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www.worldmarketreports.com http://www.worldmarketreports.com Are zero interest rates key? November 6th signalled a landmark move by the UK, which has widely been seen as the mover and shaker in the credit crisis, not least because it has one of the worst performing economies. This was when the Bank of England slashed interest rates to three per cent from 4.5 per cent - the biggest reduction since 1981, taking rates to the lowest level since 1955. The Bank's nine-member committee had considered a bigger one and was aiming to take another look at rates after the Chancellor's pre-Budget report on November 24th. All forecasts are down among industry analysts, with <a href="##WMR243##">Threadneedle</a> predicting 2009 contractions in the UK, Japan and the US, where interest rates were cut to one per cent from 1.5 per cent by the Federal Reserve at the end of October (and reduced from two per cent at the start of October as an emergency measure). Japan ended six years of zero interest rates in mid-2006. On Halloween the Bank of Japan cut its key rate to 0.3 per cent from 0.5 per cent. It is set to be the first time in 30 years that major economies go into recession simultaneously, <a href="##WMR245##">JP Morgan</a> commented. But what is wrong with zero interest rates, <a href="##WMR245##">JP Morgan's</a> David Shairp asks - and not for the first time. Dramatic reductions might be needed in a crisis in a "shoot now ask questions later" over a "conserving ammo" philosophy. As reports suggested in last month's round up - the right decisions need to be made and fast. Like Threadneedle, <a href="##WMR245##">JP Morgan</a> saw forecasts continue to be downgraded across all 21 markets it covers. Emerging economies are suffering now with gross domestic product (GDP) projected to half next year in Brazil on energy lulls. While China is pre-empting problems to lessen seemingly unavoidable blows. Perhaps a zero interest rate policy would free up spending. In the US and UK in particular, retail sales are down, pointing to a quieter Christmas. UK department store chain John Lewis reported 13 per cent drop in the second week of November compared with the same period last year. The energy and mining sectors were also bad. <a href="##WMR243##">Threadneedle</a> foresaw slowdowns in capital projects and spending on IT hardware with telecoms also affected. Intel surprised investors by issuing a profit warning, <a href="##WMR47##">Barings Global Weekly Review</a> said. A high dollar and yen also show gifts are unlikely to come from the US or Japan in other countries this year, as exports head down. Christmas certainly looks put off until 2016 for taxpayers in the UK - that's the time it has been forecast to take until the government only borrows for investment. More financial stimulus spells more money from somewhere and borrowing has reached record levels this year. The UK is expected to ring in the New Year an estimated £78 billion in debt up from £43 billon the Chancellor originally predicted in March 2008. Although people have not seen tax rises now, they will come to haunt the public later with a 0.5 per cent increase in National Insurance payments outlined in the pre-Budget report and a 45 per cent tax rate for those earning more than £150,000 in the UK. Whatever the government does in the next term in the UK, what ministers do about tax increases will be paramount. <a href="##WMR245##">JP Morgan</a> observes more money may need to be spent before the handover to the president-elect in the US, which has already changed the focus of its Toxic Asset Relief Program, also reports <a href="##WMR47##">Barings Global Weekly Review</a>, to amore UK-like approach of recapitalising banks and stimulating credit. Governments are "tearing up the rule books", <a href="##WMR263##">Standard Life</a> says. Iceland, Hungary and the Ukraine have all sought help from the International Monetary Fund, whose head talked of financial stimulus of two per cent of each country's GDP, also espoused by the UK's prime minister, reported <a href="##WMR245##">JP Morgan</a>. The pre-Budget report in the UK represented a rescue package of £20 billion between now and April 2010, which amounted to half that, at one per cent of GDP. On the back of bank underwriting, <a href="##WMR243##">Threadneedle</a> predicts investment in government and financial bonds as positive. Meanwhile a <a href="##WMR245##">JP Morgan</a> has seen bargain-hunting on the stock exchange. In its mid-month Weekly Strategy report, David Shairp wrote equities were good in the UK in 1975 when there were rumours of a coup to overthrow Labour and parts of the country had been reduced to a three-day week on the back of the miners' strike. "Perhaps a simple lesson from history is that it is easy to become too pessimistic even when the current situation looks critical," he said. Equities in the UK have outperformed all other classes since the Second World War making the markets look attractive, one city advisor said. Movement is likely to be sideways, said a <a href="##WMR245##">JP Morgan</a>, until the outlook clears, with October a "horrendous month" with high volatility. Investors have been opting for big caps over smalls in a presumed bid for safer collateral. However, as interest rates look likely to creep lower from the central banks, <a href="##WMR243##">Threadneedle</a> advises avoiding speculation on currency and casting eyes elsewhere. So what is wrong with zero per cent? It could prove a move that helps the UK's Labour Party retain its lead accompanied by the stimulus measures in the next general election, help Obama "who will do what is necessary" earn his stripes and see Japan revert back to naughties conservative measures. Zero interest rates would encourage spending and facilitate cheap lending. The interbank rates have put on a good show, <a href="##WMR245##">JP Morgan</a> stated mid-month. Although people may use a lower rate to sit tight and pay off debt, it would be a plus for people on variable rate mortgages. Something needs to be done and fast as governments get into the worst debt in history. Shooting too soon may be the only economy-saving measure. <img alt="ADNFCR-8000099-ID-18924771-ADNFCR" src="http://feeds.directnews.co.uk/feedtrack/justcopyright.gif?feedid=8000099&itemid=18924771" /> <script type="text/javascript" language="javascript" src="http://feeds.directnews.co.uk/client_includes/bookmarking/bookmarks.js">?</script> http://www.worldmarketreports.com/Are-zero-interest-rates-key--203_1_18924771.html Thu, 11 Dec 2008 14:45:00 +0000 Good decisions crucial field markers "Let us hope that the right policy decisions are made, and quickly," <a href="##WMR243##">Threadneedle</a> chief investment officer Sarah Arkle said in October. This month congress finally approved a $700 billion bail out package, the Troubled Asset Relief Program, to take toxic loans off US bank sheets. In the UK the band aid for banks was somewhat different, recapitalise rather than pay spurious amounts for banks' bad assets. Inter-banking lending looked like it was easing, <a href="##WMR245##">JP Morgan</a> saw the interbank rate "thawing out" reducing the spread between banks and official rates. But head of global strategy at <a href="##WMR263##">Standard Life</a> Andrew Milligan stated: "If the authorities do not act with sufficient speed, the danger would be a further tightening of monetary policy just at the time when recessionary conditions are most affecting consumer and business". On a personal level in the UK, Tesco announced double the number of applications for savings accounts. The Observer reported in October more people had put faith in a company that sells toilet rolls and carrots than their bank managers. If people and financiers are not convinced on the authorities' strategies, are the people in charge of nations' purse strings doing to right thing? The outlook is rather bleak for all the staple economies. The Bloomberg measure of global financial conditions has moved to the tightest ever experienced in the 16 year history of the series, reported <a href="##WMR245##">JP Morgan</a>. Only one of the 21 countries JP Morgan covers reported growth - Indonesia. Meanwhile <a href="##WMR243##">Threadneedle</a> queried the US bail out, which stuck a heavy burden on the shoulders of every American. Is it simply a veneer to mask underlying unemployment, poor house prices ordinary defaults on top of sub prime debt? Ms Arkle certainly sees some "shock and awe" tactics clouding the facts. Elsewhere, Spain announced a bail out for assets and South Korea released plans to shore up its construction industry while France announced a rescue deal to save its banks from "foreign predators", reported <a href="##WMR47##">Barings</a>, as merger and acquisition activity heightened when the value of several banks tumbled on the stock exchange. The outlook for commodities was reduced to neutral by <a href="##WMR243##">Threadneedle</a> because, despite demand from emerging economies, price fluctuations have not been added in, so it has decided to take caution. Volatility was a concern of <a href="##WMR245##">JP Morgan</a>, which flagged up currencies as an area of interest in October in its Weekly Strategy Report. The US has fallen against the Yen, which looks close to its April 1995 high of more than 80 against the greenback. "The sharpest currency declines in countries with the lowest ratio of foreign assets to liabilities, including Brazil, Korea, Mexico and Australia," head of JP Morgan's Global Market Asset Group David Shairp said. Sterling has been one of the biggest losers. Holiday companies are even latching onto the situation in the UK, recommending cheap breaks outside the Eurozone in Eastern Europe for those that want to escape the crisis. It fell to $1.53 in October with concerns about GDP brought to the fore by <a href="##WMR245##">JP Morgan</a>, as third quarter growth contracted by 0.5 per cent quarter-on-quarter, taking the year-on-year growth rate to 0.3 per cent from 1.5 per cent. JP Morgan predicted a 0.5 per cent interest rate cut at the next Monetary Policy Committee meeting, adding the spotlight would be on the Fed when it decided how aggressive its manoeuvres would be. JP Morgan discusses the values of zero rate interest. "If the authorities have done what is necessary to fix the plumbing and that bank's balance sheets will gain transparency and strength over the coming months, then risk assets such as equities look attractive at current valuations," Tom Elliot said in <a href="##WMR245##">JP Morgan's</a> Guide To The