Rothschild Asset Management gave its first thoughts on this week's tragedy and revealed its sub...
Rothschild Asset Management gave its first thoughts on this week's tragedy and revealed its subsequent outlook this week.
Nick Hodgson, Director, head of retail, said: "If we step back from this tragic event we should observe that the US equity market has, in the last eighteen months, seen one of the sharpest corrections in the last 25 years. Similar corrections have taken place in all other major equity markets during the same time period. As a result, the relationship between the equity market p/e and bond yields is now more sustainable. Prior to this event equity markets had lost much of their overvaluation.
The key issue for the short-term direction of the marketplace is the extent to which the US administration responds to these attacks, and what impact this will have on the oil price. At this stage we believe that these events are less likely to result in an interruption in oil supplies but none the less we expect higher and more volatile oil prices to be an important factor for markets in the next days and weeks.
This is a direct attack on the financial system of the US and will create a potential growth shock within the economy. Consumer confidence (travel, tourism) and general activity may well slow further whilst trade activity will be depressed. However, the US Federal Reserve will respond by providing liquidity and cutting short-term interest rates if appropriate. Lessons from the Iraq/Kuwait conflict suggest that bond markets will be the major short-term beneficiaries.
This is a time of great uncertainty. We have recently reviewed our disaster recovery plan and put in place components of the plan, focusing on counterparty exposures and the possibility of failed trades. Our US contacts inform us that the clearing and payment systems and the Federal Reserve are operating and trades will continue to settle. We are liasing closely with all custodians to check the status of outstanding trades and payments."
Any questions about recent developments can be directed to Rothschild's Broker Services Team on 0800 833617.
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