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Daily View - 7th March...

Markets look to be very grim this morning as the financial sector takes yet another battering. The sense of doom is almost palpable as dealers wait for the next shoe to drop, and dealing room Treasury Managers hover around the least glamorous desk within banks' trading floors, the 'money market unit', as the search for liquid funds gets ever more difficult.

At the plc awards event last night (from which I am still a little hungover), I was struck by how negative everyone was over the current situation. We are now very close to a domino effect taking out many of the higher-leveraged trading units, which itself would give the banks a far greater bellyache than the current sub-prime problems.

Investors would be wise to look across the investment landscape to check out which companies have large borrowing requirements. With margins being squeezed on four fronts; higher input costs (energy, commodities etc), weakening consumer demand (average UK income actually fell last year), higher corporate tax take (the upcoming budget is expected to be less than friendly) and finally, higher refunding costs, this all means that the prospects for 2008 returns look mightily grim.

Even the normal currency devaluation card so beloved of the 'Garlic Belt' in years past does not seem to be helping, since the Dollar has dropped some 15 to 20 percent in the last year vs the Euro, whilst recent figures from the States show that industrial production is not getting any lift from this boost. In fact US factory orders actually fell last month!

The BOE still seems to be obsessed with inflation targets, very nice for those with liquid assets but hardly helpful in the current economic situation. Once the current surge in commodity prices has drifted off the inflation curve, it is likely that the headline rate will fall dramatically and will need no assistance from interest rates to do so.