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Markets & data – Hedge funds are clipped back.

Investment activity by distressed hedge funds has been a major factor in this instability, says Britannia Investment Managers’ Graeme Johnston. UK stockmarket The interim results season provided evidence of the difficult conditions under which the corporate sector is currently operating; announcements from major companies such as ICI, Shell, BTR and Barclays Bank disappointed the City. With 1999 likely to be at best a year of slowing growth worldwide, any profits growth for the market as a whole will be hard-won. Overseas equities A deteriorating earnings outlook is also a feature of US and continental European markets. In the US, consensus forecasts now predict that third-quarter profits will be lower than a year ago. And overall it appears that, in Europe, earnings will fall short of earlier expectations despite this year’s cyclical upturn in growth in the region. Interest rates The cuts in US and UK interest rates had been well discounted in advance by financial markets and many commentators were disappointed that they were not larger than 0.25%. For the moment, it appears that central bankers, in contrast to many investors, view global economic catastrophe as a risk rather than an inevitability. Nevertheless, if future data points to a deteriorating outlook for their domestic economy, policy makers are likely to continue to reduce rates. Exchange rates The strength of the yen was the main feature in foreign exchange markets. A 10% rise in two days in early October took it to its highest level relative to the US dollar for almost a year. The immediate cause appeared to be buying by hedge funds to cover short positions, rather than a general improvement in the market’s assessment of the outlook for the Japanese economy. Market data supplied by Britannia Investment Managers. Tel: (0141) 248 2000. Expressions of opinion contained within this document are subject to change. Britannia Investment Managers Limited is regulated in the conduct of investment business by IMRO. Surveyor: Garden shears, jobs shed Topiary corner Increase in number of press articles mentioning “hedge”, October 1997 to October 1998: 424% Number of press articles mentioning “contagion”, October 1997: 262 Ditto, October 1998 (extrapolated): 1,267 Source: Reuters Business Briefing IT: Ignoring Threats Number of companies vulnerable to closure as a result of Y2K bug: 38,400 Number of jobs at risk from Y2K bug: 291,072 Proportion of companies legally exposed by missing disclaimers and terms & conditions off their Websites: 64% Source: Eversheds; Prove It 2000 Recession watch extra Number of UK manufacturing jobs expected to be lost, March 1998 to December 1999: 350,000 Proportion of manufacturers with order books lower than normal: 46% Proportion of companies making Q3 profits warnings who come from the manufacturing sector: 56% Years since business confidence was as low as September 1998: 8 Years since export growth confidence was as low as Q3 1998: 10 Proportion of small business now expecting a full-blown recession: 67% Year-on-year increase in Q3 UK business failures: 18% Source: Business Strategies Ltd; Alex Lawrie; CBI; Dun & Bradstreet; Ernst & Young Rich in any currency Number of Ecu millionaires in Germany: 275,000 Ditto, per thousand population: 3.35 Number of Ecu millionaires in UK: 197,000 Ditto, per thousand population: 3.42 Source: Datamonitor (ECU1m = £669,792) Disagreement on euro Proportion of UK IT professionals who feel the euro would be healthy for British business: 86% Proportion of UK businesses wanting the UK to join the euro: 75% Proportion of UK companies expecting the euro to hit profits: 25% Ditto, EU companies: 11% Source: Geac; Dun & Bradstreet Time watch Working hours left until the adoption of the euro (at eight hours per day): 352 Maximum hours left under the Working Time Directive (48 hours per week): 422 Total number of hours (24 hours a day, seven days a week): 1,512.

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