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ISEQ higher as Fed action lifts markets

Friday, September 14 08:50:03

The ISEQ has joined the euphoria this morning and is trading at 3,300, up 38 points from yesterday's positive close. World markets liked what the Fed has planned in it's latest round of financial easing added to this week's announcement from the ECB, there seem to be few reasons for stock markets to fall. Davy Stockbrokers takes a broad look this morning:

The S and P 500 closed up 1.6pc following last night's announcement by the Federal Reserve of a third round of quantitative easing. The Fed will purchase $40bn of mortgage-backed securities on an open-ended basis, with chairman Ben Bernanke indicating that an ongoing, sustained improvement in the labour market will be required before a decision is made to halt QE3. This means that purchases could equal $480bn per annum, although with total purchases reaching $85bn a month in 2012 given the Fed's existing planned purchases of long-term debt under 'Operation Twist'.

US Treasury yields were little changed at 1.74pc at the close yesterday, although they briefly rose to a high of 1.82pc as markets digested the news that the Fed purchases would be exclusively of mortgage-backed securities. Stock index futures indicate that European indices should rise by more than 1.5pc when European markets open this morning. Yesterday's Irish Treasury bill issuance showed healthy demand, with the bid-to-cover ratio close to 3. The yield of 0.7pc was in line with the broader re-pricing of Irish sovereign debt in recent months. The cost of short-term Treasury bill issuance for Ireland is now approaching the levels seen in Italy and Spain.

The Irish CPI inflation rate rose from 1.6pc in July to 2.0pc in August, following a sharp 0.6pc rise in the index on the month in August. Higher home heating oil, petrol and diesel prices meant that the energy contribution pushed up sharply on annual CPI inflation. Following the summer sales, a 6.6pc rise in clothing and footwear prices also contributed to price pressures, partially offset by a 3.2pc fall in mortgage interest costs, following the ECB interest rate cut to 0.75pc. Unfortunately, further announced rises in electricity and natural gas prices should push up on prices in October and November. This means that CPI inflation will be stronger than we had expected, eroding Irish consumers' spending power heading into the final months of 2012 according to Davy Stockbrokers.