By DUNCAN SCOTT 17/09/2010
BASEL III rules outlined
This week has seen a wide range of reactions to the new BASEL III rules on Bank Capitilisation; which aims to prevent a repeat of the banking crisis epitomised by the collapse of Lehman Brothers in 2008. The markets reacted positively to the news with the FTSE 100 rising over 1% to 5,566 on Monday (although the markets were also supported by positive industrial production numbers from China). However, many have seen the rules as too lenient with government bonds qualifying as one source of “liquid assets” which the banks have to hold for a rainy day. In addition, banks have until 2019 to meet the new capital requirements with Jacqui Hatfield quoted in the FT saying “The regulators appear to have given in to pressure from the banking industry”. For Bestinvest’s view see Graham Frost’s recent article - Basel III and China Dragon rally markets.
Gold reaches record highs
Gold prices this week climbed to record highs for two consecutive days as investors continued to seek wealth protection against a weakening dollar. Gold futures for December delivery rose as much as 2.8% for the week. Not only did Bullion rise, but gold-backed Exchange Traded Funds reached record levels due to the weakening economic growth outlook. Gold as a commodity is now up 17% for the year and is well on course for its 10th consecutive annual gain which will be the longest positive streak since 1920. Many Economists feel that now the record has been breached, Gold will continue to rise with a forecast by Goldman Sachs predicting $1,300 per ounce price within 6 months.
UK Inflation remains sticky
This week the Office of National Statistics announced that the Consumer Price Index measure of inflation held at 3.1%. This is still more than 1% above the Governments target though analysts had predicted it to fall to 2.9%. There is now a slightly louder cry from certain Bank of England policy makers to increase interest rates to combat the continuing high inflation figure but concerns over the economic recovery could mean they are more inclined to extend their asset buying program first.
Retail sales decline
Another surprise in the UK space this week was UK retail sales fell in August for the first time since January. Sales across the board fell by 0.5% from July as cuts are slowly starting to reach the consumer. Coupled with continued uncertainty over job security and prospects are making consumers more cautious and deciding to save rather than spend. Sterling fell on the back of this news earlier this week as demand for the currency fell.
And finally,
You may, if like me, come across old documents from time to time when clearing out your office at home, but one gentleman in Holland unearthed something slightly special. This week he discovered the world’s oldest share dating back to 1606 issued by a sea trading firm called Dutch East India Company. The company was the first to issue stock and started paying dividends in 1610 which was distributed partly in money and partly in spices. I am not sure if shareholders of BP will accept such a pay out when they reinstate their dividend.