Andrew platform in the North Sea

The price of a barrel of Brent crude oil dipped below $100 for the first time in nine months Tuesday as a selloff that began Monday continued. Brent, produced in the North Sea, is the world's leading crude oil benchmark (see below).

Oil's drop which saw the front-month Brent crude oil contract on London's ICE futures exchange down 72 cents at $99.91 a barrel in morning trading, following a sharp fall in the price of gold and other precious metals in recent days and a wider drop in commodity prices that has affected everything from agricultural commodities to copper prices.

The front-month May light, sweet crude contract on the New York Mercantile Exchange fell 47 cents lower at $88.31 a barrel.

Gold had its biggest one-day percentage drop in 30 years Monday as new signs of a global economic slowdown emerged and fears abated that central banks' easy-money policies would stoke inflation.

The Wall Street Journal said gold futures for April delivery fell $140.40, or 9.4%, Monday to a two-year low at $1,360.60 an ounce on the Comex division of the New York Mercantile Exchange. That extended their bear-market descent of more than 20% from their 2011 all-time high. Since Thursday, gold prices have declined by more than $203 an ounce, a record skid since the futures began trading in the U.S. in 1974.

The Dow Jones Industrial Average marked its worst one-day point decline since Nov. 7, 2012, dropping 265.86 points, or 1.8%, to 14599.20.

Danone, the French food and drinks group, said today that sales revenues rose 4.3% in the first quarter of the year, driven by growth in emerging markets.

The company reported €5.3bn in revenue in the three months from January to March.

Sales were strong in Asia, Latin America, the Middle East and Africa, where revenue grew 13.2%.

However, almost 40% of Danone's sales comes from Europe, where the struggling economy has hit retailers. Sales fell 5.2% there in the first quarter.

Food & Beverages Positive Q1 from Danone, Givaudan and Carr’s Milling: Liam Igoe and Patrick Higgins of Goodbody commented - - "Danone reported 5.6% organic growth in sales in its Q1 trading update this morning, which included a 3% lfl volume growth (vs 2.6% expected). The company reaffirmed its full-year target of over 5% sales growth. Product-wise, the baby nutrition business was the stand-out feature with lfl sales growth of 17.1% (including lfl volume growth of 7.8%) driven partly by booming sales in Asia-Pacific, while medical nutrition lfl sales were up 6.3%. The fresh dairy products area saw only modest growth (+0.7% in value terms and +0.5% by volume). Geographically, Europe was weak (-3.8%) but growth was robust elsewhere and strong in developing markets (+16.6% by value, +8.2% by volume).

Givaudan, meanwhile, reported lfl sales growth in Q1 of 3.9% including 3.7% in its Flavour Division. Growth appears to have been fairly well distributed across all regions and beverage, dairy, snacks and sweet goods gaining due to new business wins and existing portfolio growth.
Carrs Milling reported an 18.1% rise in its revenues and 36.2% increase in pre-tax profits in its interim results this morning. The key driver of growth was the positive performance within agriculture (+17.8% revenues) where animal feed sales in the UK were very strong due to the adverse weather conditions since last autumn.

The Q1 updates from Danone and Givaudan provide a fairly robust start to the reporting season from the food sector. Danone’s strong lfl growth in its nutritional products sets a positive backdrop for Glanbia whose main products areas are within the nutritional space, including infant formula nutrition (though mostly sports nutrition). Givaudan’s positive start set a positive tone for Kerry’s ingredients prospects (we look for over 5% lfl growth in Kerry ingredients in FY13). Carrs Milling comments will have a positive read-through for Origin’s animal feed business, although the poor weather has also offset these gains within AGRII due to the reduced level of winter cereal plantings in the UK."

Justin Doyle, Investec Bank Ireland, said today:

  • "What had already been a pretty bad day in the markets morphed into a very sad day generally as the terrible news broke last night of the double Boston bombings;
  • Prior to the news of the bombings, gold had just posted its largest single day fall in just over 30 years. Since Friday morning, it has fallen almost 14% with 9% of that drop occurring yesterday and as usual a lot of players are scratching their heads and the conspiracy theorists are out in full force;
  • It seems however the massive drop is due to several different factors: All time high long gold speculative positions, talk of Cyprus selling their gold reserves to aid bailout pressures, weakening Chinese demand and key technical support levels being broken which exacerbated the move;
  • So as commodity prices and equity indices began to wobble so too did the commodity/risk currencies with cross yen pairs taking the biggest hit of all yesterday and overnight. The Australian dollar and the South African rand fared particularly poorly overnight."

Economic View 1: Growth in incomes should support consumer spending; Dermot O'Leary, chief economist of Goodbody, comments - - "With a pick-up in employment and earnings, total household disposable income rose last year in Ireland for the first time since 2008. These are the results of the latest Quarterly Institutional Non-financial accounts and will come as a surprise to some given the difficulties still being experienced by households in Ireland.

For the year as a whole, nominal household income rose by 2.5% to €86.3bn in 2012, helped by an increase in wages paid to employees and the earnings of the self-employed. While disposable income rose by €2bn, consumer spending only grew by €400m, meaning the rest went into savings (which includes paying down debt). As a result, the savings ratio rose from 11.4% in 2011 to 13.3% last year.

