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ISEQ steady as Irish bonds improve

Thursday, October 11 09:03:07

The ISEQ is steady this morning at 3,243 following yesterday's fall although world markets are weak on concerns for growth and Spain in particular.

Ireland's bond yields fell again and Davy Stockbrokers examines this market this morning:

Stock markets closed down yesterday (October 10th): both the Euro Stoxx 50 Pr and S and P500 fell by 0.6pc. Poor results from Alcoa Inc. disappointed markets ahead of US corporate earnings season. Concerns on the global growth outlook continued to weigh on sentiment following the downward revisions to the IMF's world GDP forecasts, with fears accentuated by a contraction in Chinese car sales for the first time in eight months. Asian stocks declined overnight on the news that Standard and Poor's has cut Spain's debt rating to one level above junk, with European equity index futures indicating falls at the opening of markets today.

The bid price on the Irish 9-year bond yield fell 6 basis points to close at 4.95pc yesterday. Irish bond yields had increased slightly to a peak of 5.2pc in late September following the statement by the Dutch, Finnish and German finance ministers that legacy assets should remain the responsibility of national authorities. Markets had clearly interpreted the statement as reducing the likelihood of the ESM relieving the government of part of the E64bn cost of recapitalising Irish banks. However, this upward pressure on Irish bond yields has now fully unwound. With Irish 9 year yields now back below 5pc, the lows achieved in mid-September have now been surpassed.

That said, amidst thin trading volumes, Irish bond yields remain vulnerable to negative news. The market may not have fully priced in the apparent delay in achieving additional EU support on Ireland's promissory note payments and commitments that the ESM may take equity stakes from the government in Irish banks.

Investors dismissed some positive data on European industrial production yesterday. In contrast to manufacturing PMI survey readings well below the 50 'no change' level, both French and Italian industrial production rose sharply in August. Output rose 1.5pc and 1.7pc on the month respectively. In a slow day for macroeconomic data, markets may today focus on US initial jobless claims - expected to post a small rise from 367,000 to 370,000 according to Davy Stockbrokers.