Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 23/7/11

with 4 comments

I’ve been in the UK for the past two days so this blog is really more of a catch-up on what has been catching my attention over that period.

 

The main news really has been the EU summit. The Irish Times’ Dan O’Brien has a good piece about it here which broadly mirrors my views on the matter. Despite the fact that it does little to address the fundamental causes of peripheral Europe’s problems, it does make life easier for all of them, including Ireland, and it would be disingenuous not to say that. However, this positive development should not induce people to lose track of reality. The estimated savings for Ireland, which total up to €1bn per annum, amount to less than one-tenth of the €10.8bn Exchequer deficit in the first six months of 2011. And don’t forget that our vast Exchequer deficit is being funded by more borrowings, the interest costs on which will erode the savings achieved as a result of the summit over time. One or two misinformed people have argued with me that this development vindicates Enda Kenny and the Irish government’s “negotiating tactics”, but this claim ignores the facts that the European authorities only decided to bolster the peripherals’ economies after a renewed crisis in Greece and soaring Spanish and Italian bond yields raised a clear threat of contagion across the bloc. Our “victory” is nothing more than a by-product of the Greek mess – for months Irish politicians had lobbied for a reduced interest rate only to run into a Gallic brick wall. It was only when Greece blew up again that this reduction happened. To suggest otherwise is naive at best. In terms of a top-down view of the agreement, Bloomberg has a decent summary here.

 

(Disclaimer: I’m a shareholder in Smurfit Kappa Group plc) This has had a positive effect on equity markets, with the makings of a relief rally firmly in train. I was pleased to see my punt on an “amend and pretend” deal giving comfort to investors, Smurfit Kappa Group, see its share price jump almost 10% in the past two days. I am a little fearful that this gain will be eroded if the US debt talks don’t get revived – but I emphasise the word “little”. I imagine that the GOP, which has no credibility in my eyes when it comes to the deficit, is simply playing politics with this. Time will tell.

 

I’m surprised by how little attention Cyprus is receiving following the destruction of the island’s largest power station and resulting economic catastrophe. Its economy is also heavily exposed to Greece. What an awful situation its people find themselves in.

 

In terms of corporate newsflow, I see that Express Scripts has made a $29bn bid to acquire Medco in the United States. I wonder if this will have any impact on Medco’s joint venture with Ireland’s United Drug plc, which is an exciting business targeting the nascent homecare market in the United Kingdom. This is an industry with strong structural growth potential – treating people with long-term conditions at home wherever possible is clearly more cost-effective than putting people into hospital, and with a growing elderly population in the developed world expect to hear lots more about this industry over the coming years.

 

(Disclaimer: I’m a shareholder in BP plc) I was pleased to see BP’s share price close at the £4.70 mark for the first time since April. Sentiment towards the stock has been helped by government approval of its $7.2bn deal in India and also rumours of a legal settlement with Anadarko over the Macondo well. I have previously blogged about how settlements of this kind can act as a catalyst for the share price so this should come as no surprise to regular readers of this blog.

 

Finally, this is my last blog before heading off on my honeymoon. I will return in mid-August. Thank you for reading my musings over the past few months and I look forward to sharing more with you (!) after I get back to Ireland.

Advertisements

Written by Philip O'Sullivan

July 23, 2011 at 1:05 pm

4 Responses

Subscribe to comments with RSS.

  1. Is it a ‘victory’ if you’re merely regaining ground that should have never been conceded in the first place?
    Anyway, thanks for that, every little bit helps, as the oul’ wan said pissing into the waves in Ballybunion.

    Diarmuid O'Flynn

    July 23, 2011 at 1:51 pm

  2. There’s a reason why I have the word victory in inverted commas 😉

    Philip O'Sullivan

    July 23, 2011 at 2:00 pm

  3. […] […]

  4. […] as an aside, regular readers will recall that I mentioned Cyprus’ problems last month. S&P placed it on credit watch negative on Friday, meaning that a downgrade is likely in the […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: