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Traders Not Optimistic Going Into 2008

Those in the know remain bearish going into 2008, with over two-thirds of traders betting on the markets to keep falling, according to the Sentiment Index.

Ryan Kneale, market analyst at, said, “Currently, the index sits at 29 which indicates that over 70 per cent of traders believe that the economic situation will not stabalise in the new year and the markets will keep falling.

“The sector that will come under the most scrutiny in 2008 will be the financial sector. With almost all the major US and European banks reporting write-downs towards the end of this year, it will be interesting to see how these write-downs affect overall profits, as we come into the year-end reporting season. Some banks have pre-empted bad news and have issued profit warnings, whilst others have remained decidedly quiet, and these are the banks that could rock the markets. We expect more turbulence in what could be a nervous end to many companies’ financial year.”

In contrast to the financial sector, the mining sector has been one of the few shining lights during 2007, as increased demand for core metals and a weak US dollar have pushed the price of metals up to record highs.

Ryan continued, “Rumours are abundant in the mining sector of potential mergers and acquisitions after the world's largest mining group, BHP Billiton, audaciously bid for the world's third biggest mining group, Rio Tinto, causing a barrage of potential mining group consolidations. In 2008 we expect that many of these rumours will become reality and we predict another strong year for mining stocks.

“An astounding 81.3 per cent of clients are currently long mining group Rio Tinto. This is the strongest sentiment ever experienced on this stock.”

The events of the second half of 2007 have accelerated the downfall of the US economy creating a real possibility of a recession in 2008. To ease the chances of that, the Federal Reserve has cut US interest rates aggressively and has actively expressed its support for the industry.

The UK economy has felt the flow-on effects of the turbulence. With house prices falling, mortgage approvals down and record levels of debt, a quarter of a per cent rate cut in December was seen by many as too little too late.

Ryan added, “This would usually be enough for the Bank of England to lower the base rate further, only it can't, because inflation is still a real risk and the public would only respond by taking out more credit card debt.

“The question, therefore, is what should the Bank of England do with rates in 2008? Should it risk further inflationary pressure and stave off a repeat of the housing crash of the early 1990s by continuing to cut rates? Or should it manage inflation more closely and hold rates steady?

“The financial markets are still suffering from a sense of mistrust, as no one knows quite where the buck stops with the bad debt of the US sub-prime mortgage mess. Who holds what exposure to it remains something of a mystery and a cut in rates would keep the probability of another Northern Rock at bay. The answer to the 'where now' for rates question, is far from obvious.”


Media Contacts:
Justyna Gnyp, hblmedia, 0207 612 1830,
Jill Duffell, hblmedia, 0207 612 1830,
Becky Barr, hblmedia, 0207 612 1830,

Notes to Editors: Sentiment Index

The Sentiment Index enables analysts to see, at a macro level, traders' sentiment for the equity markets. With 50 being normal (equal volume of long/short bets) and 100 indicating that 100 per cent of all bets placed are on the stock markets to rise.


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