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Rocky ride on rollercoaster

Market volatility is set to worsen as global inflation intensifies, warns F&C investment trust manager Jeremy Tigue.

He compares the rescue plan for the two US mortgage finance giants Fannie Mae and Freddie Mac with Northern Rock but suggests there will be far greater consequences. “If their debts are added to the US national debt, overseas investors may take fright and put pressure on the dollar,” he says. Tigue believes an outflow of foreign investors’ money could push up inflation and bring interest rate rises and he considers the UK banking sector could follow suit.

But he points to recent oil price falls and strong quarterly earnings from US bank Wells Fargo as positive signals. “A lower oil price would be good news for markets. The rally in bank shares shows how easily share prices can move in both directions and just how much bad news is factored into current valuations.”

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