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Home > Blogs > Morningstar > ECB Inaction, BP Blues and Turbulence at Ryanair

ECB Inaction, BP Blues and Turbulence at Ryanair

ECB Inaction, BP Blues and Turbulence at Ryanair Morningstar

I Believe You, Thousands Would Not
The European Central Bank is working on the crisis. No use rushing - after all, the crisis has been with us for the past four years and the causes go back much further.

It's a bit like the Church of England Synod trying to grapple with the issue of women bishops. Since there is no decision available that will hold the whole edifice together, there is little choice but to keep postponing action in the hope that the problem will go away.

The problem won’t go away, yet the eurozone leaders like the Synod keep muddling through with disaster repeatedly postponed. Spain is in trouble, Italy is struggling and Greece will be back this month as the worst of the three.

Apart from doing nothing about interest rates, which is of no consequence, the ECB has also done nothing about the debt-ridden southern states in its tender care. It is thinking about what to do next. I'm sure it is.

You might have expected that such indecision would have sent stock markets crashing but the reaction was relatively mild, particularly in London.

There has been bad news on the domestic front as well. The UK economy fell back further in the April-June quarter and it looks as if the four-year-long recession will continue for at least two more years.

Manufacturing and retailing continue to slide and there is no sign of recovery in construction. Homebuilders slowly recover but only because they are using land bought up cheaply after the financial meltdown of 2008 and are concentrating on the south east where demand far outstrips other regions. Like it or not, we need the much maligned financial sector to pull us out of the hole.<

Even so, I remain mildly optimistic. The FTSE 100 continues to trade within its 5,300-5,700 range. We have stability despite the frequent movements of more than 1% daily. I'm not looking to buy when the index is at the top of this band but there will surely be more opportunities to invest towards the lower end. Meanwhile I shall keep drawing my dividends.

Play it Again, Bob


One of the recurring themes of stock market watching is how often recurring themes recur. Once again BP is in the news for the wrong reasons, not just once but twice.

Adjusted profit slumped by 96% in the second quarter, and although a one-off write-down in the value of assets, plus allowances for litigation, did most of the damage, underlying profits were 35% lower, falling short of forecasts.

There is much to feel worried about regarding BP: the fall in the price of oil, lower production, tax issues in Russia, continuing costs from the Gulf of Mexico oil spill, the falling price of shale gas in the US, expensive maintenance work and the suspension of drilling in Alaska.

Not least of the problems, in fact probably the greatest, is the other issue that cropped up again this week. BP's 'partners' in the TNK-BP operation have blocked the payment of a dividend by the Russian joint venture.

Both sides want to get out, or at least they say they do and who can blame them. But with Russian state oil giant Rosneft the only prospective buyer, there is no-one to drum up the price.

Fly Off


Budget airline Ryanair has posted a 28% fall in profits in the latest quarter to June despite growing revenue by 11%. If you think that supermarkets need to keep running just to stand still, airlines have to sprint in order to go backwards slowly.

Ryanair has been great on self-publicity but its latest figures have left the normally loquacious chief executive Michael O' Leary silent.

Passenger numbers rose 6%, average fares were 4% higher and the captive audience coughed up 15% more for drinks and snacks, but that did not come anywhere near to covering the extra 27% Ryanair had to spend on fuel.

The airline had already said that profits will fall back from last year's record €633 million, so the airline’s shares took the setback well. Also, Ryanair claims that the worst of the fuel cost hikes are now behind it.

Nonetheless, Ryanair is a short-haul carrier and it will be badly affected by the growing problems in the eurozone, an issue that will not be fully resolved by the closure of less efficient carriers.

Also the great dream of taking over Aer Lingus rumbles on as a distraction with questionable potential benefits. Investors should avoid Ryanair - and the same goes for any other airline struggling in the continuing turbulence.

This article was originally published on Morningstar and provided by Rodney Hobson under the title: ECB Inaction, BP Blues and Turbulence at Ryanair

Tags: BP , BP oil spill , central banks , ECB , economic recovery , EU , euro , European Central Bank , eurozone , financial crisis , Greece , recession , regulation , Ryanair , sovereign debt , Spain , UK
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