Markets hail ‘Draghi year,’ hope for the best in 2013
Markets hail ‘Draghi year,’ hope for the best in 2013
“In 2012, there will clearly be a ‘before’ and an ‘after’ Draghi,” said Aurel BGC broker Jean-Louis Mourier in reference to European Central Bank (ECB) chief Mario Draghi.
Early in the year, tension on financial markets had spiked owing in part to the deterioration of the Spanish economy and the government’s financial position.
But in late July, Draghi said the ECB was “ready to do whatever it takes to preserve the euro,” and turned the tide against speculators who were betting on a full-blown euro zone crisis.
In September, the central bank unveiled one of its most effective tools to date, a bond-buying program dubbed Outright Monetary Transactions or OMTs to underpin the debt of countries that that have sought help from European rescue funds.
The program has not been used to date, mainly because its very announcement reassured investors and the fact that Spain has done its best to avoid seeking a bailout similar to those which were granted to Greece, Ireland and Portugal.
“No matter. The ECB has now built a very effective firewall. The public debt crisis is not over, countries will need years to get back within their budget limits, but the risk that represented on financial markets has essentially disappeared,” Mourier said.
The scenario of Greece being forced to pull out of the 17-nation euro zone has also faded into the background, while moves toward a common eurozone banking supervisor and structural reforms in Italy and Spain have bolstered investor confidence as well.
Major European stock markets have taken note and as of December 20, Paris showed a gain of 16 percent from the beginning of the year, while London was up by 7.0 percent and Frankfurt by 30 percent.
In New York, the Dow Jones Industrial Average showed a gain of 8.5 percent, and the MSCI emerging markets index was up by 12 percent.
On secondary markets for public debt, high tension that persisted earlier this year has eased, even though the interest rates on Italian and Spanish debt remain at elevated levels.
Looking ahead to 2013, investors are reassured, but remain prudent nonetheless.
Looming ahead is the threat of a so-called fiscal cliff in the US, a combination of automatic tax increases and spending cuts set to take effect in January barring a compromise before then by Republican and Democratic lawmakers.
Economists warn that the combination of increases and cuts worth around $600 billion could push the US economy into recession.
“US companies have held back on investment plans for three quarters. The machine has to be restarted,” said Mirela Agache-Durand at Oddo Securities.
Several unknowns exist in Europe as well.
“Where do things stand with a Spanish bailout request, a new write-down of Greek debt, or French reforms,” wondered Olivier Raingeard, head economist at the Neuflize OBC bank.
“Elections in Germany and Italy will also put some pressure on markets,” he noted.
What seems like the biggest brake however is a chronic lack of economic growth in the eurozone.
“Leaders are going to have to come to agreement to ease budget constraints that are holding countries back to give their economies some breathing space,” Raingeard said.
He forecast that would happen once it became clear that France would not reach its target of cutting the public deficit to 3.0 percent of gross domestic product (GDP) next year.
Meanwhile, the US economy and those of key emerging markets, look set for solid expansions in 2013.
In the US, business activity should “benefit from a rebound in real-estate” and a “sharp decrease in energy prices,” Agache-Durand forecast.
In China, “the perspectives are encouraging” as well, analysts at the Swiss bank Pictet said in a research note, owing to anticipated increases in construction and other investments.
Dubai Aerospace signs $480 million loan deal
DUBAI: Dubai Aerospace Enterprise (DAE), one of the world’s largest aircraft lessors, said on Monday it had signed a four-year loan deal for $480 million.
DAE, a government-controlled company set up in 2006, has become one of the world’s largest aircraft lessors after acquiring Dublin-based AWAS last year.
The acquisition tripled the Dubai aircraft leasing and maintenance company’s portfolio to about 400 aircraft worth more than $14 billion.
The $480 million loan, which includes both conventional and Islamic finance tranches, has a so-called “accordion facility” allowing it to be increased to up to $800 million.
With the loan, the company’s unsecured revolving credit facilities increase to between $1.125 billion and $1.445 billion, depending on final size of the latest deal, Firoz Tararpore, DAE’s chief executive, said in a statement.
“On a pro forma basis as of December 2017, if this facility is fully drawn and if the proceeds are used to pay down secured indebtedness, DAE’s percentage of unsecured debt would increase from 26 percent to a range of 31-34 percent.”
Last year, the company issued $2.3 billion in senior bonds split across three tranches last year, partly to finance the AWAS acquisition.
Tarapore said in an interview last week that DAE was in talks to buy a near-record total of 400 jetliners from Airbus and Boeing in an order that could be worth more than $40 billion at list prices.
Al Ahli Bank of Kuwait coordinated the latest loan deal and was also the lead arranger and joint bookrunner together with First Abu Dhabi Bank, while Noor Bank joined the deal as lead arranger.