Political turmoil fails to hit ISEQ
Published 25/01/2011 | 05:00
Political instability failed to dent the performance of Ireland's stockmarket yesterday, even though there was concern the Finance Bill might not get passed and Ireland would slip into a deeper crisis.
The ISEQ was up 1.68pc on the day to close at 2893,37; and CRH, who was up 2.98pc, was one of the biggest gainers. Signs of faster economic growth in the US are boosting CRH, which draws a significant chunk of its profits from North America.
AIB, for its part, raised precious capital from a debt buyback, but the share will soon leave the main exchange as the capital call imposed on the bank simply becomes too large.
Meanwhile, the bond markets reacted with indifference yesterday to the collapse of the government coalition over the weekend, signalling that investors still expect the Finance Bill to be passed before the election.
There was no rush for pension funds and other investors to ditch Irish bonds with 10-year yields hovering at around 575 basis points above German bonds.
A technical glitch at one stage during trading appeared to send yields surging but it later emerged that this was a mistake. The cost of insuring the country's debt against default edged up just 3bps to 600bps.
"There's a general conviction that whoever is in charge in Ireland will abide by the agreements set out with the EU and the IMF. There's a consensus view within Ireland that something has to be done, that there needs to be an austerity policy," said Kornelius Purps, a strategist at Unicredit in Munich.
The calm response to the crisis in the bond markets was a continuation of last week's trading when Irish bonds moved in tandem with international events rather than events closer to home. The indifference suggests that most dealers believe an early election won't derail the €85bn bailout plan.
Austin Hughes, chief economist at Dublin-based KBC bank, said the markets were reassured by the bailout plan. "The markets may actually be marginally reassured that there is the lending programme in place from the EU and IMF in the absence of that it would be a very tall order for the NTMA (Ireland's debt agency) to go to the bond markets."
Bond yields for other peripheral countries remained steady as an increasing number of investors come to believe that Germany will do whatever is necessary to reach a solution on reforms to the eurozone rescue fund and announce these measures at a meeting of European leaders in two months' time.
Currency traders were not so sanguine, fearing that other countries may yet follow in Ireland's footsteps. The euro backed off a two-month high against the dollar but stayed well above the key $1.36 mark as fears about political stability here and in Portugal where the ruling Socialist Party governs without a majority took their toll.