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Investment View

There were not that many surprises last week although one that did provoke

a little comment prompts a re-examination of sterling&#39s relationship with

the euro. A 50 basis points&#39 hike in interest rates was more than was

expected from the European Central Bank. It prompted a bounce in this

sickly currency&#39s valuation, bringing the recovery from its nadir just a

few weeks ago to around 10 per cent. The burning question is, has the

turning point been reached?

You will find arguments on both sides when it comes to the euro debate. I

heard one economist from a leading US investment house firmly proclaim that

it was on the mend. An email from a US economic consultancy cautioned me

against buying euros on the strength of the interest rate hike and the

subsequent bounce. High Frequency Economics&#39 arguments are based upon the

interest rate spreads between euroland and America which, in its view, must

favour the dollar. You pays your money and you takes your choice.

Some years ago, Professor Tim Congdon predicted that the euro would not

get off the ground. As the clear strength of will to ensure it was

introduced became apparent, he amended his view to stating it would not

work. It is almost certainly too early to write off his concerns. Tim could

not see how a group of nations as disparate as the European Union could

possibly could have a “one size fits all” currency. You only have to look

at what is happening around the constituent countries to realise he has a


In Ireland, the economy looks to be overheating, with local inflation

rampant, driven in no small measure by cheap money. It seems unlikely the

latest rise in rates will do much to cool the situation there and it may not

help Germany where, despite a recovery, economic activity is still

relatively sluggish. Not every EU country is making progress at the same


If it were just individual economic data that should concern us, you could

argue this is within the capability of a strong central bank to manage. But

demographics vary as well. Ireland, as an example, has a young population,

so is far less vulnerable to the generational influences that threaten a

number of European nations. The need either to put up taxes substantially

or to cut back on central spending savagely is unlikely to go down well

with the local electorate. This, of course, is a principal plank of the

euro sceptics&#39 argument. We cut the tie between pensions and earnings back

in the 1980s and, in any event, have a much more highly developed private

pension industry than in continental Europe. Welfare spending could still

create pressures within euroland that could unsettle the single currency so

I, for one, am not calling the turn just yet.

Overall, I remain optimistic the euro will work in the longer term but it

will need a greater change in attitude than that which we have seen in many

of the states of the European Union so far. The burying of national

interest remains a future hope. I may find that house in France at a more

favourable exchange rate yet.

No change to British interest rates seemed inevitable with two new members

of the monetary policy committee who were almost certainly unwilling to

rock the boat until they had settled into their new role. At least the

changes to the FTSE 100 index were the minimum we might have expected,

given the volatility in the technology sector. In the end, we have lost a

net three TMT stocks but the percentage of this particular benchmark

accounted for by these sectors remains high. Whatever happens on Nasdaq

will continue to influence our own market performance.


Fund supermarket moves have to be good news for IFAs

Just like going to Tesco or Sainsbury, IFAs will soon be able to shoparound when selecting a fund supermarket.Fidelity has been joined by a new outfit, Consolidated Funds, financed byfour other fund management players. By November, when the new operationlaunches, IFAs will no longer face a Hobson&#39s choice between direct playerEgg, which cuts IFAs out […]

Legal advice service for £10 a month

Armstrong Neal Solicitors and its training organisation ProAct areoffering a legal service for IFAs for “the price of a takeaway”.For £10 a month, IFAs can join Legal Protect for guidance in disputeswith networks or a regulator. Armstrong Neal&#39s usual hourly rate is£250.Its caseload of IFA-based disputes has doubled this year. It says themajority of cases […]

Prudential&#39s Egg closes up 10 per cent after day one

Prudential&#39s online bank Egg floated on the markets this morning, rising as high as 190p before settling down at 176p as of 10:30 GMT. The Pru has received 85,000 applications from clients and staff eligible to purchase stock. The rest of the available shares were snapped up by City traders. The release of shares was […]

Venture Capital Trusts outperform FTSE 100

Venture capital funds beat the FTSE 100 Index by 13 points in 1999, according to a report from the British Venture Capital Association. The funds also outperformed pension funds by 12.3 percentage points the findings indicate. The Financial Times concludes that the report will likely delight Chancellor Gordon Brown who has embarked on a personal […]

Cricket - thumbnail

England vs Australia: pensions

Well, the cricket season is here, and England and Australia are stepping up to the wicket. Although we compete with each other in the sporting world, when it comes to pensions, Australia’s pension programme is held up as a model for our auto-enrolment initiative. Auto-enrolment was introduced because people weren’t saving enough into their pensions, and it is still early days but signs are positive. However, in Australia, saving into a pension is compulsory, and in fact employers are the ones who have to pay in. Employees in Australia can make additional contributions into their pensions, but they don’t have to. Should the onus be on the employer or employee to save? Well in the UK we think it’s both, but to get ‘adequate’ savings for retirement it’s the employee who has to pay more in.


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