Market. Several reports saw a bounce in equities and a general consensus to be overweight in US and underweight in Europe excluding the UK. There had been scrambling over government bonds as investors sought a safe haven, JP Morgan reported. One consistent theme remained in world market reports in October - volatility. The lynchpin for this will be the decisions that are made over the coming months as financiers sit back to see if the bail-out measures have worked. <a href="##WMR263##">Standard Life's</a> head of global strategy Andrew Milligan said: "Governments, especially in the US, have been forced to tear up the rule book in desperate efforts to stabilise some of the most important financial institutions, and prevent a moderate recession in the economy turning into a multiyear event." It looks like a global first, in terms of this economic crisis. <a href="##WMR263##">Standard Life</a> notes the International Monetary Fund's report of 40 years of banking crises. The blueprint appears to be socialising the public sector's bad debt, lowering interest rates for a liquidity injection and bank recapitalisation. The question is whether the bail-out packages have done that. Former chancellor Gordon Brown appears to be taking the lead, but as <a href="##WMR243##">Threadneedle</a> questions, is he flash enough to make things happen? The result of the UK election could certainly be riding on this and it would be prudent to keep an eye on the results of the US ballot. With US GDP data released days before the election, will this prove the political weapon for the Democrats? Recession looks likely for all 30 of the Organisation for Economic Co-operation and Development countries, the international organisation which helps governments tackle the economic, social and governance challenges of a globalised economy, Standard Life said. Indeed <a href="##WMR243##">Threadneedle</a> revised its GDP for the US down, it reported. Every report foresees gloom in the coming months, with <a href="##WMR263##">Standard Life</a> seeing muted recovery in 2010. With debt now estimated to run at more than £200 for every person in the world, according to a report in the Metro, let's hope the decisions are the right ones. <img alt="ADNFCR-8000099-ID-18856458-ADNFCR" src="http://feeds.directnews.co.uk/feedtrack/justcopyright.gif?feedid=8000099&itemid=18856458" /> <script type="text/javascript" language="javascript" src="http://feeds.directnews.co.uk/client_includes/bookmarking/bookmarks.js">?</script> http://www.worldmarketreports.com/Good-decisions-crucial-field-markers-203_1_18856458.html Mon, 03 Nov 2008 17:30:00 +0000 The beginning of the end? September was a dramatic month for world markets. The US investment bank, Lehman Brothers, announced that it would seek protection from creditors under US bankruptcy laws while another investment bank, Merrill Lynch, revealed it was in the advanced stages of a takeover by the Bank of America. Leading insurer American International Group (AIG) fell foul of adverse economic conditions, borrowing $80 billion from the US government as a bridging loan, Barings Weekly reported. Question marks over Morgan Stanley and Goldman Sachs were founded when US authorities agreed to change their status from investment bank, to facilitate deposits like commercial structures. In the UK, chancellor Alistair Darling said the economy was facing its worst crisis in 60 years. As Rathbones' chief investment officer Julian Chillingworth said in the company's <a href="##WMR281##">Economic Market Review</a>, "whether the UK is in recessionary territory is now a moot point". Strategist David Shairp in <a href="##WMR245##">JPMorgan Weekly Strategy Report</a>, said there were two factors that would determine the exit from a banking crisis: parties benefiting from risk taking should help bear the brunt and political will was necessary to make restructuring a priority. He said: "Willingness to grasp the nettle of capital losses and to promote speedy price and economic adjustment is key, as is preparedness to embrace unconventional policy measures." Unconventional policy was apparent in the sidelines of the proposed HBOS takeover by Lloyds TSB in the UK, which would create a banking unit, holding close to one-third of the UK's savings and mortgage market. This sort of deal would be blocked on anti-trust grounds, <a href="##WMR47##">Barings Weekly</a>, reported. However, HBOS communications manager Shane O'Riordain told the BBC: "We've seen unprecedented developments in the last few weeks. In our judgement, the regulators have acted decisively right through that period." Resolution? The US government has grasped the veritable bull by both horns and may well be, as commentators have speculated, "first in, first out" of the financial crisis. But plans hit a wall on Monday when congress threw-out a US$700 billion rescue package to take toxic and illiquid assets off the balance sheets of financial institutions. Presidential candidates Barack Obama and John McCain were both ushered into emergency talks on the state of the country's finances by president Bush, according to the Financial Times, with McCain famously announcing he was putting campaigning on hold until the matter was resolved. The US Federal Bank also announced plans for US$180 billion of credit for other central banks, the equivalent of the GDP of Malaysia. The rescues managed to angered some politicians who criticised a second increase in the US debt ceiling this year, which would take the country US$11,300 billion into the red. In the UK this kind of cash flow has not been made available. As chief investment officer for <a href="##WMR243##">Threadneedle</a>, Sarah Arkle said: "The trouble is the UK has not had a US fiscal-style stimulus package and cannot even afford one." Despite the Bank of England's announcement of an extended special liquidity scheme, <a href="##WMR243##">Threadneedle</a> and <a href="##WMR245##">JP Morgan</a> revised down earnings estimates for the UK for 2009. <a href="##WMR245##">JPMorgan Global Monthly Asset Group's</a> monthly investment outlook forecast real GDP figures in the UK down by half in 2009 to 0.6 from 1.2. Meanwhile the crisis was spreading through emerging markets. China saw its sovereign wealth body tighten lending while buying listed stocks in national banks, according to <a href="##WMR47##">Barings Weekly</a> report. The country was expected to weather a slowdown in exports with demand from its domestic market. However, at the end of the month European leaders had criticised this "closed doors" approach to foreign investment and "patriotic" economy, reported the Financial Times. Japan faced a slowdown in exports to the US and Europe too, while facing the worst crisis in consumer confidence in 26 years, according to <a href="##WMR47##">Barings Weekly</a> report. <a href="##WMR263##">Standard Life</a> was eying Sumitomo Mitsui bank, which was growing overseas lending by 40 per cent as well as Toyota due to strong expected sales in Africa and Russia. The east European super power, still facing woe from its invasion of Georgia, increased its deposits in state-owned banks by US$50 billion following the failure of KIT, a brokerage. Investment US equities were mentioned by most industry analysts as government bonds continued to decline in most of the major markets. Weaker energy prices, down 25 to 30 per cent from July, signalled a good start to 2009, forecast <a href="##WMR245##">JP Morgan</a>. Commodities were down 18 per cent over two months. It reduced investment in UK equities to neutral from overweight and reported "cyclical risks" remaining for emerging markets. In a Market Review and Themes for September, analysts recommended gold as a traditional hedge against inflation. "The rescue of Fannie Mae and Freddie Mac reduced fears of a systematic banking crisis and so may contribute in bringing down commercial borrowing rates relative to policy rates," JP Morgan added. <a href="##WMR281##">Rathbones</a> also recommended US equities, while <a href="##WMR243##">Threadneedle</a> said US dollars were looking healthy, posting better against Sterling and the Euro, which has had major downturns in the zone. A leading German financial authority posted a three-year low in the economy while Spanish industrial production fell ten per cent year-on-year. Is it the end? Just when everything looked like it was picking up in the US, financial security went into turmoil at the end of September when Congress rejected plans to buy bad debts. Commentators say it will not be until the November elections that we know what the future holds as far as "first in first out" for the US is concerned. In the UK, "the odds are in favour of a recession" said <a href="##WMR243##">Threadneedle</a> with slowdowns predicted for all the major markets of the world. Next month we will see what support, if any, will come from the US government and whether there will be any crutch from those benefiting from the volatile markets. http://www.worldmarketreports.com/The-beginning-of-the-end--203_1_18807008.html Thu, 02 Oct 2008 09:00:00 +0000 Where have all the white knights gone? Credit crunch made its way into the Concise Oxford Dictionary in July, highlighting the fact that things aren't getting any better, particularly as banks in England and Japan gave further warnings of recessions. http://www.worldmarketreports.com/Where-have-all-the-white-knights-gone--203_1_18754277.html Fri, 29 Aug 2008 08:52:36 +0000 Investors 'seek a safe haven' The global stock market rally that began in March has been firmly put into reverse by inflation and the prospect of higher interest rates. This is the view of Tom Elliot of <a href="##WMR245##">JPMorgan Asset Management</a>. Writing in his Guide to the Markets, Mr Elliot explains that price hikes across Europe, the UK and the USA have all dented investor confidence and have led people to "safe havens". This reversal of fortunes for equities markets is underlined by the fact that the New York Stock Exchange reported interest in short selling to be at an all time high in the last week of June, he states. As many analysts predicted last month, the impact of inflation has not been limited to the western economic powerhouses, with many emerging markets also experiencing price rises, Mr Elliot pointed out. Looking forward, he suggests that investors might like to opt for government bonds rather than the equity market. He said: "It may well be that in three years' time, when we are perhaps in a fresh business cycle, we will be able to look back at today's prices and see bargains where currently we see only value traps. But