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Financial Markets Jan 2009 - Armageddon Averted

Posted: January 7th, 2009 under Business, Finance.
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Justin Gowen at January 7, 2009 : 1:15 pm

With the threat of the imminent collapse of the world’s financial system no longer hanging above us there has been some return to normality.  Admittedly we are still in the first week back after holiday season and volumes are very much at the lower end, but we do seem to have the beginnings of orderly market conditions.

Whilst there is still clearly some navigating to be done by the policy makers, especially in the UK following the closure of some retailers late on in December, with rates in the developed world expected to head close to zero we are finally seeing the hoped for knock-on effect that money markets are beginning to free up.

This aggressive global monetary policy approach is also beginning to impact the corporate world with there now being a more sensible approach to valuations, as opposed to the panic we saw at the height of the de-leveraging during Q4 af last year.  The indeces tracking default risk of corporate bonds are tightening in investment grade names, whereas the crossover index tracking the higher risk end continues to widen reflecting the concern that these types of companies may well struggle to roll over their debt this year.

In equities the year has begun unremarkably with the FTSE still above 4,500 and the Dow above 9,000.  Until the first round of earnings numbers we would expect volaility to remain low, however the market still clearly remains vulnerable to any shock news.

Overall for January, after last year’s energy sapping volatility, we expect the markets to be reasonably quiet with risk appetite remaining low as participants just try and ease themselves back in without losing money.

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