The US Government first intervened to save AIG following its near collapse. Meanwhile in the UK, following a steep decline in its share price, HBOS was forced to accept a takeover by Lloyds TSB, a move that will see the formation of the UK's largest banking group with roughly a one third share of the UK retail banking market.

Stock markets continued to tumble until the US Government made a second intervention and announced a USD700 billion plan to set up a fund to buy back much of the bad debt held by banks. The new fund will aim to sell off these "toxic" assets in the future, perhaps at a profit. This led to stock markets registering their largest daily gains since the 1930s.

Markets were also helped by US and UK regulators temporarily banning the short-selling of financial stocks. The US and UK Governments are also taking the initiative on greater international regulation and are proposing a framework for stricter governance of the global financial system.

The scale of US Government intervention could put the dollar under pressure. While the move will restore confidence in the stock markets, analysts see traders continuing to focus on the budget, the current-account deficit and negative real US interest rates.

The dollar stands at USD1.4568 per euro and 106.46 yen to the dollar. Two currencies, which have been the biggest losers against the dollar in recent months, have been Brazil's real and Australia's dollar. However, analysts forecast both to rebound if demand for higher-yielding assets reappears.

UK retail sales unexpectedly jumped in August by 1.2%, against a market concensus expectation of a 0.5% drop, and were 3.3% higher year on year. However, sales for the three months to August fell 0.8% compared to the previous three months, the largest drop since 1990.

The price of crude oil has risen sharply in the last week due to speculation that the stabilisation of financial markets following the US Government's rescue plan will invigorate demand. Crude oil for October delivery rose to USD105.77 a barrel on the New York Exchange.

A new gas and oil field on India's east coast has started production. India is Asia's third-biggest economy and imports 70% of its energy needs and doesn't produce enough natural gas to meet demand for power and fertiliser producers. The new field raises the possibility of further oil discoveries that could reduce India's massive deficit on the supply side.


The information set out herein has been obtained from various public sources and is sent to you by way of information only. Churchill & Partners Limited can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

The International Monetary Fund (IMF) has recently upgraded its growth forecast for the euro-zone and is predicting that growth across the 15 nations will average 1.75% over 2008. This compares favourably with its forecast of 1.4% made two months ago. The IMF has, however, maintained its prediction of growth of 1.2% for 2009 - a stark contrast to the 2.6% enjoyed in 2007.

In the US, the aggressive rate cutting strategy of the Federal Reserve, with the benchmark rate having been reduced to 2%, has prompted questions about the existence of a clear strategy to tackle inflation.

Meanwhile, in the UK, while rate cuts have been more modest than in the US, there have been reports that the Bank of England Governor, Mervyn King, may have to write another letter to the Chancellor of the Exchequer to explain why the UK has breached its 3% inflation limit.

Looking at currencies, the pound has advanced against most major currencies after an unexpected surge in UK retail sales, which increased 3.5% in May after falling 0.3% in April, according to data from the UK Office for National Statistics. A Bloomberg survey showed that economists had forecast a fall of 0.1% for the May figure.

Sterling's strength has also been reflected in the dollar's position against the euro as traders have sold euros and bought the pound. The US currency has risen 0.4% to USD1.5480 per euro.

Turning to oil, there has been comment that economic growth in the US next year could be reduced as much as 25 basis points if the price of oil does not fall.

The price of a barrel of crude has fallen by more than USD4 from the USD139.89 reached at the start of the week. It is currently sitting at USD135.44. The stronger dollar has dampened the appeal of commodities as an inflation hedge, which has helped to negate the effect of an oil field closure in Nigeria due to rebel attacks on pipelines and platforms.


The information set out herein has been obtained from various public sources and is sent to you by way of information only. Churchill & Partners Limited can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

In Europe's largest economy, Germany, economic growth has surprisingly accelerated at its fastest rate in 12 years. Gross domestic product in the first quarter of 2008 rose 1.5% from the fourth quarter of 2007 when it rose 0.3%. Spending on machinery and construction has been cited as the main reason for the strong performance with consumer spending and exports also contributing to economic growth.

Such strong performance in Germany, which accounts for about a third of the 15-nation euro-region economies, has prompted some analysts to suggest that the European Central Bank (ECB) may have room to leave interest rates at a six-year high as it fights inflation.

On the other hand, rising oil and commodity prices contributed to a rise in consumer prices of 2.6% in April from a year earlier, and a survey of economists by Bloomberg has indicated that the ECB may start cutting interest rates in September to bolster the euro-region economy.

Following a cut in the UK base interest rate, the Bank of England has presented its latest quarterly inflation report, which has quelled some expectations of a further cut next month. UK inflation has reached its highest level in 13 months at 3% on the back of high food and fuel costs. The Bank continues to face the challenges of a slowing economy and accelerating inflation.

Turning to oil, having hit a trading high of nearly USD127, a barrel of crude has been trading around the USD125 mark. The price fell at the start of this week on the back of reports that supplies in the US, the world's largest consumer, probably increased for a fourth week as a result of falling demand.

There has also been comment that demand in Asia may reduce if Indonesia and Malaysia implement reductions in fuel subsidies as the cost of maintaining them has risen with the price of oil having climbed to a record. In addition, China's strongest earthquake in 58 years may cut the nation's ability to produce energy as a result of damaged power plants and transmission lines. China's oil imports had already fallen for the first time in 18 months in April on the back of record crude prices.

