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Weekly Update 30 June 2012

Another week passes and it seems that the markets took centre stage over the politicians this week, albeit briefly, with a lack of direction or impetus appearing from any political camp. The new Greek government, which gave a brief market rally, seems to have mostly collapsed with varying ailments, apparently without a sense irony. In the US the expected round of economic stimulus seems to have failed to appear despite weakening economic data which has pulled the S&P back from its brief foray into the 1360 territory, the first since May. This has largely quashed growth in the US equities market though the continued uncertainty with oil prices offers some good value stocks, not so much in oil companies directly but in oil servicing companies, an area we would advise to be bullish in.

In our opinion the most interesting development in the market this week is the mass downgrade of some of the highest profile “brand” banks. This seems to have been largely priced into the market already with a muted reaction across the board apart from Morgan Stanley, who having managed to avoid the worst of results experienced a jump in share price.

We live in interesting times when easy profit can be sought through second guessing rating agencies. However, we feel that this move was merited and whilst it hasn’t helped returns this week at least re-enforces the role of rating agencies in the markets, a welcome change from the controversy that surrounded them a few short years ago.

The major area of weakness to keep an eye on is Spain and its banks. The Spanish government formally requested a €100bn bailout for its banks;an independent report found it need €62bn to provide a buffer from further bad debts. Yes admittedly Spanish sovereign borrowing has pulled back from the brink, a re-assuring sign but here at we remain unconvinced that the Spanish government can really see this plan through. Senor Rajoy, we feel, is not being as forthcoming perhaps as he should be and we would, as last week, continue to advise clients to move out of the Euro if possible or go short. Gold has again seen a rally as has the USD and even Sterling as safe haven investments away from the Euro.

We shall see what comes from the EU summit but we cannot help but feel now that the real fly in the ointment is rapidly becoming Germany. Mrs Merkel is appearing more and more politically paralysed at home and the far reaching reforms that are needed to save the Euro perhaps would not be acceptable to a population that has never actually had a referendum on the Euro itself.

In Britain Moody’s the credit rating agency downgraded the credit ratings of all of Briatin’s high street banks as part of a major worldwide downgrade of bank ratings, which also saw those of Goldman Sachs, Morgan Stanley, UBS and Credit Suisse slashed.

Oil price remains rather muted, giving a welcome break to inflationary figures, particularly in the UK where we await the decision regarding further quantative easing and the ensuing market rally.

If you require more information on anything describe above please don’t hesitate to get in touch with us and the team at .


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