Morning business news - October 2Wednesday 02 October 2013 10.51
US GOVERNMENT SHUTDOWN NOT A NEW EVENT - The big story in financial news right now is the government shutdown in the US. But markets have been reacting with surprising indifference to the event so far.
Pippa Malmgren - a politics and policy expert and a former economic advisor to George W Bush - says that people need to understand that a US government shutdown is not a new event. There has been 17 such shutdowns since the 1970s, and they usually last between a day and two weeks. There could be danger ahead if the shutdown lasts more than two weeks, she cautions. She says that both sides are being highly inflexible and won't even talk to each other. On the upcoming US debt ceiling, Ms Malmgren says that the two sides of Congress usually come to a deal just before the deadline expires, adding that in some ways the "automaticity" of the system allows both sides to say they have won the battle.
On future US Federal Reserve policy, the policy expert says that Fed chief Ben Bernanke did not think he was pulling off a great surprise when he announced that he was not going to cut back on the bank's QE stimulus programme a few weeks ago. She says the incident showed a breakdown in the Fed's communication strategy, adding that it really does not fully understand how fast markets react.
On Ireland, Ms Malmgren said the world stands in awe at the amount of pain and austerity the country has endured over the last few years. But she cautions about the length of the austerity programme. She says that while she is confident Ireland can innovate better than other countries, "the hard yards" will continue for some time.
MORNING IRELAND - Supermarket group Tesco has reported a 24.5% drop in group pre-tax profits to £1.39 billion in the six months to August 24. On its operations in Ireland, Tesco said consumers have faced further pressures on household finances which has benefited discounters like Lidl and Aldi. Overall, the Group said it continued to make good progress in the first half, particularly in its banking business, with customer lending showing strong year on year growth.
*** The ECB governing council meets in Paris today where members will talk policy. They are likely to hold off on any action for now but they are expected to keep open the options of another interest rate cut or a huge cash injection should the euro zone outlook turn sour. The 23-member Council meets against a backdrop of slowing inflation, a fairly limp economic recovery, and political turmoil in Italy.
*** Today is a big day on the economic front. The Live Register figures for September are out later this morning, which are expected to show a further drop in the numbers unemployed. The latest Exchequer Figures will be published later this afternoon. These will provide a complete picture for the first three quarters of the year and will be Michael Noonan's last set of figures before his budget next week.
*** The Central Bank has its latest quarterly bulletin out this morning. A new research paper by an economist there has given us a good oversight of the problems on the arrears front over the last few years. One in three mortgage holders who are in arrears are two years or more are behind in their payments, the paper reveals. The study also found that some of the long term solutions being offered by the banks are causing people to go back into arrears.