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News : International Last Updated: Sep 10, 2013 - 8:02 AM


Markets: Banque de France revises growth up slightly; Japan in big revision of Q2 2013 growth
By Finfacts Team
Sep 9, 2013 - 2:21 PM

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Shinzo Abe, Japan's prime minister, celebrates in Buenos Aires, Saturday, Sept 07, 2013, the award of Tokyo as the site of the 2020 Summer Olympic Games. It last hosted the games in 1964.

Reuters says the Tokyo bid committee estimates the world's third-biggest economy will get a boost of more than ¥3tn yen ($30bn) with the creation of 150,000 jobs. The Nikkei stock index gained 2.5% on Monday, while some analysts predict a short-term boost of 10%. The examples of the London and Athens suggest a one- to three-month rally after winning the right to host the games.

The Banque de France, France's central bank, today raised it estimate of third quarter growth to 0.2% from 0.1% while in Tokyo, the Cabinet Office announced a revision in April-June GDP (gross domestic product) to an annualized 3.8% expansion from a preliminary 2.6% increase.

France's central bank said August saw another slight rise in industrial production in most sectors, notably in electrical and electronic equipment, chemicals and pharmaceuticals. Deliveries increased, leading to a fall in inventories of finished goods, which are now deemed to be at appropriate levels.  New orders improved and order books are no longer shrinking.

Commodity prices have been rising for two months while prices of finished goods have remained stable. There was also a pause in the decline in staff levels and cash positions continued to improve.

The bank said an acceleration of the industrial activity is expected for September.

In services, activity improved, driven by a rebound in the transport services, hotel and catering, and architecture and technical engineering sectors. Temporary work increased slightly and staff levels rose and prices stopped contracting.

Cash positions continued to improve and business managers expect services activity to continue expanding in September.

In Japan, on a quarter-to-quarter basis, GDP growth was revised up to a 0.9% increase from a preliminary 0.6%, with the help of rising capital expenditure.

At the weekend, Japan was boosted by the selection of Tokyo as the site for the 2020 Summer Olympic Games.

Almost six out of ten loan applications made by small businesses in the last three months were turned down by the main banks, according to a survey by the Irish Small and Medium Enterprises Association. ISME’s Quarterly Bank Watch Survey shows that 57% of funding applications made in the past quarter were refused, up from a rejection rate of 44% seen in the last quarter.

The survey also found that, on average, the length of time it took for a decision to be given by a bank had increased from four weeks to five. However 14% of initial bank decisions were made within one week – a 1% improvement on the previous quarter.

More than 1,020 owner-managers of SMEs responded to the survey, which represents 14.7% of those asked.

Banks: Latest SME survey shows lending tightens further; Eamonn Hughes and Colm Foley of Goodbody commented  -- "In its latest quarterly survey of SME lending activity, ISME (the Irish Small and Medium Enterprises Association) reports that the rate of loan refusals moved up from 44% to 57% over the past three months. The survey of over 1,000 SMEs also indicated that demand for bank credit dropped from 41% to 36% in the same period.

The uptick in refusals reverses earlier positive trends, so will be seen as a disappointment and highlight the ongoing weakness in the domestic economy, the key driver for demand in the SME sector.

Escher Group H113 results, pipeline encouraging; Rachael Cairns of Goodbody commented  -- "Escher Group has reported H113 results this morning with group revenue +48% yoy to $12.9m and EBITDA (company definition) +28% to $2.4m, both in line with guidance given in its trading statement at the end of July. Adj. EPS was 3.9c, down 14% yoy and behind our 4.1c estimate.

Licence revenue came in at $2.6m, +58% yoy and 21% ahead of our forecast due to more licence revenue coming in from the USPS contract from implementation stage than what we forecast. Maintenance revenue was +3.5% yoy, largely in line with our forecast and support revenue +2.5% yoy to $1.5m was behind our estimate of $2m. On the services line, revenue was +103% yoy to $6.1m, marginally ahead of our $6m estimate. This was driven by the services revenue coming in from the USPS contract implementation.

The statement highlights that the group’s financial performance for the year is largely dependent on the recognition of licence revenue coming from the USPS contract ($8m approx. due in H2). It notes that progress is continuing and as previously guided it is expected that rollout will commence later this year.

The group notes that a number of post offices are going to tender or are entering preliminary discussion stages, which provides a positive backdrop for growth in its Riposte product. In RiposteTrex, management notes that it has seen significant interest and activity in 2013 with the group short-listed for a number of eGovernment tenders. It expects that these projects have the potential to generate revenue in 2014 but will require further investment in the medium term. The statement notes that the group is looking at eight or nine opportunities in this area compared with one or two a year ago.

