Liams Last Post : Volcano provides respite for fliers, Markets continue to react to money market and currency instability

Good Afternoon ,

 

Well at least the weather continues to be good…and the volcano has started to emit steam… Mind you the comments from the Icelandic Volcanologist who said that there was no way of knowing whether the fact that the Volcano has ceased to emit more Lava and only emitting steam now is a sign that things have calmed down or a pause before another eruption of this volcano or its fiercer neighbour Katla is a bit like judging where the market is going here right now.  

 

It is in the near term though good news for the airline sector with Ryanair bound to also benefit from the BA cabin crew strike. The news of the pulling of the applications for extra runways at Gatwick and Heathrow has to be good news for Aer Lingus and will help preserve value at some stage for their Heathrow slot portfolio.  

 

I was on a rugby trip with my son to France and I am happy to report that at least one Irish team travelled to France and won this year. I was not around on Friday but was keenly interested in whether the support levels would hold. Friday was somewhat re-assuring this morning opened up ok but with volumes constrained by a lack of news and a holiday in Europe the positive start dissipated quickly.

 

The Irish Market looks like a fish hook today , the usual sucker rally in the afternoon after a bright opening and a steep fall ?  The irish financials prices are telling us that the good weather and more bullish corporate news flow will be short lived  as the prices are now definitely discounting the re-emergence of the credit crunch mark part 2 , this time with feeling and the taxpayer already on the hook for part one of the bailouts.  As one commentator put it NAMA which is effectively state owned is buying assets from another State owned disaster namely Anglo and the banks which are in the throes of the re-capitalisation process are relying on a pick up in the economy or a return to some degree of normality. A second credit squeeze could endanger the whole system and this is the fear that we have to deal with.  From an Irish point of view the authorities have made their bets and have to hope the world recovers…The real Question is whether the Germans are interested in re-assembling credibility in Humpty Dumpty as the Euro now looks like and if they hesitate , then they are inviting sustained attacks on the currency.   

 

Another thorn for the Irish banks is the EU machinations on Government Guarantees. In the paper the EU published last week ( And already not reflecting the realities of the market)  there was an emphasis on the general improvement in market conditions for funding and saying that the risks for financial stability at large have subsided, and the distortions of competition between those banks that issue guaranteed bonds but are not currently under restructuring obligations and those that issue strictly under market conditions has become greater. The EU prescribe  a) increasing guarantee fees in order to bring the funding costs of beneficiary banks closer to market conditions and thereby reduce distortions of competition and b) requiring banks that continue to heavily rely on government guarantees but are not under restructuring obligations to demonstrate their long-term viability to the Commission. The combined effect of these adjustments would be to incentivise the banks concerned to scale down or terminate their use of government guarantees and/or to require banks that cannot convincingly establish their long term viability to undertake the necessary restructuring to address their structural weaknesses.

 

AIB dipped into the Eurosaver menu territory again today…but closed at 1.04 , holding just a tad higher than the Euro level. The Bank of Ireland Nil Paids drifted after a really strong opening and the pre rights equivalent price now actually in the Euro saver league at 97.7c.

 

Tomorrow we get results from C&C which should be good and Greencore which likewise should have no negative surprises. I was dismayed by the performance of Greencore after their investor day as I had anticipated that this was and is a value play with a catalyst.  The market will be looking at the results closely and also for news about the execution of their US strategy.

 

Have a good evening.

 

Liam  

 

 

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Liam Boggan

　

Merrion Stockbrokers

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