the risk of further stock market falls is too great." Meanwhile, his colleague David Shairp suggests that economic data indicates a stock market bounce could be due although he warns that "the case is not yet compelling". He predicts that markets will remain "subdued" for the coming months until the trade-off between growth and inflation becomes more manageable and this allows central banks to be more accommodating. One of the factors required for a rally of this nature would be a drop in the price of oil as the current high cost of crude is driving business sentiment down, he states. The second quarter earnings season is still to come and this, combined with headline inflation data, could still "contain unpleasant surprises", Mr Shairp added. Negative attitudes towards equity markets also dominate the latest <a href="##WMR233##">Barings Monthly Asset Allocation Views</a> report. According to Percival Stanion, head of asset allocation for the firm, the company is particularly concerned about emerging markets and is reducing the amount of exposure it has in these areas. What exposure the firm does have is concentrated in the "few markets we like", namely - Russia, Brazil, China and the Middle East. Emerging Asia and Singapore are two areas where the firm is less positive, he added. The reason for this caution is that Asian countries are less likely to have the "harsh experience" of inflation endured by their Latin American counterparts, meaning that there is greater scope for policy mistakes as central banks increase interest rates to help stabilise prices. Investors should be doubly careful as Barings predicts that, despite valuations seemingly offering the potential for profit, earnings expectations in many markets will remain low into 2009. Looking at alternative investments, Mr Stanion stated that government bonds are attractive in some, but not all areas. He said: "We have identified some value in medium-term government bonds in Europe and the UK, but still believe that US government bonds are unattractive." Long-term Japanese government bonds are also becoming less attractive, Mr Stanion believes. Threadneedle's chief investment officer, Sarah Arkle, also fears that companies will find their profitability being squeezed. Writing in the <a href="##WMR243##"> Threadneedle Investment Strategy</a> report she warns that rising commodity costs will hit consumer staple companies particularly hard, not least due to the fact that the willingness of consumers to go elsewhere means it is difficult for them to pass on the increased costs. On the other side of the coin, mining firms seem set to continue their good performance due to strong demand from emerging economies and the possibility of merger activity, Ms Arkle states. Investors hoping to profit from any sector should try and identify companies with strong balance sheets and the prospect for good performance, she adds. She does disagree somewhat with the Barings conclusion that equities will remain unattractive for the whole of 2009 stating that current low valuations give "us some confidence for the medium-term". The <a href="##WMR90##">Invesco Perpetual Emerging Market Equities </a> report is also largely pessimistic about the outlook for such countries. It points out that central banks in Brazil, Russia, India, Taiwan and South Africa have all increased interest rates, while the fading prospect of a US rebound has "also soured investor sentiment". The MSCI Emerging Markets Latin America index performed badly last month, falling by 7.7 per cent, although year-to-date gains still stand at eight per cent, the report states. While Brazil was the second worst performing country on the index, the it is still reasonable well positioned with "upbeat" economic data underlined by the fact that unemployment fell in May, the company points out. South Africa is also showing a good level of resilience, largely due to the presence of mining companies in the country which are able to benefit from rising gold and platinum prices, although the nation's current account deficit widened recently. The firm's <a href="##WMR86##">Japanese equities</a> report reveals that the country has also been unable to shake off falls in global stock markets and points out that while it is not yet in recession, business sentiment in the nation is at a five year low. The report states: "In recent months, the mood among property developers and financial investors alike has begun to turn sour, with the trend of rising rents and falling vacancy and capitalisation rates going into reverse." Finally Leigh Harrison, head of UK equities at <a href="##WMR271##">Threadneadle</a>, warns that the situation could be even worse than has been reported in the newspapers. Pointing to the fact that markets recently saw some "pretty savage moves" as overall prices fell by eight per cent and the struggling housing market, he states that things could yet deteriorate further. He said: "All through this slowdown the market has been guilty of over optimism. Slowing growth became a soft landing, became a slowdown to negligible growth with risk of recession. Would it be a surprise if we actually had a recession? Or is the surprise how sustained it will be?" http://www.worldmarketreports.com/Investors-'seek-a-safe-haven'-203_1_18706735.html Tue, 29 Jul 2008 16:20:44 +0000 Economic Russian roulette? Central banks could be left playing Russian roulette as inflationary pressures mount, the <a href="##WMR245##">JP Morgan Weekly Strategy Report</a> warns. Writing in the report, David Shairp paints an economic picture vastly different from the one seen just a few months ago when further interest rate cuts were being widely predicted for western economies. Now it seems more likely that rates will increase as inflation dominates both the financial and news headlines. He quotes Jean-Claude Trichet, president of the European Central Bank (ECB), as saying that rate increases in the euro zone are "possible" and that the bank is in a state of "heightened alertness" as prices continue to rise. Meanwhile, Mr Shairp states that the US Federal Reserve has dropped "a bombshell" by saying it is prepared to take action in order to ensure that the dollar remains strong. He points out that currency matters are usually the domain of the country's treasury and that the Fed's comments seem to indicate that it is willing to do more than just change interest rates. His colleague Tom Elliot is also keen to sound a note of caution. Writing in his Investment Outlook Mr Elliot points out that rising unemployment in the US and falling consumer confidence in the UK indicate that the "broader economic outlook is deteriorating". Meanwhile, countries in the euro zone are increasingly economically vulnerable due to the area's strong currency, Mr Elliot claims. These negative factors, combined with uncertain predicted earnings (PE) forecasts, outweigh the historically cheap stock valuations, he explained. The <a href="##WMR47##">Barings Global Weekly Review</a> also picks up on the threat of inflation to the UK economy. It cites the Bank of England's latest quarterly survey of expectations on the matter which found that the average UK resident thinks that prices have risen by 4.9 per cent in the last year - a figure that is much higher than the official Consumer Price Index (CPI), which currently stands at three per cent. Inflation worries are not only limited to the public, the report points out, with the Office for National Statistics revealing that producer inflation hit 8.9 per cent in May. According to Barings, the combination of these two factors might mean that the Bank has to increase its base rate "several times over the next year", despite the economic downturn caused by a slowdown in the UK's construction industry. Further afield, the report points out that economic growth in Japan is believed to have peaked for the current economic cycle. It quotes the country's cabinet office as stating that the longest continuous period of growth the nation has experienced since the end of the Second World War appears to have come to an end. It also highlights concerns over rising energy prices in Japan. According to Barings this has led to a 17.5 per cent fall in corporate profits as firms are unable to pass on the higher costs to consumers. Barings also points out that inflationary pressures are not only a concern for western economies, with several developing economies increasing interest rates in order to ease the situation. Central banks in India, South Africa and Brazil have all been forced revise rates upwards in recent months. The major exception to this situation is South Korea. The Asian country has actually being trying to boost consumer spending through tax cuts after higher energy prices cut the purchasing power of households and small firms, the report reveals. The threat of inflation also raises its head in the <a href="##WMR243##">Threadneedle Investment Strategy</a> report for June, albeit in a slightly more positive manner. According to Sarah Arkle, chief investment officer for the firm, while increasing oil prices are driving headline figures up, this should not lead to higher levels of inflation across economies as a whole. She cites the example of the US CPI - which excludes food and energy. Ms Arkle explains that this has "eased in recent months" as housing costs fall and consumers tighten their belts. Wage increases in developed economies have also remained relatively subdued and the combination of all these factors should mean that a return to stagflation should be avoided, she believes. The rising cost of oil and "the fundamentals of supply and demand" mean that it is likely investments in the energy sector will continue to offer good returns for investors, she predicted. However, inflationary pressures make equity markets less attractive and emerging economies as well as those in the Pacific Basin area - excluding Japan - could be hit hardest, at least in the short-term, Ms Arkle cautions. Despite this the potential for strong growth should see equities in such countries "outperform over the medium term", she added. Predication of strong growth in Asian markets seems to be born out by the <a href="##WMR87##">Invesco Perpetual Asian Market Update</a>. The report states that some nation in the region "reported much better-than-expected" economic growth figures for the first quarter of this year. It points out that the Indian economy grew by 8.8 per cent year and year, with Malaysia, Hong Kong, Thailand, Taiwan and Indonesia also reporting good levels of expansion, the report adds. The report does agree that inflation