The Bank holds rates 

The MPC's decision to leave interest rates on hold is probably just a temporary reprieve, perhaps reflecting recent developments in financial markets. Although some of the latest activity data have had a softer tone - most obviously January's sharp fall in retail sales - this is unlikely to have changed the view of most members, signaled in the February Inflation Report, that rates probably need to rise once more to meet the inflation target. Meanwhile, although the prospect of a further sharp fall in CPI inflation has been boosted by the announcements of further cuts in household energy bills, some members at least will remain concerned about wider price pressures stemming from rapid money growth and rising house prices. Bottom line: Expect another rise in rates in either April or May (depending in part on the data flow). But the risks that rates might need to go much higher have diminished and the MPC is likely to be cutting rates in the first half of next year in response to a weaker global environment and very low inflation.

Budget preview

Gordon Brown will seek to use his eleventh and final Budget to underline his legacy as Chancellor. But the poor state of the public finances and the squeeze on government spending already underway suggest that, when it comes to major policy initiatives, Mr Brown will bow out with something of a whimper rather than a bang.

Global Equities - what goes up, must come down?

Equity markets that are expensive and have outperformed significantly in the past year will continue to be under pressure in the near term.

Despite stability overnight and today, the global equity market correction probably has further to run as investors downgrade their economic expectations and scale back risk exposure. This could leave previous high-flying markets such as Hong Kong and India at risk in the short run—both trade at a premium to global stocks on a forward P/E basis and have strongly outperformed the global benchmark in the past year. Conversely, cheap markets that have lagged such as the U.K. should hold up better, especially as it is traditionally viewed as defensive. On valuation and performance grounds Brazil and Korea appear attractive, but each is highly sensitive to global growth expectations and hence could be vulnerable until economic confidence stabilises.

So, how advanced is the equity correction?

The shakeout in global equity markets is probably more than half over in terms of magnitude.

At the onset of this setback most global equity markets were significantly overbought, with prices well above their 200-day moving averages. In fact, even the global equity laggards (the U.S. and U.K.) peaked at more than 8% above this support line. Emerging market (EM) equities exhibited the frothiest conditions, with the overall EM index trending at more than 16% above its 200-day moving average. The rally leaders within the EM universe, including Chinese stocks, were more than 50% above their trend. So far (as at 5^th March), about two-thirds of the overbought conditions had been unwound from the global benchmark, according to this measure. Still an undershoot is probable, making many markets (particularly certain EM bourses) vulnerable in the near term. Also, the correction has been less pronounced in Australia and New Zealand, leaving these markets at risk to any delayed softness in commodity prices.

Yen watch........

According to fund managers and analysts in Tokyo Japanese retail and institutional investors have continued to put money overseas in recent days, defying concerns that the global yen carry trade has been unwinding, reports the FT. The yen outflows may have helped to halt the recent appreciation of the Japanese currency, after signs that some global investors pulled out of risky assets last week and reduced their use of the carry trade. The Japanese currency traded yesterday at about Y116 to the dollar in a calm market. This followed a sharp rise from Y121 to the dollar to nearly Y115 after a bout of turbulence last week. However, opinions about the yen’s future trend remain divided, since there is disagreement among analysts about the size of the carry trade. Also, contradictory signals are emerging from different investor groups. While many Japanese investors appear keen to continue using the carry trade, some analysts think institutional investors will continue unwinding their positions in coming weeks because they are reducing risk in other areas unrelated to the Japanese currency. That could create opposing pressures on the yen. 

And finally…………. 

From British newspapers

Police reveal that a woman arrested for shoplifting had a whole salami in her underwear.
When asked why, she said it was because she was missing her Italian boyfriend.

(The Manchester Evening News)

and

A young girl who was blown out to sea on a set of inflatable teeth was rescued by a man on an inflatable lobster.
A coast guard spokesman commented, "This sort of thing is all too common".

(The Times)

Prometheus from sources: ADM, Barclays Capital, Cazenove, Charles Stanley, HSBC, ING, SocGen, UBS.