Financial News from LegalandFinancial100 with Redmayne Bentley

At the most important European Summit Meeting to rescue the euro, since the last one, and the fourth since January, markets were left distinctly under-whelmed as Germany and France sought to push through treaty changes, with the aim of creating a stricter framework in which the union will be able to impose sanctions on those countries which break the Treaty rules on excessive spending and Government debt in the future. A new “stability union” will see member states adopting a “golden rule” to run structural deficits below 0.5pc of GDP. Countries breaching a 3pc of GDP deficit limit will be fined, unless qualified majority voting decides otherwise, which by past record looks a racing certainty. When it comes to something as fundamental as tax and spending eurozone governments will always do what their national electorates want, rather than what the foreign powers in Brussels dictate.There is something of an irony in this, as limits of no more than sixty per cent debt to GDP, and no more than a three per cent budget deficit, were enshrined in the aptly named Stability and Growth pact which was a major part of the Maastricht Treaty. These were of course quickly broken by France andGermany, so giving free rein to the rest to follow their lead.  The proposed treaty changes, which will ultimately lead to a two-tier Europe, does not address the key issues which are tearing Europe apart and which are ultimately hitting the solvency of national Governments. Most simply have too much debt and appear to be heading for a long and prolonged recession, meaning that growth will not be able to come to the rescue.   Europe's plans for fiscal union may require a referendum in Ireland, the country's minister for European Affairs said on Friday, which could delay or even obstruct tighter budgetary rules to preserve the euro. Ireland's government has said it would struggle to get another referendum past an electorate with a history of impeding European integration. Slowing economic growth and the fallout from the euro zone debt crisis may force Ireland to renege on a deal not to cut public sector wages that has helped the country avoid Greek-style social unrest, a government minister said on Sunday.

 

The Bank of England’s rate-setting Committee voted on Thursday to keep interest rates at a record low of half a percentage point and maintain its planned purchases of Gilts at £75bn by February, as was widely expected.  Whilst there is growing evidence for further stimulus from the Bank of England, it remains caught in the unfolding problem of Europe and the bank knows any action will have only muted impact until the European situation is stabilised.   Market commentators continue to expect to see further QE in the New Year, when inflation is expected to have fallen from its current five per cent level.   I am sure when the minutes of the meeting are released; they will show that there was a lively debate about further QE, which is clearly on the Bank’s agenda but merely a timing issue. Bank targets for shareholder returns are too high and do not reflect regulatory changes aimed at making banking a lower-risk, lower-return business since the financial crisis began in 2008, the Bank of England said Tuesday. Britain's financial sector has been one of the hardest-hit in the world since the financial crisis began, and these remarks from the Bank's interim Financial Policy Committee highlight how the subsequent rethink of financial regulation in Britain looks set to produce one of the toughest approaches in the world. Manufacturing output has recorded its first three-month fall in more than two years, according to official figures that confirmed that the engine of last year’s economic recovery has gone into reverse.  Output fell by 0.7 per cent between September and October, according to the Office of National Statistics. The broader measure of industrial production, which includes the energy and mining industries as well as manufacturing, also fell by 0.7 per cent between September and October. Compared with the same month in 2010, output was 1.7 per cent lower, the biggest annual fall since April. Energy supply fell by a particularly sharp 4.9 per cent, which the ONS said reflected the fact that this October was the warmest one since 2006.  In October the U.K.'s deficit in traded goods saw its biggest monthly drop since comparable records began, thanks to a record rise in exports and a fall in imports. The goods trade deficit fell to £7.6 billion in October from an all-time high of £10.2 billion in September, the Office for National Statistics said on Friday, with the £2.6 billion reduction the steepest since records began in 1998. Economists had expected a much larger deficit of £9.4 billion. Exports in October jumped by £2.1 billion to a total of £26.5 billion, with both figures the highest on record, largely thanks to sales to non-EU countries. Exports of chemicals and medicinal products were at record levels, while capital goods exports also rose. Imports fell £0.5 billion. George Osborne said on Wednesday that he would deliver his 2012 annual budget on March 21 and the omens are that he will again be delivering cuts in forecasts to growth then. Activity in the UK’s dominant service sector picked up in November, led by an increase in new business, but job losses accelerated and were the highest in over a year, according to data analyst firm Markit and the Institute of Purchasing Supply.   The survey also reported that firms were unable to pass on the sharp increase in input costs, whilst survey respondents confirmed a tough business climate;  particularly commenting on the ongoing European debt crisis as well as public sector cuts and low levels of bank lending all weighing on confidence.   The Service PMI index rose to 52.1 per cent in November from 51.3 per cent.   Economists had been expecting a number of 50.7 per cent.   New car sales fell by 4.2 per cent on the year in November to 134,027 units, although registrations may now beat an earlier forecast for the year, the Society of Motor Manufacturers and Traders said on Tuesday.   The SMMT reported that new car registration in the year to date were down 4.5 per cent on the year to 1,822,065 units, but looked set to reach 1.94m by the end of 2011, exceeding its earlier forecast of 1.923m.   Car sales will however be some 20 per cent below their pre-recession levels. The economy slowed in the three months ending in November, supporting the case for the Bank of England to inject more stimulus into the economy, a leading economic think tank said on Wednesday.   GDP grew by 0.3 per cent in the period, down from 0.4 per cent in the three months ending in October, the National Institute of Economic & Social Research said in its monthly estimate.   Shop inflation grew at its slowest pace for a year in November, held back by supermarket discounts at the start of the crucial Christmas period. The British Retail Consortium reported on Wednesday that sales fell last month to 2 per centyear-on-year from 2.1 per cent in October, its lowest level since November 2010, well down from its peak of 2.9 per cent reached in June.    The BRC reported that Food inflation fell to 4 per cent from 4.2 per cent, in a rare positive sign of good economic news. According to the Halifax, house prices fell by 0.9 per cent across the UK in November, partly reversing the 1.2 per cent rise in October.   This means that the average home is now worth £161,731, down one per cent compared to November 2010.   The Halifax is also forecasting that the underlying trend will remain downward, with November marking the third fall in the past four months, dragging house prices down by 0.6 per cent in the three months to November, compared with the previous quarter.  Mortgage lending fell again in October with 44,500 mortgages advanced for house purchases in the month, a fall of 8% compared with September, the Council of Mortgage Lenders reported in the week. Loans to first-time buyers fell by 10% with an average deposit of 20%.The CML figures show that the number of home loans advanced overall fell by 5% in October compared with a year earlier, and was down 1% over the same period for first-time buyers.