is an issue for the region and highlights the fact that the People's Bank of China has already increased interest rates to 16.5 per cent. The Bank of Indonesia also increased the cost of borrowing to 8.25 per cent "with strong indication of further increases to come", the report concludes. However, writing in his <a href="##WMR271##">weekly blog</a>, Leigh Harrison, head of UK equities at Threadneadle warns that the current economic slowdown might take longer to play out than people expect. He said: "The current environment is more like a slow motion car crash than the rather more spectacular busts of the eighties and nineties." Mr Harrison believes that although this means things could drag on for longer than some would have liked, it will also make the situation easier to manage "unless a major policy error occurs". No matter what happens he expects the coming months to be "a real test of investors' skills". http://www.worldmarketreports.com/Economic-Russian-roulette--203_1_18672226.html Mon, 07 Jul 2008 14:47:32 +0000 Opportunities amid the turmoil The turmoil that has characterised global financial markets since last summer shows little sign of abating, according to the <a href="##WMR132##">Invesco Perpetual Investments Topics</a> report. It states that if an equity bear market is considered to be one which experience a 20 per cent drop in the value of the stock market, then just such a market is now a reality. The report sounds what seems like an even more pessimistic note about the state of the UK economy claiming that there is "a good chance" of it going into recession. However, this is not as grim a situation as people might imagine. While there might be tough times ahead, the outlook for the equity and credit markets are actually quite attractive. According to the report some good opportunities have been created by recent events. "We see many companies trading at calculations which we consider very attractive, especially when judged on a three to five-year investment time horizon", the report states. Further good news is provided by the fact that the current bear market has strong similarities with the ones seen in 1987 and 1998 - both of which were very short lived. UK equity markets have recently experienced some "unusual" dynamics and despite recent losses there is no need for a "fundamental change of strategy", the report concludes. http://www.worldmarketreports.com/Opportunities-amid-the-turmoil-203_1_18624037.html Wed, 04 Jun 2008 17:08:11 +0000 April:- Counting on rate cuts? Recent months have seen central banks cut interest rates in order to shore up the economy, ease the squeeze on credit supply and settle the nerves of investors, April has been no exception. But, with some predicting thousands of job losses in the financial services sector what effect, short-term and long-term, will such action actually have? Well, the <a href="##WMR47##">Barings Weekly Report</a>, published on April 18th confidently, and as it turns out accurately predicts that - at least in the UK - rate cuts alone will not be enough. It points out that "the latest reading of the three-month Libor rate - the rate at which banks lend to each other - was 5.93 per cent, well above the Bank's main lending rate of five per cent". Because of this, the reports predicted that the chancellor would step in to offer cash to ease the situation, something which he confirmed on April 21st. However, Barings is unsure if such a move will boost the economy. The gloomy situation is mirrored in the US with Barings pointing out that the country has a "lacklustre outlook" for manufacturing. Meanwhile, writing for the <a href="##WMR243##">Threadneedle Investment Strategy</a> Sarah Arkle predicted that interest rates in the US are set to fall even further as the country looks to kick-start their economies. She said: "US interest rates are expected to be cut further, although at a more measured pace, to below two per cent and our expectations for year-end rates have been lowered to 1.5 per cent". She added that the rate cuts have "finally stabilised financial confidence" in the country, although this is still "fragile". And although rising oil and food prices are good news for commodities investors, the situation means that headline inflation will continue to be an issue, she stated. And demand for commodities is set to remain high, with the expansion of emerging economies continuing to drive demand for such products. Such markets, while not immune from the US slowdown, are likely to fair somewhat better due to higher demand in their domestic economies. This, and the "strength of company balance sheets and merger activity" means that such areas continue to prove attractive to investors. This review is, to some extent, reflected by Edmund Brandt in the <a href="##WMR108##">JPMorgan Asset Management Weekly Stock Market Report</a>. He points out that while Japan struggled as its exporters were hit by the weak dollar, many markets in the Pacific area showed positive performances. He said: "Taiwan's stock exchange was the star performer, returning 3.6 per cent. Taiwan's March trade figures beat expectations, with March exports rising 22.8 per cent over-year-ago". However, he warned that inflation remains and ever present threat to the nation's economy. Meanwhile, Australia's All Ordinaries index was the region's worst performer, falling by 2.8 per cent. Mr Brandt indicated that the nation seems to be subject to the same worries as the English-speaking countries in the northern hemisphere. "Economic data was weak, with employment growth slowing, residential building approvals flat and falling business and consumer confidence," he stated. Meanwhile, back in the UK the <a href="##WMR236##">Threadneedle Globetrot-UK</a> report outlines the difficulties that the Bank of England faces in trying to balance interest rate cuts with the threat of inflation. Its task was complicated by indications of continued price pressures keeping CPI above the central bank's two per cent target rate, with inflation rising to 2.5 per in February, the highest level in nine months," the report stated. However, stronger than predicted retail figures are some ground for optimism, it added. Writing in his blog, Leigh Harrison, head of UK equities for the firm sounded an even more pessimistic note. He said: "The real surprise from here might well be that the stormy waters all lie ahead of us and not in the recent past." He believes that the economy in the UK will struggle to show any meaningful growth in the coming months, or perhaps even years. However, the situation for investors might not be as grim as is made out. In the JPMorgan North America week under review report Edmund Brandt points out that while economic data releases have been, they are increasingly being ignored by investors. He also points out that 58 per cent of the companies who have issued reports so far in the current earnings season have beaten expectations. Though the fact that 41 per cent of such firms reported lower earnings than in the first quarter of 2007 means that this is only grounds for cautious optimism. The <a href="##WMR228##"> Standard Life Investments Global Sectors Report</a> paints picture of markets dominated by "continued volatility". Keith Skeoch, chief executive explained that while this could be bad news for some, those who change their strategy might stand to gain from the situation. He said: "It is at times like this that an investor must adopt a longer term timescale, see whether the overall balance of the portfolio remains sensible and look for oversold assets which can be bought cheaply, but which have the opportunity of giving good long-term returns. His colleague, Richard Batty, adds that long-term opportunities in assets such as investment grade credit, high yielding equities and commercial property. Although he warns that short-term volatility means that such investments are not for the faint hearted. Finally, the <a href="##WMR242##">Threadneedle Bull and Bear</a> report suggests that there might be some respite from the economic turmoil to be found in European markets. It points out that recent economic data seems to indicate that the EU economy is resilient. Furthermore, the strength of euro means that returns will be enhanced for those outside the eurozone. However, the region will not escape volatility together. The strong currency will impact on exports and it also faces the same inflationary pressures that the UK does, meaning that interest rates could be difficult. It concludes by stating that the EU economy is lagging behind the troubles seen across the Atlantic in the USA. This means that while the area's economy is likely to be stronger than that of America this year, it may well be weaker the year after. http://www.worldmarketreports.com/April:-Counting-on-rate-cuts--203_1_18575791.html Wed, 30 Apr 2008 23:31:41 +0000 March 2008 - A light at the end of the tunnel? March 2008 - A light at the end of the tunnel? Recently it has been difficult to open a newspaper or turn on the television without encountering the words subprime, recession or credit crunch, usually with the word crisis following somewhere close behind. So with all this doom and gloom is there any sign of optimism among investment experts? The latest <a href="##WMR10##">JPMorgan Asset Management Investment Outlook</a> starts with what may be something of a statement of the obvious, pointing out that global stock markets continued to struggle in February amid concerns about US economic growth and credit writedowns. However, Tom Elliot's report does pick out two bright spots, identifying that government bond markets and emerging market equities both performed strongly last month, with the former outperforming global equities. Commodity investors also experienced a good month, as oil hit new record highs of over $100 (£50) a barrel and gold broke the $1,000 an ounce barrier. Food prices also made sharp gains, with wheat prices on the Minneapolis Grain Exchange rising by 25 per cent in one today. Unfortunately, the report sees little reason to be optimistic about financial markets in coming months, outlining three key issues to be cautious over investments. These are the prospect of a recession in the USA and a general slowdown in economies worldwide, fears over increased inflation and possibly stagflation and continuing instability in the financial sector. Indeed, writing in his weekly strategy report, David Shairp ponders as to whether US monetary policy has become "impotent". He underlines two issues. Firstly interest rate cuts do not seem to have brought the expected relief for