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Investment view

Last week was bliss. Dedicated to Christmas shopping, not a trading screen was in view for all five days. The degree of detachment this delivered should, I felt, have allowed me to have determined just what markets were likely to deliver as we embark upon a new year and, hopefully, a new market phase. Sadly it was not to be. I ended the week more confused than when I started.

Plenty was happening as I trawled around the shops. House price rises were moderating, according to the monthly Halifax survey. With a rise in November of just 1.4 per cent, it looked as though the steam was going out of the housing market. But over the year, the increase in the cost of the average home was just a little shy of 30 per cent. Perhaps that is why the Bank of England decided against cutting interest rates.

There again, was the decision influenced by the incoming governor, the hawkish Mervyn King? The housing market data was not in the public domain when the monetary policy committee announced its decision but it would have been aware that the European Central Bank was likely to cave in to economic pressures and cut the cost of money. In the event, the ECB went the whole hog and lopped 50 basis points off the Eurozone rate. At 2.75 per cent, money is as cheap in Europe as it has been since the single currency was introduced.

The ECB is facing a shake-up. With enlargement of the eurozone as much of a certainty as anything can be in this life, a strategy needs to be put in place to cope with the situation that will arise when more countries join. Full proposals will not be disclosed until closer to Christmas but it appears that only a selection of national central bank governors, appointed by rotation, would vote in any one month on what to do with interest rates.

Uncertainty continues to dog the London market. The FTSE 100 index remains tied to the 4,000 level. An earlier attempt to break free on the upside came to nothing as profittakers moved in and share prices drifted lower. This is despite the mildest indicators that corporate activity is on the up. Not that the opportunistic bid for House of Fraser from Scottish entrepreneur Tom Hunter will add much to the bonus pool in the Square Mile.

With an opening shot of less than £200m, the fees are unlikely to do much more than keep the mergers and acquisitions departments of the investment banks and professional advisers involved ticking over. These are the boys (and girls for that matter) that earn the bonuses that keep the art of conspicuous consumption alive. Yet, according to figures released last week by the Office of National Statistics, City bonuses paid during the first quarter of 2002 were down by a full £1bn on the same period last year.

Unsurprisingly, this information sparked speculation that more big bonus cuts are just around the corner. Many parts of the financial services industry are undoubtedly going through a torrid time, with jobs being cut as well as bonuses. With smaller pay packets, there will be less incentive to trade up in the housing market, so perhaps the findings of the Halifax survey presages more than just a slowdown. It seemed that, despite rate cuts and takeover bids, the market remained unconvinced that better times were returning. Those with money to burn seem more likely these days to commit it to Eugenie-les-Bains or Estepona than equities.

The second-home market at least is flourishing. In the end, it will probably be the consumer that will have to lead the way into the next bull market. I have done my bit. It is time now for you all to do yours.


Substance of the argument

This week, I will conclude my examination of the Dextra case on employee benefit trusts.You will recall that the contributions that were the subject matter of the case were made by six group companies to an EBT. Within the trust, specific funds were allocated to six sub-trusts – one for each of three director shareholders […]

CML sad to see Davies go

On the departure of Howard Davies from the FSA next September the Council of Mortgage Lenders communications manager Bernard Clarke says: “Howard Davies has helped the FSA to steer a proper course in implementing the Treasury&#39s proposals for the statutory regulation of the mortgage market. “He has reinforced his reputation as a witty and entertaining […]

DBS run-off deal excludes retired members

DBS is reinstating run-off cover but only for current members, leaving retired members vulnerable to claims.Run-off cover was withdrawn four months ago when the network renewed its PI policy through Misys&#39 regular broker Windsor, rather than the established DBS broker PYV.The rejig was put down to aligning the five Misys networks ahead of the merger […]

Self-employed should get access to S2P – ABI

Enabling the 2.5 million self-employed workers access to the State Second Pension would close the savings gap by £2bn, according to consumer research from the ABI. The ABI survey showed fifty-one per cent of self-employed workers said they had lost confidence in their retirement saving compared with 39 per cent of employees. Only 1 per […]


What employers should expect over the next five years

A major feature of our articles is looking into the Jelf Employee Benefits crystal ball to predict changes and trends that may influence the short and medium term shape of UK employee benefits.  By flagging such changes early we aim to provide our followers with the tools to make sensible and informed decisions on their benefits offerings.


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