EURO SEEING PERFECT STORM - The euro continues to grow stronger and stronger. This morning the European single currency is trading at $1.5932 cents and 80.77 pence sterling. The chief economist at Goodbody Stockbrokers, Dermot O'Leary, says that the euro is experiencing a 'perfect storm' at the moment.
He says that due to the poor health of the US and UK economies, the central banks there are throwing caution to the wind because of the significant risks to economic growth, despite inflation concerns. The Bank of England have cut rates three times in recent months, while 3% was wiped off US interest rates as well. However, things are different in the euro zone with euro zone inflation hitting its highest ever level of 3.6% in March. He says the European Central Bank is intent on sticking with its tack of concentrating on inflation concerns, resulting in no near-term easing of ECB interest rates. All of this has the effect of pushing up the euro against both the dollar and sterling.
In order to calm the euro's rise, Mr O'Leary says the ECB needs to change its direction. He predicts lower economic growth in the euro area as 2008 progresses and he states the ECB has to recognise that fact at some stage. The economist says he believes the ECB will cut rates by half a percentage point by the end of the year and then another half a percentage point in 2009. He says that will take the upward pressure off the euro, but he adds that he would not rule out the dollar hitting over $1.60 in the next couple of days as well as sterling hitting over 81 pence. Echoing the words of ECB President Jean-Claude Trichet, Mr O'Leary describes the current currency movements as brutal.
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HOUSING AFFORDABILITY IMPROVING - The OECD told us yesterday that our houses are too expensive. And a report out this morning says that while selling prices have been going down for ages now, asking prices are catching up - meaning that sellers now have a more realistic appreciation of the market.
My.home.ie's CEO Jim Miley says that housing stock levels are probably double what they were this time last year. However, he says there are signs of a clearance in certain areas - in north Dublin and some parts of south Dublin. Mr Miley says that asking prices have dropped by nearly 1.5% in the last three months and adds that actual prices are down about 15% from their 2006 peaks. He explains that this is not reflected in some of housing price indices due to a time lag. Houses sold this month may not have contracts signed for at least another two months and then it takes another month or two before that gets reported into a price index.
He says that all sectors of the construction industry are hit when there is a downturn. Pointing out that his business is an advertising one, he says that when it gets harder to sell property it needs to be advertised more. Mr Miley says the critical issue for the industry - and for buyers - relates to affordability. He says his barometer today shows that due to lower prices, stamp duty and mortgage interest relief changes, affordability for first time buyers is now substantially improved compared to where it was a couple of years ago. 'This has to be a good thing for the market overall to bring supply and demand back into a proper balance', he states.
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MORNING BRIEFS - Aer Lingus customers who booked business class flights to the US for just €5 have been told by the airline that their bookings have been cancelled. The airline said the flights - which were advertised on the Aer Lingus website yesterday - were priced incorrectly due to a technical error.
*** As the UK's mortgage market has shrunk from having over 15,000 mortgage products on offer to just 4,000, the Bank of England is stepping in to see if a new lending programme for banks can clear the logjam in the credit market. The temporary scheme would allow banks to swap their mortgage-based assets for government bonds. It is hoped banks would then find it easier to borrow and lend to other each other, using these bonds as security, which in turn would ease up lending to individual borrowers.
*** The amount of available mortgage products is also shrinking here, with news this morning that Bank of Scotland Ireland is no longer giving mortgages of over 90% loan to value through its broker channel. For apartments it has dropped its limit to 80%.
*** O2 and Carphone Warehouse have slashed the price of the 8 gig iPhone by £100 sterling in the UK, following bigger discounts in Germany, where you can pick one up for €99. O2 Ireland says it has no plans for a similar reductions now, but the market here could evolve like other markets. In the UK, the iPhone has been on sale for five months, it has been on the market here for just a month.
*** The euro is trading at $1.5932 cents and 80.75 pence sterling on the currency markets this morning.
