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Market Commentary by Fergus Murison - January 2009

"Since my recent report there have been a number of significant market events which may well prove key elements in the market movements going forward.

1) Dollar/Yen has broken through 100 convincingly. Regular readers will know that I have been expecting this move for some time as there is a capitulation of the carry trade and the Bank of Japan realises that it cannot buy dollars forever.
2) US treasury long bonds hit an all time low yield, and there was a lot of comment about it.
3) The Nikkei index made a new 26 year low. Having peaked just below 40,000 it traded at 7,100 this morning in Tokyo, before reversing to post an 8.9% gain..."

Market Commentary by Fergus Murison - October 2008

"To say that, over the last month or so since I last wrote a report the markets have had a major upheaval falls some way short of reality. There have been many words spoken and written about the crisis that has unfolded in recent weeks and plenty of historical comparisons with previous times of crisis in financial markets; worst markets since the 1930’s, biggest points fall ever, biggest one day decline since 1987 et cetera et cetera.

When the USSR was broken up shortly after the first Gulf War and the Wall came down in Berlin there was a lot of talk of the failure of communism as an economic model. In much the same way, we are now hearing about the failure of capitalism. I am a great supporter of free markets and have spent much of my career studying the behaviour of markets, as opposed to being an expert in one particular field. While the current market conditions are far more detrimental to the UK and global economies than any previous recent crisis, the pattern of market action and reaction is consistent with other market corrections."

Market Commentary by Fergus Murison - August 2008

"Do lower crude oil prices mean that the threat of rising inflation is no longer there?   Commodity prices are notoriously volatile and for the 25 years following the second price shock of the seventies, changes in the price of West Texas Intermediate (WTI) often swung up or down by 10 to 15% in a few weeks, while in the long term not moving very far. It is hardly surprising that we have had a correction in prices from $147 to $110 after a very sharp run up. Any trader will tell you that nothing goes one way forever. I suspect we will now spend a significant period of time with prices ranging between $140 and $110.

This may appear to help the BoE with their inflation targets, however prices are up and wages are not (by as much) making life tougher for the majority. We have already referred to increasing union activity and they now appear to have come to the financial aid of the Labour Party. In these increasingly difficult times, expect to see further industrial action with more inflation busting pay claims."

Market Commentary by Fergus Murison - June 2008

"Writing last month I advocated “sell in May and go away”. We have certainly seen a good start to the next decline in equities and a pause early last week is a suitable level for small corrections prior to commencing even steeper declines. But what of the flight to quality rally? The rally in bonds due to worsening economic outlook.

As we suggested in May, we could not rule out a mild rally due to a wave of economic gloom but pushing us in the other direction is a tidal wave of inflationary pressure. At last even the Federal Open Market Committee (FOMC) has recognised the potential for rates to have to go up. To put the scale of the anticipated move into perspective, January ‘06 saw a long term high in the Gilt market with 10-year yields just below 4% and then falling prices and rising yields until the 10-year yields touched 5.75% in June last year. Since then we enjoyed a substantial correction with 10-year yields rallying to 4.25%. We are now starting another long bear move with a minimum target of 6% in 10-year yields.  Given the on-going credit concerns that will accompany this move, the Swap rates will go even further."

Market Commentary by Fergus Murison - May 2008

"There is an old London stock exchange saying, “Sell in May and go away!” I have always thought that it must have been nice to feel that there was no need to follow the market, or even invest from May to September, but also that this was from a bygone era. However, it so happens that following the turmoil of January and February, the world stock markets have enjoyed a healthy correction to the bear trend. Our target for the correction in the FTSE was 6150 in April. It has lasted marginally longer and gone marginally further but now looks ready to resume the down trend in stock prices.

All good news for bond yields I hear you say while rubbing your hands in anticipation of lower borrowing costs. I fear that despite deepening economic gloom, the rise in demand from Asia for all sorts of commodities and products is pushing prices ever higher. The central bankers, both here and across the channel, are looking nervously at inflation figures and are very reluctant to cut rates."

Market Commentary by Fergus Murison - March 2008

"The darkest hour comes just before the dawn, and the collapse of one of Wall Street’s leading firms certainly looked likely to precipitate further substantial shock waves through the world’s financial markets. Prompt action by the Federal Reserve over the weekend followed by a substantial cut in overnight rates last Tuesday turned the tide and markets have since consolidated and started to correct their recent falls.

So for the moment the emergency treatment has kept the sick patient stable, but what is the longer term outlook?  The world equity markets have fallen substantially over the last 6-9 months, in Asia by about 30%, and in the US and Europe by roughly 20%.  Hence a correction of some sort may well be overdue. With this latest medicine creating signs of an early recovery we expect a period of consolidation/correction with world stock markets bouncing from recent lows."

Market Commentary by Fergus Murison - February 2008

"2008 started as expected with weak equities and a flight to government bonds. The Federal Open Market Committee’s (FOMC) two rate cuts have helped to stabilise equities for the moment but has not helped the longer end of government bond markets. The intervention of central banks in December solved this liquidity problem significantly but not fully. Three month LIBOR has fallen from a peak of over 100bps above base rate to just 8bps. While it is normal for the very short LIBOR maturity to be slightly above base rates, it is not normal for longer maturities as it is almost certain that the Bank of England will cut interest rate in February and later in the year.

Inflation is still an issue despite deteriorating economic growth and, on this side of the Atlantic, both the Bank of England and the European Central Bank have suggested that they are unlikely to follow the US’s lead in dramatically slashing rates, although we should expect a cut from the Bank of England this week and some market participants are hoping for more than ¼ %."