We are unlikely to make any significant changes to overall forecasts this morning apart from some small changes to the mix. We would note that the risk to forecasts for 2014 and beyond remains to the upside given a healthy pipeline across both Riposte and its interactive products (Trex and NFC). Based on our forecasts, the group is currently trading at 28% below our 330p price target.

Economic View: Government to ease back on €3.1bn austerity measures; Dermot O'Leary, chief economist of Goodbody said - - "It appears that the Irish government will go against the wishes of the Troika in next month’s budget by targeting a lower consolidation than the €3.1bn previously laid out.

Yesterday’s Sunday Business Post revealed that while the final amount is not yet finalised, both parties within government have agreed that the scale of austerity to be introduced in 2014 will be less than previously set out. Fine Gael has laid out a preference for an adjustment of €2.8bn, while Labour is pushing for €2.5bn. Given how politics work, it is likely to be somewhere in between the two.

While the Troika would have preferred Ireland to stick to its original targets, we doubt that a change of €400m or so will cause too much consternation. In our view, the decision to ease the amount of austerity for 2014 is the correct one. Our forecasts put the deficit at 4.3% of GDP if the government went ahead with the €3.1bn adjustment, giving €1.3bn of headroom to the 5.1% of GDP Troika target for next year.

From a market point of view, there are important milestones to reach next year. Hitting a budget deficit target of 5.1% of GDP is not one of them. However, a headline deficit of below 5% should be set: (i) getting below that psychological level is important, and; (ii) such an achievement would mean that Ireland moves into a primary surplus.

There is likely to be much more speculation on the budget over the coming weeks. The debate now will move on to the make-up of the adjustment. As we laid out in our Q3 Health Check, an increase in capital spending would be welcomed, especially in light of the persistent underspend in this area in the year to date."

Improving European cycle helping Irish industry: Conall Mac Coille, chief economist of Davy, comments  -- "Equities gained on Friday: the Euro Stoxx 50 rose 1.0% but the S&P500 was flat on the day. US non-farm payrolls rose by 169,000 in August, weaker than expected, raising doubts on whether the Fed will taper its $85bn monthly asset purchases at its September meeting. However, risk appetite was held back by comments from President Putin that Russia will help Syria should it be attacked. Having broken through 3% in early trade Friday, US bond yields fell back, closing at 2.92%. Similarly, German bund yields fell to 1.96%, having risen above 2% on Thursday.

Overnight, Japanese GDP growth in Q2 2013 was revised up to 0.9%, mainly due to stronger business investment spending (+1.3% versus the 0.1% contraction estimated previously). The news that Tokyo will host the 2020 Olympics, together with encouraging Chinese trade data (exports up 7.2% yoy in August), buoyed sentiment in Asian stock markets overnight. The Nikkei gained 2.5%. However, European stock index futures point to only small gains at the open today.

UK manufacturing output rose by 0.2% in July following a 2% gain in June, up 0.9% three-month on three month. However, there was a sharp deterioration in the UK trade balance to £3.1bn in July, driven by a 16% fall in goods exports to non-EU countries.

Irish industrial output fell by 8.7% on the month in July, reversing the 9.3% rise recorded in June. These volatile movements in output reflected the multinational sector, down 9.0% on the month. In contrast, traditional sector output fell by just 1.9% in July, albeit still up 0.1% three-month on three-month and by +1.6% on the year. The traditional sector accounts for around one-third of industrial output but two-thirds of aggregate employment.

The underlying picture is that an improving European industrial cycle is now feeding through into better conditions for Irish manufacturers. European industrial production recorded its first annual rise in June 2013 for almost two years. Output in the Irish traditional manufacturing sector has now started to expand, in tandem with improving European conditions. This suggests Irish industrial employment is likely to expand further, contributing to the broader recovery in the labour market.

Asia Markets

The MSCI Asia Pacific Index climbed 1.4% Monday, as Japanese shares gained to a one-month high after Tokyo won its bid to host the 2020 Olympics.

Japan's Nikkei 225 jumped 2.48%; China's Shanghai Composite rose 3.39%; Korea's Kospi index gained 0.99%; Australia's S&P/ASX 200 added 0.71% and in Mumbai, the Bombay Stock Exchange the S&P BSE India Sensex Index climbed 1.53%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is down 0.28% in mid-morning trade Monday.

In Dublin, the ISEQ is down 0.06%.

CRH is up 0.53%.

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 $1.3190 and at £0.8414.

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 Friday the BDI rose 73 points 5.71% to 1,352.

Global rebalancing — the tanker scrapyard index?

Crude oil for October 2013 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $110.08 down 45 cents from Friday's close. In London, Brent for October delivery is trading on the International Commodities Exchange at $115.45. 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 $1,387.90 up $1.20 from Friday's closing.

Gold had hit a record high of $1,921.15 a troy ounce on Sept 06, 2011.

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