MARKETS & DATA - Interest and profits in the balance.

During the last quarter of 1998 the boost to equities from worldwide cuts in interest rates has outweighed any drag from disappointing profits growth. This balance will continue to be crucial in 1999, says Graeme Johnston. UK stockmarket Easier monetary policy, increased merger and acquisition activity and high institutional cash balances all contributed to a strong recovery in UK equities in the final quarter of 1998. However, the market underperformed other world markets in the period, perhaps reflecting the relatively poor economic outlook for the UK. Overseas equities The series of interest rate cuts by the Federal Reserve restored confidence to the US market to such an extent that the S&P Composite Index hit a new all-time high at the end of November. The smaller Asian markets bounced back even more strongly as regional rates declined in response to the cuts in the US. Interest rates The Monetary Policy Committee has surprised many sceptics with its willingness to reduce UK interest rates as the economy falters. The aggregate 1% rise implemented in the first year of the committee’s existence was completely reversed in just over two months. Consensus forecasts are that rates will fall even further, towards 5%, during 1999 as inflationary pressures subside. Exchange rates Movements in the exchange rates between the major currencies were subdued in the final two months of 1998 compared to the dramatic swings of the previous three months. Downward pressure on emerging market currencies has also eased, although concerns remain that this may be the lull before the next storm if economic problems in Brazil force a devaluation of the real. Market data supplied by Britannia Asset Management Ltd. Tel. (0141) 248 2000. Expressions of opinion contained within this document are subject to change. Britannia Asset Management Ltd is the holding company of Britannia Investment Managers Ltd (Regulated by IMRO).