market news by nicholas ford

I sat through a couple of fund manager meetings last week and it struck me as odd that both of the presentations relied on an outlook that assumed the US would not go into recession in 2008. I thought at the time that this was a huge assumption in light of a plummeting domestic housing market and tighter credit conditions. The US has not suffered a consumer led recession since the early 1990's, is this another case of history being forgotten just when it may repeat itself?


Both of the managers stated that should the US dip into recession "all bets were off". Considering most informed commentators are giving the US a 50/50 chance of avoiding recession this suggests their presentations may be only 50% useful.


Despite the widely reported emergence of decoupling from the US (the reduced dependency of global growth on the health of the North American economy) it still accounts for around 50% of global GDP. On Monday morning, the FT reported that the credit markets are pricing in US recession. This might be a case of over reaction in the current gloomy credit environment, however much of the confidence of equity managers in the US market is placed in the Federal Reserves willingness to support the economy and hence equities using rate cuts. Clearly cutting rates works over the short term, but this may merely be postponing the pain.


Meanwhile, leading market indicator the FTSE 100 dipped down nearer 6000 last week, seemingly testing this level. As I have mentioned before on this page, I am not a chartist but the fact remains that some things are self fulfilling and should the index break down through this support level around the 6000 mark it seems that we could sell down further still.

Posted by: Nic Ford on Wednesday, November 28, 2007