Markets seem to be in two minds at the moment as traders and investors try to get a handle on whether we are currently at the bottom of the recessionary cycle or merely pausing for breath on the way down.

As mentioned last week the FTSE seems to be limited by 4300 on the downside and 4500 on the up and the evidence of this week so far appears to back this up. Reading the various results over the last few weeks it is quite difficult to reach the conclusion that an up turn is imminent, while many have returned respectable numbers the overall wording of senior management seems to be more on the line of cost cutting to make the targets rather than expenditure to beat the gloom.

Even stronger players are now starting to weed out the weak or temporarily extraneous employees and I greatly fear that the unemployment figures are going to accelerate as we enter the summer months (over and above the 800K of school and college leavers). The ‘target’ of just over 3m may prove to be rather optimistic if we bumble along the bottom rather than get a nice ‘V’ or ‘U’ shaped growth curve. At the moment ‘L’ shaped is beginning to look the most likely.

The opening this morning is expected to be at 4355 some 60 points off from yesterday’s close as Europe reacts to the late sell off in the US and the corresponding move lower in the Far East. Rumours are circling of serious problems in Euroland banking units as more and more of the money lent across Eastern Europe goes down the Swanee. The vast sums now being written off in development projects are not likely to be recovered in the medium term and France and Germany may well have other problems on their hands other than how to prop up Opel and Renault. Spain, Ireland and Italy are experiencing massive problems already and we are nowhere near bottom yet. In the UK we tend to look at unemployment of 7 to 8 pc as being terrible… try close to 20pc… which is where Spain is right now.

With GM now likely to be consigned to Chapter 11, Europe is falling over itself promising vast sums to prop up Opel and Vauxhall (I am not sure what happened to all those solemn promises over member states never using public funds to prop up industry). Lord Mandelson, to his credit, has stopped short of promising to sink public money into the bottomless pit of automotive production as he knows full well that, even before the downturn, there was surplus capacity in the sector. The idea of building cars at public expense to rot on some disused airbase is probably not his idea of reasonable use of scarce public funds.

Tesco was put on negative credit watch by Moody yesterday putting its A3 rating at risk. I must admit that the idea that Tesco might be at risk seems almost ludicrous. Of course, the ratings agencies are falling over themselves to be more aggressive after their ridiculous decision in giving sub prime mortgage debt an AAA rating but to push a company like Tesco below prime ‘A’ rate seems a move too far. The consequences will be fewer investors for long and short term debt (as many funds cannot go below A- or A3 rating) and therefore more costly borrowing. This has a direct impact of the bottom line as Tesco may now have to pay more for funds. While this is just one company in many it is an indication of the problems facing a huge number of companies looking to borrow or refinance existing debt. With ‘off balance’ sheet financing now a dirty word financial institutions must make more out of less and this means restrictions on capital and lower long term growth.

Sterling having flirted with the 1.60 level (even reaching 1.675) seems to be experiencing something of a hangover this morning. With the Euro slipping just 40 pips vs the greenback the pound is now off some 110 pips at 1.5900 and we are seeing a distinct lack of interest in punters trying to pick up pounds at these ‘lower’ prices. The dollar is doing its best to recover some of its lost ground of the last month (and the recovery of the pound and euro in recent weeks does look somewhat overdone) but trends in the FX market have a habit of maintaining momentum long after ‘reason’ would dictate otherwise. The odd thing about currencies is that, looking from the outside, you would imagine that there should be some measure of comparison that would give you an absolute value. A magic cauldron of equations that combines local wealth, buying power, export/import levels, etc etc and comes up with a stable comparator. A ‘Big Mac’ should be the same price (taking into account locality and personal spending power) from Tokyo to London, Moscow to New York. But some how it never works out that way and currencies oscillate wildly around some imaginary mid point. The game for exporters/importers is always to try to pick a point at which it represents value for your particular deal. Unfortunately for Finance Directors, the world over, what appears to be a good deal in May can look like a disaster in September.

Cable always looked a bit cheap down at 1.37 as the woes of the UK were merely symptomatic of much of the rest of the Globe (albeit a bit worse) but likewise in the current environment anything above 1.60 to 1.65 looks rather rich as well.

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