Financial directions - US markets waiting for the man.

UK stockmarket[QQ] A lightening of the economic gloom has seen cyclically sensitive sectors ?such as steel, paper and mining lead the way as the market has rallied ?from its mid-March lows. The revival of sentiment has also helped ?investors to digest substantial cash calls from Vodafone and BT with some ?degree of equanimity, albeit not with unalloyed enthusiasm.

Overseas equities

The US market has performed strongly so far this quarter both in absolute ?terms and relative to other world markets. April's unexpected rate cut and ?first quarter earnings reports (grim but better than sharply reduced ?forecasts) helped to drive the rally. However, with leading indicators ?still heading down and the labour market deteriorating, the optimistic ?view that the trough of the profits cycle has passed will face some tough ?tests over the coming months.

Interest rates

There is a growing view that the pace of interest rate declines may be ?about to ease off. The Federal Reserve has stuck unwaveringly to a 0.5% ?reduction each month this year but futures markets discount only 0.25% for ?next month. On a much reduced scale, the Bank of England has been willing ?to pre-empt economic weakness, but opinion is divided as to whether it ?will cut rates for a third month in a row in June.

Exchange rates

The ECB's rate cut did little to support the euro - it quickly fell to its ?lowest level of the year against the dollar. Even though many commentators ?had been advocating the ECB's move for some time, investors remained ?perplexed by the bank's strategy. In contrast, the Federal Reserve's focus ?on supporting growth has helped to support the dollar in spite of a much ?steeper decline in US interest rates.