| Last week the ECB (European central bank) and MPC | | | | their American cousins in cutting rates, but if they do, it |
| (UK central bank) opted totake a 'wait and see' | | | | isperhaps likely that there could be a time lag between |
| approach with interest rates. Both announced that | | | | a potential MPC cut anda potential EBC cut. |
| theywould be leaving interest rates on hold, preferring | | | | On this basis the Euro could remain strong against the |
| to see how theirrespective economies hold up after | | | | sterling until 2008. Inaddition December could bring a |
| the summer turmoil. Many economists areexpecting | | | | shock to the UK government finances. A recentreport |
| both to move to a loosening bias in the future, with the | | | | revealed that by December the Government may |
| UKpredicted to cut rates before the end of the year. | | | | have to include its PFIliabilities on its balance sheet. If |
| Early last week US markets powered higher on the | | | | this were indeed to occur it could putfurther pressure |
| release of economic data thatincreased the likelihood | | | | on Sterling as government debt increases. With this in |
| of a further 25BP cut in interest rates. The Dow | | | | mind,a no touch trade could be a suitable option on the |
| Jones smashed through its previous record high of | | | | EURO/ GBP exchange rate. Ano touch with a trigger |
| 14,000, while the broader | | | | at 0.6700 over 90 days returns 12%. This allows |
| S&P500 followed suit on Friday. Leading the | | | | timefor any potential PFI difficulties to come into play. |
| charge has been the high tech | | | | Personal commentary From Matt Shaw |
| Nasdaq 100 with companies such as Google, Apple | | | | The Dow continues to play tag with the 14000 level. I |
| and RIM (Blackberry) poweringto record levels. Many | | | | do however think, thatanything beyond 14200 on the |
| questioned Google's IPO price of $100 per share, | | | | Dow will not be seen for several weeks now,possibly |
| butwith a share price approaching $600, Google | | | | months. |
| continues to grow at anastonishing pace. | | | | For the S&P, if we break below the 1445 level |
| Next week starts with some heavy announcements | | | | over the next 2-3 sessions, thenthe sell-off could |
| for the UK, with PPI andindustrial production figures | | | | commence. I estimate that we will begin the |
| having a potential impact on any interest ratedecisions. | | | | breakdown (ifit hasn't already started), by way of a |
| FOMC meeting minutes are usually scrutinised word by | | | | gradual process after next |
| word by Fedwatchers, and Tuesday's release of this | | | | Tuesday/Wednesday - 9th/10th Oct' |
| information will be no different. | | | | There is a lot of cash out there right now, ready to be |
| Every line will be examined and opaque sentences will | | | | put to work. Beforenow, it has been split evenly |
| be interpreted, all inthe hope of garnering clues as to | | | | between Stock Funds and Credit Funds. With the |
| the likelihood of a further rate cut. Wall | | | | Credit Crunch saga coming to fruition (funny choice of |
| Street is baying for another cut, and any hints either | | | | phrase) of late, thishas led to many people cashing in |
| way could see themarket move significantly. Friday | | | | their investments from Credit funds, Bondfunds and |
| sees the release of vital retail spendingand consumer | | | | Fixed Income, then put them to work into equities. |
| sentiment data in the US, both of which will reveal how | | | | Equities seemed like some sort of safe haven and |
| much therecent credit turmoil has affected the wider | | | | losses are seemingly morecontrolled. Combine these |
| economy. Some economists haveput the chances of | | | | factors with low interest rates, and the backdropof |
| a recession in the US as high as 50%, but this view | | | | inflation, and it seems equities were an 'easy buy', |
| wasquestioned with stronger than expected payroll | | | | hence no big sell-offtoward the end of Sept. |
| numbers last Friday. | | | | I now feel that we are set to Range trade over the |
| Elsewhere on the currency markets the Euro has | | | | coming weeks and I say thiswith a mild hint of |
| come off its highs against the | | | | hesitation - we may then sell-off from (more than |
| Dollar and Sterling, but remains well above pre summer | | | | mildly)end middle/end of Oct. With the FTSE - |
| pre spike levels. | | | | Resistance 6610 with support at 6325. |
| Part of the reason for this strength has been the drop | | | | This week could be the start of a strong decline, or |
| in interest rates inthe US in comparison to the tightening | | | | new highs, by way of afurther 1-2% rise! |
| bias of the EBC. Both the EBC and MPCmay follow | | | | |