mortgage holders; he points out that despite the recent large cuts by the Fed, US mortgage rates have not followed suit. The second area of concern over US monetary policy raised by Mr Shairp is the fact that the decline in Fed Funds has occurred with no corresponding expansion in the Fed's balance sheet which "hardly suggests much in the way of stimulus". These sentiments are echoed by the <a href="##WMR263##">Standard Life Investments Global Overview</a>, which warns that things are likely to get worse in terms of market volatility before they get better. However, the report also highlights various positive issues across a selection of markets. In the UK equities market, positive earning and dividend growth, as well as strong cash flow and share buy-backs are all seen as providing a ray of light for investors. In the wider European market, the prospect for mergers and acquisitions is singled out as an encouraging factor by the report. For emerging market equities, the report points out that the commodities cycle remains positive and that some central banks across the globe will be able to ease monetary policy if inflation remains under control, though it does warn that "valuations remain rich in many markets". On the subject of monetary policy, the report recommends investors "watch what they do, not what they say", as central banks seek to balance various economic pressures. The general view of grim news from the financial sector and better news from other areas is maintained in the <a href="##WMR48##">Barings World Market Review</a>. According to this report, the increase in the number of regional banks reporting losses or problems helped increase uncertainty in equity markets. However, the report quotes, and agrees with, a statement by Federal Reserve Chairman Ben S Bernake, who said: "As a whole, the non-financial business sector remains in good financial condition, with strong profits, liquid balance sheets and corporate leverage near historical lows." And, according to Barings, this optimism is not just limited to the US, with the same being true in other countries. French power firm Areva, Japanese earthmoving equipment manufacturer Komatsu and Hewlett Packard all should all find market conditions favourable in coming months, the report added. The <a href="##WMR242##">ThreadNeedle Bull and Bear</a> report also seeks positives among the general doom and gloom, pointing out that despite recent problems, earning expectations in main sectors in the US remain positive, something which could boost the US equities market. However, as well as the common economic worries, the report points out that the weak US dollar will erode returns for sterling and euro-based investors. The message over the US market seems to be one of wait and see with the report stating "economic conditions appear to be worsening but, ample stimulus from authorities should help stimulate growth later in the year". The report also states that the Asia-Pacific-based equities should largely ride out the global downturn. It says that despite inflationary pressures the long-term conditions that make the market attractive are still in place. Commodities are again singled out as a potential bright spot in the <a href="##WMR243##">Threadneedle Investment Strategy</a> report. Writing in the publication, Sarah Arkle, chief investment officer for the firm, said: "Whilst the pace of economic growth is forecast to be slower in the Asian region, demand for commodities is expected to be high as government continue to spend on large-scale infrastructure projects". She added that the same demand is underpinning the economies of Brazil and Russia, which the firm expects to grow by five and seven per cent respectively in the coming year. Writing in his blog, Leigh Harrison, head of UK equities for Threadneedle, sounds one of the most optimistic notes of all, saying the monetary policy is already having an effect on markets and should continue to do so. He said: "The equity market is responding to cuts in short-term interest rates and a steepening yield curve, classic indicators that policy has switched to being very pro-growth and that corporate earnings and share prices will benefit in due course." However, he did warn that there is evidence of deleveraging taking place among high geared investors as they seek to reduce their exposure in what is still an uncertain environment. To do so, he said, they will have to make short-term investments at the expense of their long-term defensive positions. This, Mr Harrison believes, indicates that the market may not be entirely confident as the level of the index suggests. The upcoming results season "will be very interesting", he concluded. http://www.worldmarketreports.com/March-2008-A-light-at-the-end-of-the-tunnel--203_1_18529513.html Mon, 31 Mar 2008 14:56:20 +0000 February 2008 - Can interest rate cuts revive world markets? The first month of 2008 has seen investors hopefully looking for clues that the oncoming year will bear little resemblance to the uncertainty and unpredictability of the 12 months that preceded it. While fears of a recession in the US and concerns over the property market in the UK remain, January has seen a welcome element of calm restored to markets, mainly driven by the willingness of central banks to take decisive action. As Percival Stanion comments in the <a href="##WMR233##">Barings Monthly Asset Allocation Views</a>, the Federal Reserve's recent decision to cut short-term interest rates by 0.75 per cent shows that the US now has a central bank "fully committed to doing everything possible to maintain growth". So what exact effect has the recent spate of rate cuts had on the outlook for 2008, and will policymakers continue to push the cost of borrowing down to stimulate growth as the year goes on? The <a href="##WMR47##">Barings Global Weekly Review</a> turns its attention to last week's interest rate reduction by the Bank of England, with the monetary policy committee (MPC) electing to cut the base rate from 5.5 per cent to 5.25 per cent. This move was widely expected of course, with most analysts predicting that the MPC will continue to lower rates gradually throughout the year. Perhaps more pressing is the issue of interest rates in euroland. While the European Central Bank (ECB) opted to maintain its key rate at four per cent recently, there are signs that ECB president Jean-Claude Trichet has become "a lot less hawkish" about inflation in the eurozone and is "softening his hardline stance on a rate move", the Barings review suggests. The recent emergence of "gloomier" economic data for euroland means that Mr Trichet could sanction a rate cut sooner than expected. This view is shared by Percival Stanion, who notes that the ECB's "complacency over the resilience of the economy" is beginning to falter as growth subsides and consumer sentiment softens. He is in agreement that European policymakers may be forced to follow the example of the UK and US by cutting interest rates, but is slightly more conservative with the timescale, stating that a reduction is unlikely to occur before the second half of the year. Such a move is also hinted at in the <a href="##WMR263##">Standard Life Investments Global Review</a>, where Andrew Milligan notes that on both sides of the Atlantic "the authorities are beginning to realise the gravity of the situation facing financial markets and respond accordingly". He discusses the recent "high-profile action" in the UK and US central banks which has seen significant rate cuts beginning to restore market activity and the confidence of investors. Crucially, Mr Milligan stresses that much work remains to be done, with the subprime fallout continuing in the form of the US housing recession, which he suggests "could last into 2009". David Shairp shifts the focus back to euroland in his <a href="##WMR245##"> JPMorgan Weekly Stock Market Report</a> for February 11th. He describes the ECB as being "on the path to Damascus" regarding its interest rate policy, as "the prospect of a really unpleasant slowdown" in European markets becomes increasingly likely and forces policymakers to rethink their position on rates. While much investment attention remains focused on the UK and US markets, Mr Shairp suggests that analysts could benefit from monitoring events in Europe more closely, because the market currently represents "the Maginot line for the 'de-coupling brigade' who believe that a global slowdown can be avoided despite rising evidence of a US recession". Tom Elliot also considers the interest rate question in the <a href="##WMR245##">JPMorgan Monthly Investment Outlook</a>, although he is less concerned with the future and turns his attention to immediate market concerns. Despite the MPC's recent 25 basis point cut and suggestions that the ECB is reconsidering its stance on interest rates, he states that "both European banks are running overly tight monetary policies" in light of current market conditions. Describing the UK as the global economy "most in need of monetary relief", Mr Elliot speculates that this month's rate reduction from the Bank of England could be "too little too late" as property prices continue to fall and consumer confidence remains low. Looking at the economy more generally, Julian Chillingworth takes an optimistic approach while continuing to advocate caution in the <a href="##WMR281##">Rathbones Economic and Market Review</a>, stating that 2008 is likely to be a year "of two distinct halves", with investment opportunities remaining limited during the first six months before a period of recovery begins in the second half of the year. However, the <a href="##WMR114##">Standard Life Investments Report</a> suggests that such a defensive outlook in the early stages of the year may be misplaced, as the anticipation of further interest rate cuts stimulates activity and produces some good investment opportunities. David Cumming, head of UK equities at Standard Life, states that "sentiment is too pessimistic and much of the negative news is already in the market". With this in mind, he highlights the current potential for investment in oil stocks, confident that the market's "sound management and strong competitive positioning" can yield positive long-term results for brave investors. Nevertheless, investment strategies characterised by caution and defence are likely to remain common in February, as Michael Gifford of Old Mutual has explained. He views the recent rate cuts by central banks as "indicative" of the "scale and depth" of the current economic downturn, rather than signals of improving conditions. Consequently, Mr