 

The aftermath of the Arab Spring uprisings is at a critical juncture and needs to be managed in an orderly way so change benefits everyone, the head of the International Monetary Fund said on Tuesday. Christine Lagarde said political change across the Middle East and North Africa faced headwinds from an economic slowdown across the oil-importing countries, which was pushing up already-high unemployment and increasing social tensions. Popular uprisings across the Middle East and North Africa this year have toppled veteran rulers in Tunisia, Egypt and Libya, and forced Yemen's president to sign away his powers. Syria is grappling with an eight-month-old anti-government protest movement and Bahrain is still dealing with the fallout from a crackdown on pro-democracy demonstrations in March. She said that whilst governments tried to head off popular discontent by raising subsidies, wages and increasing spending, it was time to develop more lasting fiscal policies and reduce ballooning deficits. BP's chief executive Bob Dudley last week when speaking to oil and gas executives at the World Petroleum Congress in Doha, Qatar, said that a combination of low supply and high prices could particularly damage the US and have a knock-on effect on the rest of the world, threatening the already fragile economic recovery. He also predicted the price of Brent crude would average between $90 to $100 a barrel next year, while some industry analysts have forecast that it could rise even higher. At the same meeting OPEC Secretary General Abdulla Salem El Badri said the world has plenty of crude but that the number of barrels of oil changing hands in the financial markets is 35 times greater than the actual supply. The numbers he cited were 3 billion barrels per day traded on global exchanges, but only 76 million barrels per day in actual supply. Elsewhere in the week Fatih Birol, the International Energy Agency's chief economist has said if new production is not brought on stream, oil prices could reach $150 a barrel within a few years, Reuters has reported. He said that major Middle East and North African producers would be the overwhelming sources of new supply, but that there were signs that governments were diverting investment away from oil. "So if the investment doesn't come through as much as we expect to see, this may give an additional boost to prices, and according to our analysis, we may see $150 (per barrel) around 2015," Birol said. US light, sweet crude for January delivery, currently the most actively traded contract on the New York Mercantile Exchange), ended the week at US$99.41/barrel, 1.5% lower on the week. January Brent crude closed at US$108.99/barrel on the ICE Exchange on Friday. Gold futures for February delivery closed at $1,716.80 an ounce on Comex, paring the week’s decline to 2 percent. The metal has so far climbed 21 percent in 2011, heading for an 11th straight annual gain. Global wheat inventories are heading towards their highest level in more than a decade after a string of bumper crops, the US government said in the week easing concerns about agricultural commodities inflation and global food security. The US Department of Agriculture said on Friday that the 2011-12 wheat crop would rise to 689.0m tonnes, the largest on record, and 37.4m tonnes above the 2010-11 level, pushing global wheat stocks to their highest level in 12 years. Natural gas will eclipse coal as the world's second-biggest source of energy in just over ten years, according to ExxonMobil's latest annual survey. Global demand for natural gas will soar by 60% between now and 2040, a rate of growth that will see it steal the number two spot from coal in 2025, the US energy company said. Oil will remain the biggest source of energy by 2040. The wide-ranging survey of the market expects global consumption to climb 32% by 2040 as the world's population heads from 7bn to 9bn. However, the role China has had in driving demand will ease by about 2030 as its population growth slows and the infrastructure within the country requires less investment. The US Environmental Protection Agency released a draft report on Thursday that found evidence that chemicals used in “fracking,” a natural gas extraction process, could seep into local aquifers near Pavillion, Wyo. If backed up by further research, the finding could have a huge impact on the natural gas industry as it would provide the first clear evidence to back up claims that fracking is contaminating groundwater. Shale Gas extraction has seen US gas production surge in the last few years, pushing prices down below the cost of extraction for conventional  wells, many of which have been forced to close. If backed up in later reports the consequences are huge, as low cost shale gas was seen globally as a new energy frontier. Fracking has been the subject of considerable controversy in recent years. The process uses sand, water and chemicals to shatter rock deep underground, releasing stored natural gas. Recent geological surveys have found huge deposits of natural gas in the U.S. recoverable through fracking, enough to supply demand for many decades. Greens have opposed the process, claiming it is potentially harmful to drinking water, and have pushed the EPA to further tighten regulations on it. But they have had little evidence to back up their claims. Until Thursday’s report there had been no contamination case directly linked to fracking itself, although shale gas Industry groups still contended it is safe.

