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OECD optimistic about future outlook
  The European Organisation for Economic Co-operation and
Development (OECD) published a new economic forecast yesterday. The
organisation is optimistic about the future outlook for the Icelandic
economy and forecasts a growth rate of 3.1% this year, which is broadly
similar to the growth observed last year. The OECD then expects growth to
be slightly less next year, i.e. 2.7%. The OECD is forecasting higher
growth for this year than other official bodies have in their recently
published forecasts. The Central Bank of Iceland (CBI) and Statistics
Iceland are forecasting a growth of 2.6% this year, for example, and the
economics department of the Icelandic Federation of Labour (ASÍ) is
predicting a growth of 2.2%. The difference between these forecasts and
that of the OECD is primarily due to differing views with regard to
investment. Thus the OECD expects a higher growth in investment this year,
but has a similar view of the growth in private consumption. Statistics
Iceland also expects to see a considerable growth in investment this year,
but less growth in private consumption. The OECD predicts investment will
increase by 16.5% this year and 10.3% next year. The OECD predicts
investment will increase by 3.2% this year and 2.3% next year.
 In the OECD's opinion, inflation will slow, but will
still be over the CBI's inflation target by the end of the forecast
horizon, when inflation will measure at about 4%. Unemployment will be
down to 5% at the end of the forecast horizon, which is at the end of
2013. The OECD says it is vital that the government continues to
implement its fiscal adjustment plan and that the legal framework around
budgeting be reinforced. The OECD also says that the monetary stance needs
to be gradually tightened to facilitate the capital account liberalisation
strategy.
High growth by international
standards
 Few European countries can expect to see the same level of
growth that the OECD is forecasting for Iceland this year. The outlook for
the global economy is still subject to high uncertainty, in the OECD's
opinion, and the economies of the world are emerging in very different
states from a long and arduous winter. Japan and the US seem to be on the
road to recovery and emerging market countries also seem to have pulled
through the worst. Europe has not quite recovered yet, however, and
unemployment is rising, for example, whereas the labour markets in Japan
and the US seemed to have picked up again. According to the OECD forecast,
the eurozone will contract by 0.1% this year before growing by 0.9% next
year. The US economy is set to grow by 2.4% this year and 2.6% next year,
whereas in Japan the economy is set to grow by 2% this year and 1.5% next
year. The economies of all OECD countries as a whole are expected to
increase by an average of 1.6% this year, according to the forecast. From
this, one can see that the forecast for the Icelandic economy is very good
by international standards at the moment, since few of the countries
covered by the OECD's forecast will grow as much over the next two years,
with the exception of emerging market countries. Australia is expected to
grow by a similar percentage this year, i.e. by 3.1%, while Korea and
Turkey are expected to grow by 3.3%, Mexico by 3.6% and Chile by 4.4%. The
OECD forecasts that the Greek economy will contract by 5.3% this year,
Portugal by 3.2% and Spain by 1.6%.
Króna less volatile
  The Icelandic króna was considerably less volatile in May than
it has been in the previous months of this year, according to the ISK
trade-weighted index, which measures the króna in relation to Iceland's
main trading currencies. At the moment of writing (09:00 hrs), the index
measures at 223.9 points, which is similar to what has been its May
average. Following the passing of amendments to the Foreign Exchange Act
in March, the króna appreciated somewhat in April, whereas before this the
króna has been depreciating, due to, among other things, the fact
that domestic companies were paying off foreign loans and because
financial undertakings were building up currency reserves to be able to
honour foreign currency obligations. Seasonal fluctuations in currency
flows generated by tourism are also a factor here. In April, the ISK
trade-weighted index averaged at 227.8 points, which means that the króna
was 1.8% stronger in May than it was in April.
Varying developments
 As has often been the case, the development of the ISK exchange
rate has varied in relation to the main trading currencies. Thus there has
been a substantial appreciation of 2.4% in the ISK exchange rate against
the euro so far in May and the euro is currently trading at ISK 162 on the
domestic interbank market. This development can, among other things, be
attributed to the growing uncertainty regarding whether economic growth
will start to pick up in the eurozone and this has considerably undermined
the euro. The Icelandic króna has also appreciated by over 2.6% against
the Norwegian krone, however, and by 1.8% against the British pound. The
Norwegian krone is now trading at over ISK 21.3 and the British pound at
over ISK 201. On the other hand, the US dollar has risen considerably
against the króna and is currently trading at over ISK 128, compared to
ISK 125 at the end of April. The króna has therefore depreciated by over
2.0% during this period against the US dollar, which is now actually
trading at its highest price for Icelanders since June 2010. This trend
naturally reflects the strengthening of the dollar against other major
currencies, since it has appreciated by over 4% against the euro and by
over 3% against the pound from last month.
