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Global Economies and markets

One of the best rallies in history continued right through August into its last week, although signs of weakness appeared immediately September began. It was a rally that was evident in markets around the globe although China came a cropper, falling in each of the last four weeks. Analysts and pundits are still talking the market both ways although more and more are suggesting that too far, too fast will bring a sharp reaction in September or October - favourite months for market reversals. The sectors thought to be particularly susceptible to a slide, are Banks and Commodities. Apparently the UK government was showing a paper profit in RBS by the end of last week. That could indicate a time to sell, either by the government reducing its holding or investors choosing to take profits while the going is good.

The Baltic Dry Index was moving lower for much of August. Only recently did it regain a little poise but it is still relatively low around 2400.

There are indications from most industrialised countries that manufacturing industry is turning upwards indicating the recession may be over. Not by much, but the previous falls seem to have been reversed. The UK is a little behind the rest and activity has barely levelled.

I personally believe we should hang on to our hats and be ready for further rough times ahead. Cash should be reserved for a possible new low forming.

As much as equities have gained, bonds have also risen, forcing down yields. The usual response by bonds when equities are so buoyant is for bond prices to fall and yields to move sharply higher. Last week indeed, Government 2 year bond yield fell to its lowest ever at 0.816 which surely indicates something a bit drastic occurring. Even if the recession is over for Western economies, equities are surely looking rather overvalued with dividends remaining under pressure for the foreseeable future.

UK Economy & Politics

Summer has been a time of relative quiet in the political sphere. For which we are all undoubtedly glad.

Commodities

Gold has remained fairly high in the +$950 region while oil has weakened a little. The surplus of supply over demand for oil and natural gas has reinforced weakness in the market prices, most notably the gas futures price which is extremely weak (at a seven year low in the US). US oil stocks were stronger but Nymex price was briefly higher than Brent which is a rare occurrence so far this year. This was technical and reflected a bigger fall in Brent price on the week by comparison to the Nymex fall.

Currencies

Sterling had a bad week reflecting expectations that bank interest rate will remain at 0.5% for longer than originally expected. It fell against the US currency and hit an eleven year low against the Euro. Lucky for some.

UK Stocks

Only three new lows registered this week (and one was a gilt-edged) which must surely be significant. Or does it indicate that most equities have been dragged up by their ears from the depths and that the lows we have observed in recent months will return with a vengeance. Highs on the other hand have now moved to 46 (up from 33). Support Services and General financial were the most buoyant over the week. The FTSE 100 has now risen by 10.7% over the year to date (cf. 6.7% last month).

The FTSE small cap and 250 Indexes are still trouncing all the others over 8 months.

Mobius investments

Mobius have sat on their hands over the holiday period. The next meeting is September 15th and doubtless we shall review the first two weeks movements in the market before we discuss any changes in overall strategy

Martin Longman - Acknowledgements to Daily Telegraph and FT.