Justine Fearns, Head of Investments Research at AWD Chase de Vere comments: "Taking control of Freddie and Fannie has ensured that the predicted shock wave of a collapse in the US spilling over into the world economies has been alleviated. Hence the response of the stock market on Monday.
"Intervention has ramped up Government support for the US housing market which can only be good news. A question remains as to whether or not this will set conditions to stabilise the financial sector. Institutions are still deleveraging and uncertainty continues with falling house prices, high commodity prices, falls in real consumer spending and a rise in US unemployment. In addition confidence is very low and is not being helped by events such as Lehman Brothers' capital-raising crisis. The more muted response of markets overnight Monday and in the period following suggests the question remains unanswered.
"If next week's UK unemployment figures follow the US rise (up to 6.1% in August) the Bank of England is likely to come under pressure to reduce interest rates earlier than expected. To tackle inflation while letting the economy fall into recession will reveal the stresses in the current political and financial arrangement and the Prime Minister will come under more pressure. The unemployment figures will be interesting however as hearsay evidence is that many eastern European migrants are voting with their feet as the falling pound and tighter job market no longer makes the UK an attractive proposition."