Voluntary
public offer for Össur
  Össur share prices rose by 3% yesterday and ended at ISK 208 per
share, which means that Össur share prices have now risen by 12.4% since
the beginning of the year. The reason for yesterday's rise was the
announcement that William Demant Invest, Össur's largest shareholder, has
made a voluntary public offer for all of the company's outstanding shares
at the price of ISK 202 per share or DKK 8.2 per share. The offer was
based on the share price at the end of trading on the day before the offer
was announced. The Financial Supervisory Authority will now examine
whether all the requirements were fulfilled, after which the offer
document will be made public. The offer period will be four weeks and will
commence four days after the offer document has been made public.
William Demant Invest (WDI) is Össur's largest
shareholder and holds 39.58% of the company's issued share capital.
According to the announcement, WDI does not intend to delist the company
after the offer, but the offer is designed to ensure that WDI will have
flexibility in deciding its controlling stake in Össur and increasing it
to 40-50%. There is some legal uncertainty regarding whether WDI would
have to make a mandatory offer, if it increases its stake beyond the
current level. According to the announcement, the offer is being made to
eliminate the uncertainty regarding potential mandatory takeover
obligations, although this is something the Financial Supervisory
Authority will now have to determine. One cannot expect to see a high
level of participation in the offer, since the market price is now
considerably higher than the offer price.
Less
demand for MCI bond auction
  There was
considerably less demand at the bond auction of Municipality Credit
Iceland Plc. (MCI), which was held yesterday that there has been at the
fund's previous auctions. Total bids for the two series that were being
auctioned amounted to over ISK 1.0 bn., compared to ISK 2.0 bn. at the
April auction and over ISK 3.0 bn. at the March auction. As was the case
in the previous two auctions, investors were slightly more interested in
the longer series that was being offered, i.e. the LSS34 series, than the
shorter LSS24 series. Bids for the LSS34 series amounted to a nominal
value of ISK 730 m. at yields of 3.30% - 3.50%. MCI accepted bids for a
nominal value of ISK 270 m. at a yield of 3.40%. The final yield was
therefore the highest since this series was first launched last March. The
yield at the April auction was 3.25%, compared to 3.32% at the March
auction. This is in line with the change in yields on HFF34 bonds during
this period and the gap between the end of trading yields on the Housing
Financing Fund bond series and the LSS34 bonds was slightly narrower than
at the last auction, i.e. 100 points against 106 points. The total size of
the series has risen to ISK 1.4 bn. following this third auction.
 As has been mentioned, there was considerably less interest in
the LSS24 bond series, although there was more demand for bonds in this
series than there was in March and April. Bids in the series amounted to a
nominal value of ISK 300 m. at yields of 2.78% - 2.94%. Bids were accepted
for ISK 200 m. at a yield of 2.80%. This was a slightly higher yield than
at the April auction when it was 2.75%. However, the gap narrowed slightly
between the end of trading yields on HFF24 bonds and LSS24 bonds yesterday
in relation to April, i.e. it was 111 points compared to 122 points.
Following this auction, the size of the series remains unchanged, however,
i.e. at over ISK 28.3 bn., since previously issued bonds were sold.
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| NASDAQ OMX ICE, 5/22/2012
|
| Category |
Volume |
| Equities |
15,021 |
| Bonds |
206 |
| Total |
15,226 |
| REIBOR Market, 5/22/2012
|
| Term |
REIBID |
REIBOR |
| O/N |
4.50% |
4.75% |
| SW |
4.70% |
4.95% |
| 1M |
4.90% |
5.40% |
| 3M |
5.10% |
5.60% |
| 6M |
5.20% |
5.70% |
| 12M |
5.40% |
5.90% |
| Exchange Rates, 5/22/2012
|
| |
pr.ISK |
3m.Libor |
3m.fwd. |
| USD |
127.97 |
0.47% |
1.6 |
| GBP |
201.31 |
1.00% |
2.2 |
| JPY |
1.61 |
0.20% |
0.0 |
| EUR |
162.10 |
0.61% |
2.0 |
| Vt. ISK |
224.17 |
0.80% |
2.6 |
| Currency Crosses, 5/23/2012
|
| |
EUR |
GBP |
USD |
| GBP |
0.805 |
|
|
| USD |
1.267 |
1.573 |
|
| CHF |
1.201 |
1.492 |
0.948 |
| JPY |
100.664 |
125.014 |
79.470 |
| NOK |
7.571 |
9.402 |
5.977 |
| SEK |
9.063 |
11.256 |
7.155 |
| Icelandic Equities,
5/22/2012 |
| ID |
Vol. |
Yield |
Day.ch. |
| FO-BANK |
- |
75.00 |
0.00% |
| NYHR |
- |
5.57 |
0.00% |
| FO-AIR |
- |
121.00 |
0.00% |
| FO-ATLA |
- |
155.00 |
0.00% |
| ICEAIR |
- |
6.47 |
1.41% |
|
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