Weekly Market Summary

On Sunday, the G20 came out with a statement that they have agreed to half their deficit by 2013 and to reduce their debt to GDP ratios to more reasonable levels by 2016. They agreed that every country would implement austerity at their own pace as different countries had different needs. Japan was granted an exemption due to its high debt to GDP ratio and also as it had been in recession for the last two decades. Obama stated that he was convinced that the austerity measures that would be chosen would be carefully implemented so as not to affect global growth. While asian markets were mixed, european futures were up.

On Tuesday, global equity markets and commodities dived because investors were concerned that european banks would have great difficulty in paying back a one year emergency loan of 442 Billion Euros to the ECB which expied on Thursday. The EU sought to calm the markets by saying that any banks who did not have enough liquidity to pay their full commitment on Thursday would have access to unlimited funding on 3 month loans on Wednesday. Also, investors appetite for risk faded after a report showed a sharp drop in US consumer confidence which pushed up the price of US treasuries as safe havens were sought. Also a sharp downward revision to China's leading indicators index and weakness in Japanese exports and unemployment added to worries about the global economy.

On Thursday an unexpected rise in US Jobless claims added to concerns of a slowing economy in the United States. Also in the US, pending home sales of previously owned homes plunged a record 30 percent in May and the manufacturing index shed 6.3 percent in the second quarter. On Friday, us employment figures disappointed mainly because the private sector only employed 83,000 people in June which was less than market expectations of 112,000.

A very bad week for commodities and equities. The stockmarket is forward looking and is stating that the US and Chinese economic recovery is slowing and that the European debt crisis has not been resolved. Although we base our investment decisions on fundamental analysis, we noticed that there has also been a breakdown in technical analysis this week with the Dow Jones, Nasdaq and the S & P 500 all breaking below their 20 day moving average. Over the past two months, these indices had already gone below their 50 day and 200 day moving average. In layman's terms, this signifies that we are now officially in a bear market again.

As a precaution, we opted to review our strategy for the summer and have decided to pull out completely out of equities and commodities for the duration of the summer and instead rebalance into 80% high grade UK corporate debt and 20% US Dollar cash deposits. Our rationale is that low interest rates are here to stay for the foreseeable future which is good for bonds. Secondly, the investment into the US Dollar cash account is a play on currency appreciation which may benefit our Sterling and Euro clients. With the UK and the EU starting their austerity programmes, we expect their GDP's to lack behind US GDP growth. Also, if the concerns regarding possible debt default of the PIIGS accelerate, we may see a flight to safety to US treasuries which will cause the US Dollar to continue to appreciate.

Raymond Chatlani
Investment Analyst