 

The preliminary Reuters/University of Michigan consumer sentiment index for December came in at 67.7 up from 64.1 in November, ahead of the expected 66.0. Expectations of future prices softened with the one year inflation reading at 3.1%, down from 3.2% in November, whilst the five-year reading held steady at 2.7%. U.S. consumer credit in October grew sharply for the second straight month, increasing $7.65 billion after increasing by a revised $6.88 billion in September, a Federal Reserve report showed on Wednesday beating forecasts by economists of a $7.0 billion gain. The U.S. trade deficit narrowed in October for the fourth month in a row as strong export levels of capital goods and petroleum products helped to offset record imports from China. The U.S. deficit in international trade of goods and services declined 1.6% to $43.47 billion from $44.17 billion the month before, the Commerce Department said on Friday. The deficit was smaller than expected, with economists having predicted a $44.0 billion gap. Crude imports, a major driver of the U.S. trade gap, fell to $26.01 billion from $28.30 billion and the U.S. paid $32.60 billion for all types of energy-related imports, down from $35.11 billion in September.  The trade deficit with China was relatively flat on the month at $28.07 billion, Exports to the U.S.'s No. 2 trading partner rose 16.4% to $9.74 billion, while imports increased 3.8% to an all-time high of $37.81 billion.  Overall U.S. exports contracted 0.8% to $179.17 billion, whilst Imports narrowed 1.0% to $222.64 billion. The trade gap with the euro area, however, expanded 7.1% to $6.92 billion in October. The trade deficit withJapan also grew by 19.5% to $6.20 billion.

 

China, Brazil and India, the three largest emerging economies, are all now slowing, according to their latest GDP figures. In the week numbers fromBrazil showed that its economy stalled in the third quarter of this year. Gross domestic product contracted 0.04 per cent in the three months ending on September 30th compared with the previous quarter as weakness in the industrial sector spread to the consumer sector, with The BrazilianInstitute of Geography and Statistics (IBGE) saying that the economy had grown just 3.7 percent in the last 12 months. For 2012, the government is forecasting five percent GDP growth, to be fuelled by an increase in the minimum wage, tax rebates, industry incentives as well a cut in interest rates. Since August, the central bank has slashed its main interest rate three times from 12.5 percent to 11 percent, but the rate remains among the highest in the world. The sharp deterioration in growth in Brazil poses political challenges for Brazil’s president Dilma Rousseff, who has since taking office on January 1, has lost her chief of staff, as well as the ministers responsible for agriculture, tourism, transport, sport and now labour, all on allegations of questionable ethics or outright corruption. A seventh, the defence minister, lost his job for speaking out of turn. The speed of Chinese export growth slowed in November official data showed on Saturday, but stronger than expected US demand helped to narrow China's politically sensitive trade surplus less in November than expected. Overall China's trade surplus narrowed to $14.5 billion in November from $17 billion in October but ahead of expectations. China's exports rose 13.8 percent year-on-year to $174.46 billion in November, up from $157.49 billion in October, greater than the 10.4 percent expected by economists. Chinese shipments to the United States rose to $30.94 billion in November from $28.60 billion the previous month and exports rose to the European Union, China's biggest trade partner, to $30.98 billion in November from $28.74 billion in October. Overall Chinese imports rose by 22.1 percent to $159.94 billion in November, up from $140.46 billion, beating expectations of a 19 percent rise. China's rate of inflation fell in November to its slowest pace in 14-months. On the month, Consumer prices rose 4.2%, in October Inflation was 5.5%, after hitting a three-year high in July of 6.5%. The drop is expected to see more easing in monetary policy. Producer price data, which indicate inflationary pressure in the pipeline, showed an even steeper drop-off, with prices increasing just 2.7 per cent in November from a year earlier, compared with a 5 per cent rise in October. This was the smallest yearly increase since December 2009.