Looking at currencies, the euro has risen against the dollar to stand at USD1.5516 following the news that economic growth in Germany was higher than forecast with its potential impact on interest rates. The euro also traded near a one-week high against the yen at Y162.93.

Meanwhile, on the equity front there are differing views on the continuing impact of the fallout from the credit crunch.

One view is that stock valuations have fallen to such an extent that the worst possible outcome is already priced in, although there has been the observation that this may be more applicable to emerging markets, which may be less exposed to the sub-prime situation.

While the initial impact of the credit crisis may have run its course in the developed markets, there is comment that the knock-on effects may continue for some time with, for example, high street customers having to contend with rising costs for basic consumer items and more onerous terms for home loans.

In the UK, the Bank of England maintained the base rate at 5.25% last week on the back of inflation fears, however, there is still a belief by some analysts that there could be another two interest rate cuts this year to assist the economy.

There is a view that UK equities could be well placed for a rebound in spite of data releases which indicate that economic growth slowed at the end of last year. Some analysts are of the opinion that a number of shares have been discounting the likelihood of a full-scale recession, like that experienced by the UK in the early 1990s, and stocks have reportedly already priced in a potential earnings collapse. However, it appears that the corporate reporting season has been relatively positive.

In the US, there is a continuing expectation that the Federal Reserve will maintain its rate cutting policy as it attempts to avert a recession and there has been comment that the benchmark rate could fall to as low as 1.5% this year. The dollar has fallen 4.2% against the euro and 9.2% against the yen, so far this year, on the back of such predictions. The US currency has now equalled an eight-year low of 101.43 yen with a forecast that it could fall to as low as 96 yen by the end of September.

On a more positive note, there has been comment that the US economy will avoid recession and will continue to grow, albeit slowly, with GDP growth predictions for the first and second quarter of 2008 of 0.7% and 1.2% respectively. Aggressive monetary action by the Fed, a pending fiscal package, ongoing efforts to stabilise the housing market and attractive corporate valuations are leading some analysts to believe that stocks will be supported. There is a view that as market uncertainty subsides, strong valuations will help stocks move higher and could result in increasing merger and acquisition activity.

Turning to Japan, there is a view that equity underperformance may not reflect market potential. Japan is home to a plethora of world-class corporations and technology and its currency is felt to be more likely to strengthen than weaken over the long run, which is better for foreign investors.

Corporate reform in Japan is also taking hold, with cross-shareholdings having fallen from around 50% in the 1990s to around 20% in 2006. The fall in loans from the banks has also been significant. In addition, a new corporate law enacted in May 2007 increases the prospects for merger and acquisition activity involving domestic and foreign firms. There is a feeling, therefore, that potential investors may be overlooking a number of positive factors.

Looking at oil, the price of a barrel of crude has risen to a record above USD108 as investors purchase futures as an alternative to investing in struggling financial markets. In addition, China, the second biggest oil-consuming country, increased crude oil imports by 18% last month to meet rising demand. The price of oil has now increased 77% over the last year while the S&P 500 and the Dow Jones indices have dropped.


The information set out herein has been obtained from various public sources and is sent to you by way of information only. Churchill & Partners Limited can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

Opinion on the possibility of a recession in the US still appears to be mixed. In the US, recession is usually defined as two successive quarters of falling Gross Domestic Product as judged by the National Bureau of Economic Research. Given the action taken by the US Federal Reserve to reduce interest rates sharply to 3%, there is a view that this will not happen. Conversely, there is another view that a decline in growth to 0.6% last quarter, from 3.9% the previous one, indicates a significant decline in economic activity and is stoking talk of recession.

Elsewhere, there is comment that China may be less prone to the fallout from a slowdown in the US economy. While a weakening of the world's largest economy may have an impact on Asian markets, China and many of the other Asia-Pacific countries have diversified their trading partners and depend less on the US than before. In China, domestic investment, consumption, strong demand for natural resources, the Beijing Olympics and rising government expenditure on roads, railways and power are seen as key underlying factors that will drive the economy.

Japan, however, is not viewed so favourably with a combination of a strong yen and stagnant domestic demand stifling investors' hopes for the country.

Meanwhile, the natural resources theme continues to drive interest in Latin America where economic growth has been assisted by a healthy export market. This has helped to improve domestic incomes, which, in turn, has created a growing consumer sector.

Russia has also been highlighted as an economy that is largely detached from the fallout of the credit crunch. Russia has two key resources that the rest of the world wants and needs - oil and gas. A proportion of the revenue from sales of oil and gas has been held back to create a reserve that has been used in part to increase wages, which has provided the stimulus for a growing consumer market. There is also a view that the Russian banks are unlikely to suffer the same problems affecting banks in the West as a result of the sub-prime lending situation.

While there are differing opinions on President Putin's stance towards the international community, the likelihood of a smooth transition of the Presidency to his favoured successor, Dmitry Medvedev, and Mr Medvedev's statement that he will appoint Mr Putin as Prime Minister, could be seen as providing some stability. The proposed transition has reportedly been widely supported by the general public, business leaders and the political elite.

Turning to oil, the price of a barrel of crude has risen to a record USD101.70 as a weakening dollar has encouraged investors to buy commodities priced in the currency.

Looking at currencies, the dollar has fallen to USD1.5055 per euro on speculation that the Federal Reserve Chairman, Ben Bernanke, will indicate that the US central bank is prepared to cut interest rates that are already at a three-year low. The dollar is now at its lowest against the euro since the European single currency was introduced in 1999.


The information set out herein has been obtained from various public sources and is sent to you by way of information only. Churchill & Partners Limited can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.