Gifford recommends safe fund investments in areas such as utilities and telecoms, which can offer "stable earnings" and "good dividend growth" in the face of ongoing market volatility. Despite the commendable efforts of central banks to restore confidence in world markets, the uncertainty caused by last year's liquidity problems lingers on and many are likely to join Mr Gifford in taking a defensive approach until clearer signs of improvement emerge. http://www.worldmarketreports.com/February-2008-Can-interest-rate-cuts-revive-world-markets--203_1_18466287.html Wed, 13 Feb 2008 14:59:39 +0000 2008: Navigating the whirlpool Many investors could be forgiven for feeling unsettled at the start of 2008, having endured a tumultuous 12 months in which the collapse of subprime lending in the US caused confidence to plummet right across the financial sector. Head of asset allocation at Barings Percival Stanion has commented that the economic outlook for the new year is mainly dependent on "how quickly banks are prepared to start lending funds to each other again" - something many institutions have remained reluctant to do in light of the continuing fallout from liquidity problems in the credit markets and a rapidly slowing property sector. Is the pre-Christmas chill set to extend into the early months of 2008 as investors continue to play it safe with their assets, or will the new year bring a fresh perspective and renewed confidence across global markets? "Don't throw in the towel yet," David Shairp of <a href="##WMR245##">JPMorgan Weekly Stock Market Report</a> urges in his weekly strategy report for January 7th. While admitting that conditions remain tight in the US and Europe, with earnings momentum dropping away, he identifies several "straws in the wind" which warn against an overly negative approach and suggest that the start of 2008 could usher in some genuine market changes. Chief among these are the "signs that the interbank markets are thawing", while valuations remain supportive and equity risk premiums at a high level. Mr Sharp concludes that the dawn of a new year should offer "scope for reflection" rather than prompting frenzied activity or cautious withdrawal. Turning his attention to the eurozone, he notes that conditions are still "restrictive" there because the elevated level of the euro has begun to impact on growth, suggesting that Asian and emerging markets remain a more inviting prospect. The <a href="##WMR47##">Barings Global Weekly Review</a> casts a similarly wary eye over the European market, stating that recent economic data for euroland is decidedly "mixed". However, investors can perhaps take heart from the fact that the German market - the largest of the region - has "proven resilient in spite of strong economic headwinds", with unemployment dropping to a six-year low last month. In the <a href="##WMR48##">Barings World Market Monthly Review</a>, the outlook for the UK is dominated by the state of the property market. With various surveys recording steady falls in prices for the last quarter of 2007, the implication is that the overall economy is heading for a slowdown, although the Royal Institution of Chartered Surveyors (Rics) has stated that factors such as strong buyer demand and lower interest rates will underpin the housing sector and prevent any extended drop in prices. Nevertheless, there can be no doubt that concerns over the long-term outlook for property continue to impact on investor confidence in the UK, particularly in light of recent comments from Rics about the frailty of the commercial property sector, which was hit hard in the latter stages of last year. According to Barings, sterling was "by far the weakest" of the major currencies during December and is yet to show real signs of improvement, while the failure to find a buyer for troubled lender Northern Rock and resolve the major financial crisis of last year continues to cast a shadow over the forecast for 2008. Returning briefly to Percival Stanion's <a href="##WMR233##"> Barings Monthly Asset Allocation Views</a>, he also recommends a careful approach for the new year but does sound a hopeful note by stating that the recent central bank intervention could "ease congestion in the world's money markets". However, he concedes that such actions usually have a delayed impact, suggesting that investors should proceed with caution in the short term, particularly in the UK, which now has "the highest risk of a recession out of all the western economies". As a result, Mr Stanion expresses concern about the immediate prospects for bonds and equities in the domestic market. The <a href="##WMR83##"> Invesco Perpetual Monthly Market Roundup Overview</a> observes the market conditions of November 2007 and also comments on the "continued pre-occupation with the effects of the liquidity squeeze on economic activity and corporate profitability" among global investors. Focusing on events in the US, the report welcomes Federal Reserve chairman Ben Bernanke's willingness to lower the Fed Funds rate, which has helped to boost economic growth stateside and partially alleviate fears of a recession. However, the challenges presented by the US economy last year have not been forgotten and continue to temper investment forecasts at the beginning of 2008, with Richard Dunbar of the <a href="##WMR216##">SWIP UK Market Outlook</a> describing the subprime collapse as a "whirlpool" which is "still circling" and pulling in the unfortunate and unprepared, such as its most high-profile casualty, Northern Rock. Citing the recent selling of assets by Bradford & Bingley and Alliance & Leicester as evidence that the subprime fallout continues unabated on this side of the Atlantic, Mr Dunbar predicts that the pervading economic conditions of 2007's credit crunch "could be with us for some time" in the UK. In terms of prospects for the US market, he is less confident than the Invesco report and describes the current chances of avoiding recession as "touch and go". Meanwhile, Gareth Quantrill of the <a href="##WMR216##">SWIP Global Bonds Market Outlook</a> advocates a slightly more positive view. While admitting that the effects of the subprime collapse will have a role to play in world markets for "the next 12 months at least", he expresses confidence in the US's ability to avoid recession, helped by the Fed's willingness to cut rates. In addition, he claims that the substantial re-pricing of markets has created improved opportunities for entry-level investment in bonds at the start of the year, regardless of wider economic conditions. Attempting a long-term forecast, Mr Quantrill also weighs up the question of the central banks and the ability of established monetary policy regimes to cope in the face of inflationary pressures from emerging markets - a challenge which could prove to be a crucial barometer of economic performance in developed markets over the next 18 months. http://www.worldmarketreports.com/2008:-Navigating-the-whirlpool-203_1_18421370.html Thu, 10 Jan 2008 13:40:50 +0000 2007 - Lessons to be learned With 2007 drawing to its conclusion, many investors may be wincing at memories of the last few months - and hoping for a brighter future in 2008. Undoubtedly this year will be remembered for the punishment meted out by the subprime markets, with overly-relaxed lending policies coming home to roost for a number of institutions. Notably, Northern Rock will stick in the minds of those tempted to dabble in high-risk lending in the ensuing years. However, perhaps more worrisome was the impact that short liquidity in the credit markets had throughout the wider financial sector, with tremors felt in more corners than expected. With the dollar continuing to flag and investors driving up the gold price as safe-haven buying prompts the rejection of major currencies and their associated assets, how do the early months of 2008 look set to pan out? http://www.worldmarketreports.com/2007-Lessons-to-be-learned-203_1_18387209.html Mon, 10 Dec 2007 10:48:27 +0000 What does the future hold for the FTSE? Will the FTSE rally to breach 7,000 in the coming months? Or has recent volatility both at home and abroad stymied any hopes of future record highs in the current climate? Such questions have been bandied about in the past weeks, with investors vying to cash in on temporary lows and avoid weaker stocks. With the markets having suffered in the late days of October and mixed news from the US causing jitters throughout the FTSE indices, leading to a close on Friday of 6530.6, many fund managers nonetheless remain quietly confident that gains are still there to be made. The <a href="##WMR79##">M&G Strategic Corporate Bond Fund - Monthly Fund Review</a> states that in recent weeks the liquidity squeeze in credit markets has eased following injections of cash from a number of central banks into the markets. However, the monthly fund review of the <a href="##WMR134##">M&G UK Select Fund</a> continues to identify the sub-prime market difficulties in the US as a root cause for declining bank stocks in September. As a result, it disposed of interests in Bradford & Bingley and reinvested the capital in HBOS. The fund manager explains that the change was undertaken in order to move away from the risks associated with Bradford & Bingley's focus on the buy-to-let market to HBOS's more even spread of mortgages and insurance and the stability afforded by overseas assets. In contrast, Tom Elliot's <a href="##WMR245##">Latest Monthly Investment Outlook for JP Morgan Weekly Stock Market Report</a> asserts confidence in the domestic market. Reviewing recent weeks, Mr Elliot states that the sale of bluechip stocks by fund managers looking to make redemptions had impacted on the All Share Index through July and August, resulting in a fall of 1.8 per cent in sterling terms. However, the market recovered in a late September rally. While the credit crunch impacted on a variety of stocks - and especially Northern Rock - CPI inflation fell below the target rate of two per cent and economic data maintained a robust performance with second quarter GDP growth coming in at 3.3 per cent. In short, Mr Elliot believes that the UK's economy is beginning to slow, but that it is doing so from a position of strength. "We anticipate GDP growth this year of around 2.9 per cent, which should support domestic-focused stocks, while reasonable global demand will fuel export growth," he asserts. The bank run at Northern Rock has inevitably been a focus of much attention elsewhere. Sarah Arkle, chief investment officer at Threadneedle and commentator for <a href="##WMR243##">Threadneedle