An inspiring beginning to the week as Slumdog cleaned up at the Oscars and Gail Trimble took out the University Challenge opposition. Somewhat less inspiring for markets however as we have seen a number of new themes emerge. Risk aversion is still top of the international agenda, albeit in a somewhat different way. The general muted tone has settled back over equity markets following a mid-week rally triggered by comments from Ben Bernanke, Chairman of the Federal Reserve. The prospect of further nationalisation of major US banks has preoccupied markets and confidence remains the crucial force driving investor sentiment.

To quickly recap, the week began in a downbeat way after Christopher Dodd, Chairman of the Senate Banking Committee, announced that the government may increase its stake in Citigroup and Bank of America, taking the beleaguered banks a step closer to nationalisation. This triggered a wave of risk aversion which sent Wall Street to multi-year lows and the Pound and Euro to the bottom of their ranges. As speculation of nationalisation grew, the Dow Jones fell to its lowest level in 12 years, Citigroup shed 20% of its share level while Bank of America lost 50%.

On Wednesday, Ben Bernanke made a speech noting that nationalisation was not imminent and that the government would be acting as supervisors rather than shareholders in the major banks. This led Wall Street to rise 3% and currencies rallied, boosted by the redistribution of funds as investors recovered some of their appetite for risk.

In the UK, the Pound's fortunes have been largely linked the rise and fall of investor confidence. Midweek the Pound rose to 1.46 versus the US Dollar, yet the release of GDP figures showing an unrevised -1.5% contraction in the fourth quarter of 2008 and a £24 billion write down from RBS sent Sterling back to 1.41 on the Dollar and 1.11 against the Euro. 

The Euro continues to be plagued by macro-economic factors which are threatening the concept of a single currency. ECB President Trichet noted the difficulties facing the Euro and highlighted the diverse range of policy responses the global recession requires. The EMU current account deficit is currently at -€7.3 billion reflecting declining import demand in the Eurozone. Results of the German IFO survey showed business confidence plunged to a record low in February. As a survey of over 7000 businesses in the Eurozone's largest economy, the IFO is seen as a crucial indicator of Eurozone economic sentiment and this too weighed on the Euro.

Elsewhere, mining giant Anglo American cut a further 9,000 jobs on top of the 10,000 cut last month. Reduced commodity demand is impacting on the activity and this is affecting the South African and Australian economies. The Philadelphia Fed showed manufacturing levels have reached 19 year lows in the US and Canadian inflation fell 0.4% in January, the same as the previous month. Within Eastern Europe, Poland is expected to be the tiger of the region, with growth of 1.3% predicted this year despite the recession. Contractions of up to -3.5% are expected in Hungary. Financial analysts Nomura expect Zloty to continue to trade in the vicinity of 4.7-4.75 versus the Euro in the first and second quarters of 2009, before rebounding to the 4.55 level in the second half of the year. 

A significant new theme has also emerged this week; Yen weakness. While traditionally regarded as a safe haven, rapid deterioration in the Japanese economy has rattled investor confidence in the currency. Japanese exports plunged 45.7% in January as a result of reduced demand from Japan's major trading partners. Currently at their lowest level in 10 years, this decline was fuelled by a 53% drop in exports to the US, 47% to the Eurozone and similar steep declines to China and other Asian economies.

Worldwide, currency markets continue to shadow US equities which remain the primary determinant of market sentiment. President Obama addressed the nation this week, outlining an ambitious government plan which includes both stimulating and greening US industry, cutting taxes and halving the US budget deficit within the next five years. Combined with Bernanke's comments this sent a wave of confidence to investors yet this confidence is countered by the fact that any upturn in UK or European growth is likely to lag behind the US by 1-2 quarters.

While economists initially predicted a ‘V' shape recession the decline may be longer than initially thought. More solid trends may be visible with the publication of first quarter statistics. So although it feels like to I have been saying the same thing for weeks now, the situation remains unchanged. Uncertainty abounds and while this is the case, information and keeping a line open to your dealer is your best bet.

Have a good weekend!