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World Cup boost
by Tony Butcher
Issue 16
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Congratulations to Italy for winning the football World Cup, it was interesting to see all four semi-finalists were members of the euro-zone area. Although I am not sure about the strength of this link, what has to be considered is the success of these teams will give a boost to their economies.

Italy is already showing signs of a confidence boom and growth figures are likely to be revised up for the rest of the year. The other countries of Germany, France and UK have seen very solid retails sales growth for the latest period too.

On that note, Jean Claude Trichet, head of the European Central Bank (ECB), gave another strong signal that interest rates are set to rise in August, most likely by 25 basis points. This is in line with their policy to maintain price stability in the face of rising commodity prices. Exercising his continued “strong vigilance” the ECB is trying to defend the euro-zone economy from second-round inflation effects.

In the United Kingdom, Governor Mervyn King presided over an 11th straight pause in monetary policy. The next move is predicted to be up, but this will not happen until after the summer holidays. July has seen some really strong UK data hitting the news wires: inflation higher than expected, a small jump in growth and some increases in confidence figures. All of this confirms expectations for an interest rate move in the autumn.

Stock markets around the world have recovered from the correction in May. Although they have not regained all the ground, the reassuring talk from the Federal Reserve has stopped the slide. All of the recent sporting events and good weather has left the city thin on the ground and I would expect these stock markets to trade a range until September when the kids go back to school and some of the second quarter data gives us a clearer idea about United States inflation and growth.

The recent conflict in the Middle East between Israel and Hezbollah in Lebanon have been causing some jitters, but because a lot of people see this as a continuation of the war on terrorism rather than an attack on Lebanon itself this has so far muted the stock market response. However, if Israel continues to use F-16s to level much of Lebanon then watch for the United States to step in and begin pressuring on Israel.

I do not often take the opportunity to mention developments in Japan, however the Bank of Japan (BoJ) has begun to signal the low interest rate environment in the Far East is coming to an end. Quite probably buoyed by the strong Chinese demand and an upswing in the global economy the BoJ looks set to start raising rates.

Keep an eye on the situation because when it starts it will move quickly and in my opinion further than most analyst’s expect, this would be providing one of the best opportunity of the year.

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