Investment Strategy's</a> October report, states that the run and the ensuing fallout has undermined the Bank of England's credibility and impacted heavily on both consumer and investor confidence. She asserts that the potential for an interest rate cut before the year is out is heightening. However, in terms of equities Ms Arkle is also upbeat, remarking: "UK companies are financially strong with healthy balance sheets and good cashflows," aiding the market's recovery in the face of reduced earnings forecasts. Elsewhere, the <a href="##WMR242##">Threadneedle Bull and Bear</a> report proclaims that "corporate balance sheers have never been in better shape". While earnings growth may slow and consumption is predicted to fall back next year, the market for equities is nonetheless "attractively valued" and should ride out short-term volatility. Some commentators have suggested that recent upset both at home and abroad has to some degree proved positive for lead index institutions as investors shy away from riskier possibilities. For instance, the <a href="##WMR83##">Invesco Perpetual Monthly Market Roundup Overview</a> observes that investors have been behaving cautiously in recent weeks in response to market instabilities, which has played in the favour of bluechip companies - the FTSE 100 rising as a rule while the FTSE 250 and FTSE SmallCap have performed less favourably. Meanwhile, the manager of the <a href="##WMR115##">Standard Life Investments UK Equity High Income Fund</a>, Karen Robertson, states that in spite of market volatility in recent months, the fundamentals at home remain relatively positive. An easing in inflationary concerns and "solid" economic growth in the UK, coupled with a strong reporting season, suggest that continued confidence over the next 12 months would not be misplaced, with share buybacks and strong dividend growth expected to persist. The fund has enjoyed continued strong performance in the last year as a result of heavy positioning in the mining sector with interests in the likes of Xstrata and Anglo-American, as well as heavy positions in companies subject to takeover such as Hanson. However, over-weighting in banks such as RBS and Barclays and in property stocks has impacted negatively on fund performance. Similarly, also in advance of recent trouble for mining stocks, <a href="##WMR264##">Standard Life Investments Quarterly Global Outlook's</a>, head of UK Equities, David Cumming, states that mining and industrial stocks have led the field in recent months ahead of consumer-focused sectors - partially due to their links with global economies including Asia and Latin America. The resulting independence from the US economy has allowed such stocks to ride out recent volatility in share prices. However, in spite of strong recent gains he believes that more profits are still to be made in these sectors. "Our heavy positions in mining and industrials are balanced by light weightings in consumer goods, services and property. We have been mindful that the domestic UK economy is exposed to a slowdown in consumer activity following the earlier tightening of monetary policy and the recent problems in the credit markets," Mr Cumming asserts. Erlend Lochen, joint fund manager of the <a href="##WMR113##">Standard Life Investments Higher Income Fund</a>, states that those firms in which they have invested have enjoyed strong fundamentals including low default rates and high company profitability, with all publishing reports in line with or exceeding expectations. Furthermore, demand for the asset class is much higher than supply at present. However, credit spreads are tight and exposed to volatility in the equity market. Nonetheless, should such volatility arise Mr Lochen asserts that combined with strong fundamentals, buying opportunities could present themselves. Overall, the fund is defensively placed while credit spread remains tight, with potential to move into the high-yield market when it reprices. The November house view of the <a href="##WMR113##">Standard Life Investments Higher Income Fund</a> reaffirms that, in terms of equities, companies are controlling costs resulting in positive earnings and growth in dividends, with strong cashflow providing support. However, oil and resources firms are vulnerable to a slip in commodity prices and the housing market remains subject to concerns over bad credit, potentially impacting on homebuilders. Overall, the fund believes that "the market is supported by a mix of favourable valuations and strong cash flows", prompting it to recommend staying very heavy in the sector. In contrast, the firm advises staying light in property given slowing consumer spending depressing the chances of good returns. Positivity regarding future gains is not shared by all, however. In the <a href="##WMR278##">SWIP UK Advantage Fund Interview with Peter Cockburn</a>, the commentator observes that "things will get more difficult", with a swing towards downgrades in earnings ratios. "As a market we think it's going to be more challenging than we've seen in the last three to four years," Mr Cockburn adds. Finally, in <a href="##WMR271##">Threadneedle Leigh Harrison's weekly blog</a>, Mr Harrison issued a warning against paying undue heed to current wobbles in the market. "After all the to-ing and fro-ing, reading about the dire state of the markets, to come back and find that little has changed really sums it up. Economies don't change that quickly and markets change as fast as the mood of the crowd," he states. So, while the Financial Times may report that equities may have fallen once again in London opening trading this morning, Monday November 5th - with miners, banks and retailers all bearing the brunt of credit market shocks - many fund managers remain stoic, focusing on the gains to be made from market slips over and above suggestions of further slides. http://www.worldmarketreports.com/What-does-the-future-hold-for-the-FTSE--203_1_18343852.html Tue, 06 Nov 2007 10:00:00 +0000 The sub-prime crisis - what next? A tumultuous summer across global markets is drawing to a close, but the full impact of the ructions felt across a wide variety of sectors is still being assessed as the dust begins to settle. The effects of the housing crisis in the US continued to impact on markets throughout September, as lenders tightened credit conditions. And further concerns became apparent, as difficulties seeped into the broader economy and global operations such as mining. <a href="##WMR48##">Barings World Market Monthly Review</a> reports on a warning from the Organization for Economic Co-Operation and Development stating that the US economy was set to experience a "quite significant" slowdown on the back of the crisis. At the same time, while in August hopes may have persisted that the effects of sub-prime difficulties might be restricted to the financial sector or largely within US shores, the events of September have proven that more than mere ripples have been felt across the Atlantic. The bank run at Northern Rock resulted in provision of liquidity support from the Bank of England and an unprecedented 100 per cent guarantee of saver security from the UK Treasury, while the European Central Bank acted to address the crisis by injecting billions of dollars into the financial markets. With the tremors abating, analysts are assessing the wounded and are starting to pose the question: what next for the sub-prime market? Perhaps surprisingly, the mood remains buoyant in a number of sectors. On October 1st, <a href="##WMR271##">Threadneedle Leigh Harrison's Weekly Blog</a> proves optimistic, suggesting that the true lows of recent weeks are now past. "Equity investors ... seem to be taking the view that we are past the worst of the knock on consequences of the US sub-prime loans crisis. Indeed, market watchers are now starting to price in another cut in the US and lower rates in the UK and Europe too," he explains. However, he sounds a warning that fixed interest markets and the wider economy remain on shaky ground, emphasising the lack of flexibility in credit markets, the potential slowdown in the UK housing market and ongoing "meltdown" in the US. But Peter Cockburn, manager of the <a href="##WMR185##">SWIP UK Advantage Fund</a>, is more downbeat. The feared bleed of instability from financial markets into others caused the <a href="##WMR115##">SWIP UK Opportunities Fund</a>, of which he took the helm last month, to reduce holdings in resources companies such as mining firms as pressure from the mortgage markets started to hit. Interestingly, the <a href="##WMR83##">Invesco Perpetual Monthly Market Roundup Overview</a> for September suggests that the US equity market outperformed all other global regions. Additionally, the <a href="##WMR88##">Invesco Perpetual USA Market Update</a> states that the "tumultuous" month in financial markets somewhat overshadowed "encouraging" earnings growth in US companies, with average quarter two growth pegged at 7.7 per cent. Meanwhile, Japan lagged - the adviser's <a href="##WMR83##">Japan Market Update</a> states that small and mid-cap stocks bore "the brunt" of the ensuing sell-off. European equities entered September lower, with the exception of Germany whose performance was buoyed up by companies such as Metro, Bayer and Volkswagen. <a href="##WMR115##">Standard Life Investments UK Equity High Income Fund's</a> Smaller Companies Fund update asserted that its target sector had underperformed during August amid fears of "contagion" from the sub-prime market. However, while the market saw volatility during the month, the fund's manager, Harry Nimmo, continues to see long-term potential in the market. "The underlying trading environment continues to be robust and we will take advantage of any stock level volatility to add to favoured positions," he asserts. And Karen Robertson, manager of the firm's Equity High Income Fund, states that the UK stock markets should benefit from lighter sentiment as investors see interest rates hitting the peak of their cycle. Meanwhile, in <a href="##WMR233##">Barings Monthly Asset Allocation Views</a>, Percival Stanion predicts a slowing of economic growth across the whole gamut of western economies in light of the lower availability of borrowing options for sub-prime borrowers. The head of asset allocation at the firm states that in the US the slowdown will continue to be driven by the weak housing market. Conversely, industrial growth should remain positive, as should business and governmental capital spending, he believes - while warning that inflationary concerns persist. Writing