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Monday, 9 June 2008

Nice summer days and the economy

My posts are getting fewer and further between on these nice summer days. Sadly the problems in the financial markets show no sign of abating. Although short term money seems to have stabalised and the banks are slowly getting through the initial problems of the credit crunch, market instability remains.

It is quite amazing to see oil prices shoot up by $10 in one day, all on the back of a statement by the ECB that it might have to raise interest rates. Longer-term borrowing rates have also been rising rapidly over the past month following the release of the Bank of England's inflation report, which has highlighted that inflation will remain well above target for some time.

In the next few months the slowdown in the economy will become increasingly apparent. Unemployment, as measured by the claimant count, actually rose in the first quarter, despite what the intial stats were telling us. This will continue to rise over the next two quarters, at least. Higher oil, food and mortgage costs will prevent households from spending, harming the retail industry. Business in general will be hit by higher borrowing costs and the slowdown in the general economy.

All in all things are looking fairly bleak for most of 2008. Until market fundamental return things will not get back to normal. Currently those working in the financial markets don't really know what's going on and therefore react aggresively to every new piece of data. Trichet at the ECB must have known this before his announcement last week - it seems strange that he would have mentioned his worries about the impact of higher inflation (significantly caused by high oil prices) and therefore pushing oil up even further in the process. I believe he should have waited and allowed a period of calm in the oil market, allowing for some sort of normality to return.

Finally I suggest that perhap it is time for the trading floors to calm down for the summer months and enjoy these nice hazy days. Perhaps taking a couple of months off to come back refreshed, rested and with hopefully a greater sense of calm and reality. Sadly this isn't likely, the only people in the City who are going to be enjoying the sun this summer are those that lose their jobs...there may well be quite a few of these people!

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Monday, 20 August 2007

Equity markets up for now

So it looks like the markets have steadied a little today following the decision by the Fed to lower the interest rate at which they lend to banks. However, given the limited improvements in equity markets today it is unlikely that the storm is over.

Expect more problems this week as more companies are forced to reveal the extent to which the subprime mortgage market and the subsequent market turmoil has hit various businesses.

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