Good Afternoon ,
Another tough day in the markets , and the volatility shows no signs of abating... On the other hand there is uch talk of the VIX index having jumped but in reality the Vix index bottomed on October 21 and is back at levels which it has been at several times this year and these are incredibly low levels compared to the peak of volatility earlier in the year.
Warren Buffet is in the news today with his move to buy out the balance of Burlingtom Northern , a US railroad company , an investment shiwong his belief in the recovery potential of the US real economy. This has led to a rally in the Dow Transports sector but it has not stopped the Dow industrials sinking again on nerves ahead of the outcome of the US Federal reserve two day meetng which begins today. ...
The markets took no comfort from the further data which supported the ISM news of yesterday. This was the rise in US factory orders rising +0.9% in september. This was the fifth straight month of rises in this number and it was also ahead of the +0.8% consensus expectation.
In Ireland there was a surprisingly positive jump in consumer Confidence with the index which is compiled by KBC Bank and the ESRI, jumping from 49.6 in September to 54.2. This was the highest level since April 2008.
The Bank Sector across Europe had a tough day and the Irish Banks which are geared to this sector sentiment reacted very negatively with no new news in Ireland. The hand of the Eu in re shaping the competitive landscape of European Banking sector during this period in return for allowing state aid is making investors nervous. The UK banks Lloyds and RBS will be required to make divestments to meet EC requirements for state aid approval. The disposals are to include a significant proportion of retail and corporate banking assets over the next four years which at least allows some time to fid buyers rather than forced asset disposals. The other news was UBS which reported a massive loss and reported that the trend of significant withdrawals by High Net Worth clients will continue also spooked investors.
The details of the UK Banks re-structuring were initially received and the concept of contingent capital was digested but as the day wore on RBS which was initially up on the day fell to close -7% but Lloyds did close +2.74%
Lloyds will exit the APS and raise £21B of new capital including a £13.5B rights issue (of which the Treasury will subscribe for £5.7B net of underwriting fees, leaving its stake at 43%) and £7.5B of core capital/contingent core capital for the conversion of debt securities. It will also pay a £2.5B fee for the implicit protection received from Government support since the announcement of the APS. The capital moves take Lloyd's core tier I capital ratio to 8.6% from 6.3% and should the published core tier I capital ratio fall below 5%, then the conversion of the contingent core capital to common equity will be triggered. Lloyds is also increasing its capital target from a core capital ratio range 6% to 7% to more than 7%.
RBS will remain in the APS with RBS absorbing a higher first loss (now £60B from £42B) on a smaller pool of assets (£282B from £325B). The fees have been restructured and RBS will retain the tax losses it previously agreed to concede. The Government will inject £25.5B in capital into RBS in the form of B shares. A further £8B of contingent capital in the form of B shares will be available should RBS's core tier I capital ratio fall below 5%. The Government economic interest will be 84% in RBS with its common shareholding at 75%.
CRH was off by 1.2% today after results from Vulcan and Martin MArietta which were cautious about the speed of deployment of the Highway stimulus funds.
The market reacted to our and the other brokers cuts to Ryanair forecasts by ignoring them... a 37% cut in forecasts and the market ignores it shows just how mesmerising the management mantra is. Having discussed it again with our analyst , i am happy that our model is robust and that the assumptions are not deliberatley bearish or unreasonable..and the Ryanair mantra last articulated during the summer that nithe long run that Ryanair will earn about Eur10 per passenger is harder to believe. We are now forecasting Rya will earn operating profit per passenger of eur4.45 in FY2010 and that fgalls to 3.99 in FY11 before rallying in our model to 5.23 in FY12 and eur7.00 bu fy13 .... the eur10 isa long way out... You have to be more aggressive on yield to get to the Eur10 and look for a jump to Eur40 average fare from our Eur 32.90 forcast for this year.
So the multiples look expensive ... and the stock rallies...to Eur2.93. hmmmm it might be oversold but i think that there is no compelling reason to hang on here now.
One other component to the market action is the thesis being propounded by Nouriel Roubini that themarket really is a huge carry trade that is indanger of unwinding. His suggestion in a nutshell as I undersatnd it is that the rally has been funded by shorting dollars and buying risky assets and simply the dollar wont go to zero and when it turns there will be a massive liquidation of the other side of the carry trade as investors close their dollar short and sell the assets that have generated such high returns since March.
Elan was up slightly after J&J talked bulishly about its alzheimers programme and its collaboration with Pfizer.
We have Bank of Ireland results to Look forward to tomorrow It is not about the earnings numbers , it is about the loan loss provision guidance and news of NAMA progress and where their thought process is re capital raising. The Danske positive trend in Irish loan losses was also swept aside by the market today. I thought it was interesting that the Q1 736bp , Q2 683bp , Q3 633bp , while all large was heading sonewhat inthe right direction...
At 5pm . the Eurostoxx50 indexx is -1.8% , London is -1.32% and Ireland is -2.14%.
Have a good evening
Liam
___________________________________________
Liam Boggan
Merrion Stockbrokers
Tel.: 353-1-2404171
Mob:353-87-2313505
www.merrion-capital.comDisclaimer
www.merrion-capital.com/disclaimer.htmlMerrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.
No comments:
Post a Comment