in September, Mr Stanion stated that US consumer spending would be bolstered should strong job market figures become apparent - and last week's statistics may bear out his forecast. "We are closely monitoring the problems in the US mortgage-backed debt market and the impact on US and international banks. As a result, we are downbeat on the prospects for the financial sector, particularly as earnings expectations are likely to be severely curtailed over the coming months," he stated. "However, though there may be some nasty shocks over the next few months, attractive buying opportunities should emerge." He concludes that materials, energy, industrials and technologies are more attractive sectors in the coming weeks than consumer-related and financial sectors. But Karen Robertson of <a href="##WMR115##">Standard Life Investments UK Equity High Income Fund</a> suggests that the financial sector is not as shaky as many believe: "Investors have priced in an overly pessimistic outlook for some companies in the banking sector, where we expect earnings trends to be more sustainable than the market expects." Returning to <a href="##WMR271##">Threadneedle Leigh Harrison's Weekly Blog</a>, warnings are sounded against short-sighted portfolio management in the coming weeks, with an eye to the year ahead essential. "Whilst some funds can take a short-term view for the next quarter, quite a few are already focused on the shape we need to have in 2008," Mr Harrison cautions. "Whilst I wouldn't want to have only the 2008 portfolio today, you need to be mindful of what you want to own for next year and make decisions for the fourth quarter this year in that light." Also looking to the future, Edmund Brandt writes in the <a href="##WMR108##">JPMorgan North America week under review</a> that stocks in the US are rising as investors see weak economic data as harbingers of a further rate cut by the Federal Reserve. In the face of the summer's shake-ups, S&P, Nasdaq and the Dow Jones all ended the quarter higher. However, while investors may be looking beyond sub-prime strife, the impact continues to be felt elsewhere: "Consumer confidence was undermined by further bad news from the housing market. The Conference Board's confidence index fell from 105.6 in August to 99.8, the lowest level in almost two years," Mr Brandt states. "New home sales fell 8.3 per cent in August, while existing home sales dropped 4.3 per cent - the sharpest fall in 16 years." This morning, October 8th, talk of possible takeover offers from four private equity firms has seen shares in Northern Rock jump by more than 13 per cent. As increasing numbers of institutions disclose the consequences of exposure to the sub-prime markets and the chances of a US recession are evaluated, the effects of the summer's difficulties are bound to be subject to heated debate and future speculation in the months to come. http://www.worldmarketreports.com/The-sub-prime-crisis-what-next--203_1_18309522.html Tue, 09 Oct 2007 09:36:11 +0000 Sub-prime woes start to crunch 'Credit crunch' became phrase of the month in the media in August as stock markets around the world fell and rose as the effects of poor sub-prime lending in the US spread. At its lowest, the FTSE fell 4.1 per cent, its worst day in over four years, while Dow Jones and other indices followed suit. Initially, before the events of the last two weeks, many experts predicted the effects of the sub-prime crisis would be limited to the US and those hedge funds that invested in sub-prime debt. However, the lack of visibility in the hedge fund market, seen by many as its benefit, also led to insecurities on the markets with investors being unsure where losses exactly fell, and those with burnt fingers slowly started to appear. As uncertainties increased, banks started to ease up on lending to investors and among themselves leading to the 'credit crunch' becoming 'liquidity crunch'. In Germany, two banks - IKB and Sachsen - were forced to ask the Bundesbank for an emergency rescue package because of losses faced and 17.3 billon has been provided by the central bank to other banks through its credit facility. In the UK, Halifax Bank of Scotland has announced that it is to step in to repay about $35 billion of commercial paper owed by its Grampian Funding division, following the instability. However, moving on - thanks to help from central banks providing liquidity to the markets and the Federal Reserve cutting it is discount rate along with a $3.75 billion injection into financial system - the markets have stabilised. Barclays was forced to borrow £314 million from the Bank of England through its emergency credit facility and similar loans of $500 million were given to Citibank, Bank of America, Morgan Chase and Wachovia from the Federal Reserve. The European Central Bank added emergency funds of 98.4 billion. <a href="##WMR271##">Threadneedle Leigh Harrison's weekly Blog </a> takes us through the ups and downs on last week when the sub-prime trouble erupted as the FTSE saw falls and rises and falls as rumours and counter-rumours circulated, before an eventual cutting of the discount rate by the Federal Reserve to hold the markets. Mr Harrison concluded at the end of the week: "No doubt things will bounce today because an air of normality seems to have returned but I remain suspicious - the news flow seems likely to unsettle the market a bit more before this whole adjustment is through. "My view is that this will be a good thing because risk has been mis-priced for a while now and moving back to more normal spreads in credit markets is part of the process of tightening monetary policy because growth and inflation are rising." Edmund Brandt, Investment Director at JPMorgan Asset Management, also takes readers through the week of uncertainties on both sides of the pond. In <a href="##WMR107##">JPMorgan week under review - Pacific </a> he writes: "The week began solidly, with financial stocks recovering some ground as it was rumoured regulators would loosen restrictions on the amount of home loans [to] federal mortgage agencies." However, by Thursday, Mr Brandt notes: "News that BNP Paribas had suspended three of its funds with subprime exposure sparked sharp global falls on Thursday, prompting the Fed to join the European Central Bank in seeking to stabilise markets with injections of liquidity. "Intervention from the central banks was a mixed blessing, with some bearish investors taking it as further indication of a looming liquidity crunch. However, despite early losses following sharp falls in Europe, Wall Street stabilised on Friday after further cash injections, with financial stocks managing to hold on to some of the week's gains." On this side of the Atlantic, Mr Brandt explains what happened in <a href="##WMR245##">JPMorgan Weekly Stock Market Report </a> "Financials were battered by concerns that several European institutions may be sitting on large subprime losses. These concerns grew after BNP Paribas, France's largest bank, announced it was freezing three of its asset-backed investment funds due to a complete evaporation of liquidity' in the credit markets," he explained. "Faced with such nervousness, many banks themselves were unwilling to lend to each other in the money markets, forcing overnight interest rates sharply higher to a peak of 4.6 per cent - their highest level in six years." Mr Brandt went on to describe the insecurity that surrounds the market, although is upbeat to a degree: "Investors are now asking - when will the markets stabilise? While no one can predict the bottom, it's clear that many stocks are now trading below fair value and selling at these levels may lock in needless losses. "Furthermore, European equities continue to be well supported by robust economic growth and improving corporate earnings growth. Therefore, those investors that have the ability to ride out the current volatility may be rewarded in the longer term." Looking forward, Threadneedle chief investment officer Sarah Arkle, in <a href="##WMR243##">Threadneedle Investment Strategy </a>, sees the current problems as more financial than economic. She writes: "The slowdown in the US housing market has been widely talked about for a number of months but it was hoped that its impact had been contained. The demise of a couple of hedge funds caused by exposure to sub-prime mortgage debt and the ripple effect into other areas of the US mortgage market has questioned that view. "However, at present the impact of difficult trading conditions in credit markets caused by the uncertainties within the US mortgage market remains primarily a financial problem rather than an economic one." Ms Arkle goes on to predict sub trend growth for the US in the medium term but the continued strong performance of China and Europe keeps global growth at healthy levels. UK GDP forecasts have also been upped. "Nervousness in the credit markets has had a knock-on effect on government bonds where yields have fallen towards the low end of our projected trading ranges. This move does not reflect the views being expressed by central banks, which have remained hawkish in tone with the Fed still talking about inflation being at 'elevated' levels and therefore the situation is not conducive to a cut in rates," she writes. Sebastian Mackay, senior economist at the SWIP bonds team predicts a limited impact on the real economy of the credit crunch. In <a href="##WMR172##">SWIP Global Economic Prospects Monthly</a>, he writes: "The recent re-pricing of risk in credit markets is part of the general tightening of global financial conditions. However, the impact on the real economy and risk assets in general should be limited, given that overall financial conditions are still not particularly restrictive." He added: "Continuing problems in the US housing market have fed through to a sharp widening of credit spreads and a sell-off in risk assets generally, raising fears of a 'credit crunch'. "Until recently, though, an optimistic consensus on the global economy had emerged in which the US economy was rebounding while other economies remained unaffected by the previous period of US weakness. Our view lies somewhere in between." Looking forward out of the crunch's uncertainty, traders are remaining circumspect and unwilling to say all is well, but while seas ahead are still expected to be choppy the consensus is that the worst is over, although the free credit that has been accessible for some time may not be so readily available. http://www.worldmarketreports.com/Sub-prime-woes-start-to-crunch-203_1_18258370.html Fri, 24 Aug 2007 17:33:44 +0000