Unfortunately, these data say nothing of the distribution of earnings in the Irish economy. It is likely that a significant proportion of the population is still experiencing declines in incomes due to either reductions in wages or cuts to social welfare payments. However, there are segments of the population where the situation is improving. We have seen this in the growth in some sectors of employment, while upward wage pressures also exist despite a very high unemployment rate overall.

As with all Irish data, the devil is in the detail. Nevertheless, the growth in disposable income is to be welcomed and should at least support the signs of stabilisation in consumer spending that started to emerge in the second half of 2012."

Economic View: Croke Park II vote on a knife-edge; Dermot O'Leary added - - "The results of the vote on the Croke Park II Agreement (agreement between unions and the government on further pay reductions) will be known tomorrow. According to media reports this morning, the vote is extremely close, with a chance that there is a tie.

The Government has said it will legislate for pay cuts if there is no agreement, as it has agreed with the Troika that it would make the required savings over the period to 2015. See our note this morning for more details."

Banks: KBC Ireland parent injects some capital in Q1: Eamonn Hughes and Colm Foley of Goodbody commented - - "KBC Bank Ireland has received €125m of capital from its parent in Q1 (according to filings in the company’s office according to the Irish Independent) to expand its business here. The bank has indicated that the injection is not to replenish its capital base but to allow investment in the business, noting its tier 1 capital ratio was a reasonable 11%+ last December. KBC has a c.10% share of the Irish mortgage market, with about €16bn of loans in total. Last year, the bank lost over €300m with the loss (driven by €550m of impairments) about 14% wider than the prior year. At the turn of the year, the bank announced plans to open new branches and expand its retail offering in Ireland.

The tier 1 ratio of 11%+ at KBC compares to 15.1% at AIB and 14.4% at BOI at the end of 2012, so it is still lower than peers. We expect these latter figures to continue to erode from losses in 2013 and whilst KBC is indicating the capital injection should foster investment in the business, it would also potentially be available to absorb losses should they materialise in 2013, similar to the forecast outturn for the main Irish banks."

Irish household savings remain high: Conall Mac Coille, chief economist of Davy, comments - -  "Stock markets fell sharply yesterday following poor Chinese GDP data. Today's ZEW investor sentiment survey and US housing starts data could have a significant bearing on investors' faith in the global recovery. In Ireland, income data indicated that the gross savings rate rose to 12.5% in 2012, up from 10.7% in 2011. Nominal wage growth per head in 2012 was 1.7%, the strongest since 2008, up from 0.5% in 2011.

Irish household savings rise in 2012

Stock markets continued to fall yesterday – the Euro Stoxx declined 0.3%, with the DAX down 0.4% and the CAC40 down 0.5%. The S&P500 fell by 2.3%. The catalyst was poor Chinese growth numbers. Chinese GDP grew by 1.6% in Q1 2013, well below analysts' expectations for 2% growth. Furthermore, industrial production in March grew by 9.5% year-on-year but below the 10.1% expected.

Today's macroeconomic data could have a significant bearing on investors' faith in the global economy. The German ZEW survey for April will be the first to illustrate the full impact of the Cyprus banking fiasco on investor confidence. The US housing starts release is expected to rise to 930,000 in March, up from 917,000 in February. Should housing starts disappoint, investors may question the self-sustaining nature of the US recovery. That said, CPI inflation is expected to fall back to 1.6% in March. This may alleviate fears that the US Federal Reserve may curtail its QE programme in the near future.

Irish income data released yesterday indicated that the gross savings rate rose to 12.5% in 2012, up from 10.7% in 2011. Nominal wages per head grew by 1.7% in 2012. This is the strongest growth in wages since 2008 and follows 0.5% growth in 2011. Consumer prices rose by 1.8% in 2012, so real wages still fell marginally despite 1.7% wage growth. That said, the recent decline in Irish CPI inflation to just 0.5% in March indicates that there will be less pressure on households' spending power from price pressures in 2013. Overall, yesterday's data indicated that Irish households continued to pay down debt at a sharp pace in 2012, reducing their consumption, despite positive wage growth."

US Markets

In New York Monday, the Dow fell 266 points or 1.79% to 14,599.

The S&P 500 slid 2.30% and the Nasdaq slipped 2.38%.

Asia Markets

The MSCI Asia Pacific fell 0.5% in Tokyo Tuesday.

The Nikkei 225 dropped 1.55%; China's Shanghai Composite Index fell 1.12%; Korea's Kospi dipped 0.21%; Australia's S&P/ASX 200 declined 0.91% and in Mumbai, the Bombay Stock Exchange's S&P BSE 100 index rose 0.52%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is off 0.80% in mid-morning trading Tuesday.

In Dublin, the ISEQ is down 0.65%.

CPL has fallen 5.77%.

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 $1.3105 and at £0.8562.

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 Monday, the BDI rose 1 point or 0.11% to 876 - - the BDI is up 22.89% in 2013

Crude oil for May 2013 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $88.31 down $27 cents from Monday's close.. In London, Brent for May delivery is trading on the International Commodities Exchange at $99.91. 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 $1385.30 up $24.70 from Monday's closing in New York.

Gold had hit a record high of $1,921.05 a troy ounce on Sept 06, 2011.

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