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News : International Last Updated: Jul 16, 2013 - 3:08 PM


Markets: ZEW Indicator of Economic Sentiment for Germany slightly down in July
By Finfacts Team
Jul 16, 2013 - 11:55 AM

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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).

The 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. Clemens Fuest.

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 6 months.

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 borrowing costs."

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."

US Markets

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%.

Asia Markets

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%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is down 0.27% in mid-morning trading Tuesday.

In Dublin, the ISEQ is  off 0.55%.

Elan is up 0.28%.


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 $1.3094 and at £0.8680.

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 2 points or 0.17% to 1,151.

Crude oil for August 2013 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $106.53 up 21 cents from Monday's close. In London, Brent for August delivery is trading on the International Commodities Exchange at $109.55.The North Sea benchmark accounts for two-thirds of the global market.

Finfacts, July, 15, 2013:  US West Texas Intermediate oil benchmark jumps in July - - margin between WTI and Brent falls.

Gold spot price

The spot price of an oz of gold is trading on the CME in Chicago at $1,283.20, down 20 cents from Monday's closing.

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

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