Nervous Optimism Kicks in; David Myrddin-Evans Is Head of Brewin Dolphin Cardiff

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Byline: David Myrddin-Evans

LAST week's positive momentum carried into this week as markets looked optimistically to the eurozone leaders as they discussed how best to restructure Greece's debts. This sentiment supported the banks which continued last week's rally on Monday.

However, the main story at the start of the week was Essar Energy, the Indian energy company.

Essar's shares jumped over 10% after it more than doubled its resource expectations for its Raniganj coal bed methane exploration block.

With helpful corporate newsflow and optimism over the possibility of an orderly default for Greece, the FTSE 100 was pushed to its highest close in six months. Unfortunately, this week's rally was brought to an abrupt halt as the talks to avoid an orderly Greek default almost collapsed when eurozone finance ministers rejected an offer made by private bondholders to help restructure Greece's debts.

As would be expected when eurozone concerns creep in, it was the banks that bore the brunt of the market's nervousness on the whole situation. Both Lloyds and Royal Bank of Scotland lost around 3.5%. Mines were also weaker as concerns over global growth came back into focus as India took its first step down the monetary easing path, reminding investors that the developing world continues to lose momentum. Elsewhere in the markets, the US earnings season is in full swing. Although the economy is regaining momentum, corporate America is looking a little more vulnerable.Given that a majority of the S&P 500's earnings are derived from Europe or the developing world, this round of earnings reports has been relatively disappointing, especially when put in to the context of the four earnings 'beats' for every miss we saw in the third quarter.

The FTSE 100 reporting season gets underway next week and this is likely to follow a similar thread. In the meantime, the developments in Iran are likely to keep investors on the sidelines, especially following yesterday's uncertainty surrounding Greece.

ECONOMIC OUTLOOK BRAZIL has recently cut interest rates for the fourth time since last August.

Its central bank rate is now 2% lower than it was then, and there remains plenty of scope for further reductions.

China is easing too. It has yet to cut interest rates, but it has started lowering reserve requirement ratios and announced overnight that it is allowing the big banks to raise lending quotas with the instruction to front load lending in the first and second quarters of this year.

India, the last of the BRICs to start relaxing policy started yesterday - reducing its reserve requirement ratio by 0.5%.

Meanwhile, as the emerging world loses momentum, the US economy continues to regain it.

Not only is the economic news flow better than expected, but there is evidence that the Fed's policy easing, and especially its quantitative easing initiatives, may be reaching the non-bank economy.

Not only is the underlying trend in private sector employment continuing to improve, but so is the underlying trend for outstanding commercial and industrial loans.

Elsewhere, as in the eurozone, progress towards resolving the debt crisis remains frustrating slow. The process is still nothing less than convoluted.

All that is far from helpful for an economy now set for a threequarter length recession according to consensus forecasts. It may be touch and go as to whether Greece defaults "orderly" or "disorderly".

But the word now is that all the effort behind the negotiations under way to resolve the terms of a bond swap with Greece's creditors is aimed at avoiding the latter - although this was dealt a blow yesterday as talks to restructure Greece's debt ran aground.

This came about after eurozone finance ministers rejected an offer from private bondholders on the grounds that they were demanding too much interest. …