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Angela Merkel, German chancellor, in her summer interview with the ARD television channel, Berlin, Sunday, July 14, 2013. The Reichstag building is in the background. The burning of the parliamentary building on February 27, 1933, paved the path to power for Adolph Hitler.
The ZEW Indicator of Economic Sentiment for
Germany has slightly declined in July 2013. The indicator has fallen by 2.2
points compared to the previous month and is now hovering at the 36.3
points-mark (historical average: 23.7 points).
Centre for European Economic Research (ZEW
- - Zentrum für Europäische Wirtschaftsforschung) in Mannheim is a nonprofit and
independent institute. It was founded in 1990 on the basis of a public-private
initiative in the federal state of Baden-Württemberg in co-operation with the
University of Mannheim.
"The financial market experts stick to their
overall positive forecast. This illustrates their confidence in the robustness
of the German economy despite the rather weak figures concerning industrial
production and foreign trade released recently," said ZEW president Prof.
The assessment of the current economic situation for Germany has improved
slightly in July. The respective indicator has increased by 2.0 points and now
stands at the 10.6 points-mark.
Economic expectations for the Eurozone have slightly improved in July. The
respective indicator has increased by 2.2 points to 32.8 points. The indicator
for the current economic situation in the Eurozone has also improved and now
stands at the minus 74.7 points-mark (up 4.8 points).
256 analysts participated in the July-survey which was conducted during the
period 7/1-7/15/2013. Analysts were asked about their expectations for the next
Focus on US and UK CPI inflation numbers
today; Conall Mac Coille, chief economist at Davy,
comments -- "DAVY VIEW: Stock indices made small gains on Monday: the Euro Stoxx
50 closed up 0.4% and the S&P500 0.1%. Sentiment was helped by the release of
Chinese GDP in Q2 2013 at +7.5% year-on-year, in-line with expectations and
offsetting a weak US retail sales number. The focus today is on inflation, with
both the UK and US reporting CPI numbers for June.
Focus on US and UK CPI inflation numbers today
Stock indices made small gains on Monday: the Euro Stoxx 50 closed up 0.4% and
the S&P500 0.1%. Sentiment was helped by Chinese GDP data coming in at +7.5% yoy
in Q2 2013, in-line with expectations. Better-than-expected earnings from
Citigroup helped to offset a poor US retail sales number for June – up 0.4%
against 0.8% expected.
Today the focus is on UK and US CPI inflation releases. US CPI inflation is
expected to fall back to 1.6% in June – perhaps encouraging investors to
question whether the Federal Reserve will taper back its $85bn asset purchases
in September. Indeed, on Friday, St Louis Fed President James Bullard indicated
that the Fed may need to act should inflation weaken further.
UK CPI inflation is expected to rise to 3% in June, up from 2.7%, as a big
decline in May last year falls out of the annual comparison. Should CPI
inflation rise above 3%, new Bank of England Governor Mark Carney will be forced
to write a letter to the Chancellor explaining the deviation in inflation above
the 2% target. That said, many indicators of UK price pressures have been weak
of late. For example, the British Retail Consortium’s measure of shop price
inflation showed deflation in June for the first time since 2007. So today’s
release could still show UK CPI inflation remaining below 3%."
Éanna Black, Investec Ireland, said today:
"The latest Central bank surprise came
overnight as the RBA in Australia was much less than dovish than expected,
stating the “…current stance of policy to be appropriate for the time
being”. Before the announcement the market had priced in a further 50bp of
cuts by Q1 2013;
It’s beginning to feel like we have once
again entered a soft patch of economic development. China, Europe and
Australasia are all battling and should the U.S. economy also fail to
deliver (such as yesterday’s retail sales data) then the low rates for long
scenario may remain in place for an extended time;
While we await Bernanke and BOE minutes
tomorrow, today we have the German ZEW index, Italy’s trade balance and UK
and US CPI’s."
Aer Lingus sees its funding plan for
IASS pension scheme rejected by the Pensions Board
The Pensions Board has rejected proposals agreed by Aer Lingus, the DAA and its
unions to address the €750m deficit of the Irish Airlines Superannuation Scheme.
It appears that the Board is not satisfied with the duration required (70 years)
before the scheme would meet the minimum funding standard. However, the Board
did say that it was broadly happy with other aspects of the proposal and
believes that they could constitute a reasonable basis for a recovery plan. It
remains to be seen whether the problem is a technicality concerning the outgoing
scheme, which can be ironed out, or something more significant. Aer Lingus and
the DAA have sought an immediate meeting with the pension trustees to clarify
this announcement. This is obviously a setback for Aer Lingus, but it is
difficult to gauge the extent of the setback at this stage. So far Aer Lingus
has indicated that it would invest €110m into the scheme and another €30m would
be allocated for deferred members. Aer Lingus is likely to update the market
once it has made contact with the trustees.
Economic View: EFSF downgrade to have little impact; Dermot O'Leary,
chief economist at Goodbody, comments -- "Fitch became the last of the three
large ratings agencies to cut the rating of the original European rescue fund –
the EFSF – last night. The move to downgrade to AA+ became inevitable following
the downgrade of France to AA+ last week. This is because the EFSF rating relies
on the irrevocable and unconditional guarantees and over guarantees provided by
euro area member states. The move by Fitch is, in effect, just catching up with
the other ratings agencies, with S&P and Moody’s already having downgraded the
agency to their second highest rating in 2012.
Markets are unlikely to be fazed by this latest
development. EFSF yields have moved very closely with French yields and will
continue to do so given that its rating will continue to be closely tied in with
that of France. After reaching lows in early May, EFSF yields rose significantly
in both May and June. Taking the 2021 bond, the yield moved from a low of 1.4%
to a recent high of 2.1%, but has since fallen to 1.8% in the past two weeks.
French yields have moved in tandem.
As part of Ireland’s financial programme with the
IMF/EU, €17.7bn in loans were agreed with the EFSF. To date, €15.1bn of these
loans has already been drawn down. These loans now have an average maturity of
20.8 years following the recent agreement on extension. With interest rates will
relatively low, this latest ratings move will have very little impact on Irish
Banks: S&P claim code on mortgage arrears will speed up repossessions;
Eamonn Hughes and Colm Foley of Goodbody comment - - "A report out from S&P
yesterday has claimed the revised code of conduct on mortgage arrears will lead
to an increase in the speed of repossessions. The new code took effect 2 weeks
ago and enables banks to chase borrowers in arrears in a more meaningful manner.
The report highlights the reduced grace period before lenders can start
repossession proceedings and should slow the pace of the rise in mortgage
arrears. The report also notes that rising repossessions could increase the
housing supply leading to a fall in house prices in the short term.
We would agree with S&Ps assessment on mortgage
arrears, with our expectation that arrears will peak in owner occupier this
summer and buy to lets by year end. With regard to repossessions the revised
code of conduct has set out clearly defined standards for lenders and should
help to establish the 'can’t pay' from the 'won’t pay' inevitably leading to
house repossessions, which have been very low to date."
In New York Monday, the
Dow rose 20 points or 0.13% to 15,484.
The S&P 500 gained 0.14%;
the Nasdaq added 0.21%.
The MSCI Asia Pacific
Index rose 0.5% Tuesday.
Japan's Nikkei 225 advanced 0.64%; China's Shanghai Composite added 0.31%;
Korea's Kospi index dipped 0.47%; Australia's S&P/ASX 200 gained 0.10% in Mumbai,
the Bombay Stock Exchange the S&P BSE India Sensex Index dipped 0.87%.