Liams Last Post : Markets struggle, Irish Banks get pummelled, UK property revival, Ireland economic news...

Good Afternoon ,

 

Markets look a tad frustrated , I am beginning to suspect that the crowded trade is the long trade…but the cash keeps coming into the market… so betting against the cash flow is difficult

 

Clearly we are at a crucial point in the markets , with stocks having rallied and now an obvious Hiatus with corporate earnings being driven by re-stocking and by cost cutting rather than any end user demand. This needs to kick off soon or this rally may get into trouble. 

 

The strength of the Euro is putting pressure on Ireland and making it difficult for companies with Sterling exposure. The scale of the sterling and dollar moves have caught the markets by surprise with negative implications for earnings translation. As I type there is a TV in the background with CNBC talking to a currency analyst talking about the catastrophic trashing of sterling and assaying it is clearly being talked down by the UK authorities who seem to like the idea of a one to one parity. Sterling got to 98c against the Euro in January 4^th   

 

Gold is also the big and continuing story , hitting a high of $1065 , a record high

 

 In Ireland , the market suffered a mauling , especially the Financials with AIB -6% and Bank of Ireland -9%. While I was surprised there was no relief rally post the Green votes at the weekend , it is now clear that the next item on the agenda for the banks is the need to raise equity to rebuild their capital bases and it looks like there are investors taking money off the table at this point with a view to potentially getting back in when the fund raisings occur.

A further negative for markets in general was the news that the ZEW economic think tank's monthly economic sentiment index fell to 56.0 from 57.7 in September. The consensus forecast in a Reuters poll of analysts last week was for a rise to 58.3. A separate index measuring current business and economic conditions rose to -72.2 from -74.0.compared to expectations of  a -.69.0  number.

The ESRI , Economic and Social Research Institute has forecast that the economy may return to a very modest level of growth at the end of next year, but overall the economy will continue to decline. It has calculated that interest payments on Ireland's national debt will come to €3bn or 10% of total tax revenue this year.

The ESRI  said that the economy measured by GDP, will shrink by 7.2% this year and 1.1% next year, with the possibility of a return to only a modest level of growth towards the end of 2010.  The ESRI is forecasting unemployment to peak at 15% next year, which is slightly less pessimistic than its earlier forecasts. On housing, the ESRI is forecasting that ultimately prices may fall 50% from their peak.The ESRI points out a mismatch between available wage data and anecdotal suggestions of widespread wage cuts and says there is a question mark over what extent Ireland's competitiveness is really getting a boost.  Nothing to smile about here…

On bit of good news for INM was the announcement from APN the Australian associate of INM said that profits would be in line with expectations. "Overall trading continues to show improvements, especially in publishing and outdoor and although, as should be expected, some weeks remain inconsistent, we are pleased to see overall quarter four trading returning to normal trends," said chief executive Brendan Hopkins.

Of relevance for Elan , J&J issued Q3 results and a conference call and Q&A session this afternoon (Irish time). Whilst the Elan deal was mentioned along with other investments made during the period, very little additional information was provided. Management stated that they would continue to invest in bapineuzumab development (without mentioning other drugs in the pipeline – such as ACC-001 but we assume nothing sinister here, more perhaps an oversight or for the sake of brevity). In general, asked about future investments, management indicated that they are attracted by the kind of deals they have done recently, those where a company has developed a new technology and J&J feels it can exploit that technology better than the initial developing company.

Our paper sector analyst commented re Smurfit Kappa this morning that the €50 increase achieved in September and the planned October increase reflects an impressive supply side response from the industry to reduce inventories in Europe. If the October increase is successful, it will be more difficult for supply actions to push prices further as prices would return above cash production costs (reducing the incentive to take market-related downtime and to close inefficient capacity). In addition, export markets will become less attractive for European producers (and conversely Europe may become a target for importers, particularly with the weak dollar). Therefore, a return to demand growth is likely to be required to sustain upward price moves.

And a positive snippet from UK housebuilder Bellway who noted that since the beginning of August, the market has remained incentive led but reservations are +58% yoy. It added that while the pace of recovery is still uncertain, with lack of mortgage availability and potential rising unemployment remaining a threat to consumer confidence, it is looking to selectively increase its WIP and its land bank.

A further positive for the UK property market was with the publication of the Royal Institute of Chartered Surveyors (RICS) housing market report for September shows that the number of respondents reporting price increases exceeded those reporting decreases by 22 percentage points, an increase on the 10 percentage point difference in August.

After a dull day in the market with stocks really struggling , , Wall street enters positive territory after Europe closes ,  the big earnings number tonight is INTEL , that will set the tone for the next few days.

And to actually make you smile I send you this link to the AIB Schools build a bank competition….its for real….a bit rich given the lads struggle to run their own… and their track record makes them surely unable to judge the winners of this competition. Actually the regulator should properly ban them from running the competition…

http://www.aib.ie/servlet/ContentServer?pagename=PressOffice/AIB_Press_Releas/aib_po_d_press_releases-0_08&cid=1255005442865&poSection=HO&poSubSection= &position=first&rank=top

 

Have a good evening

 

Liam

 

 

 

 

 

 

 

 

 

 

___________________________________________

Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

Mob:353-87-2313505

www.merrion-capital.com

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