 

The latest eurozone services Purchasing Managers' Index registered a level of 47, only slightly up from October, led by a sharp contraction inSpain. The Italian service-sector also continued to see a sharp fall in business, whilst Germany has stagnated. Spain turned in the worst result, where the index of activity in service sector firms fell to 36.8 from 41.8 a month ago, suggesting the downturn has accelerated. Italy and France both reported continuing contractions in their service sectors, but at a reduced pace compared with October. For the eurozone as a whole, the service sector has now shrunk for the third month running, according to the surveys. Combined with similar surveys for the Eurozone’s manufacturing sector, Markit said that the eurozone economy was on course to shrink by 0.6% in the last quarter of the year, with Italy faring worst. Amid mounting Greek fears that Europe's escalating debt crisis could derail efforts to negotiate a second bailout for the debt stricken nation, Athens' interim coalition government has speeded up the process to pass a budget which aims to reduce the deficit from more than 9% this year to 6.7% by the end of 2012 through a combination of spending cuts, tax increases and public sector job losses. Addressing the 300-member chamber, Antonis Samaras, the conservative new Democracy leader, said with Greece heading for a fifth year of recession it was "essential" that the priority was now put on kick-starting the economy through jobs and growth. the austerity budget is expected to be easily approved, But the savings envisaged in the budget estimated at €11bn (£9.5bn) are not expected to be so easily accepted by a population that has slid increasingly into social disorder as a result of successive wage and pension cuts, tax hikes and benefit losses. Passage of the budget is among the chief goals of the government before Greece holds elections early next year. Last Monday the IMF approved Greece a sixth tranche of aid, drawn down from an original €110bn rescue package for the country, but insisted it would have to move quickly to improve competitiveness through enforcement of overdue reforms. The €8bn loan (of which the EU will give €5.8bn) will not only allow Athens to pay public sector salaries and pensions in time for Christmas but ensures that the near-bankrupt nation will avoid default. Finance ministry officials are hoping that with the Greek banking system recently being hit by massive cash withdrawals, the emergency aid will also inject stability into the country.

 

Germany's Constitutional Court said it will not rule before late January or early February on whether a special new parliamentary committee, set up to meet in secret to consider urgent action by the euro zone bailout fund, infringes lawmakers' rights. The court, which initially said it may rule by the end of this year, suspended the committee in October whilst it considered a case brought by two opposition members of parliament, who say the nine-person special group infringed lawmakers' rights. Finance Minister Wolfgang Schaeuble urged the court during a hearing last month to allow the committee to function, saying the ability of the European Financial Stability Facility (EFSF) to make a decision must not be rendered impossible. In some situations, such as any planned purchases of state bonds on the secondary market, confidentiality was a pre-condition for the EFSF to act, he said. German exports fell 3.6% in October as demand from crisis-hit southern European markets hit the economy and was the biggest fall in six months, much bigger than the 1% decline expected by markets. German imports shrank by 1% versus a month earlier - also more than expected - suggesting demand is also weakening in Europe's biggest economy. Overall the country's trade surplus fell from €17.3bn to €11.6bn; £9.9bn), or about 5.5% of its GDP. Meanwhile, German inflation fell marginally in November to 2.4% versus a year earlier, compared with a 2.5% rate the month before.

 

At the start of last week markets were startled when the US rating agency Standard & Poor’s put 15 countries in the single currency bloc on negative credit watch.   All six AAA rated countries were included, meaning that Germany, France, Austria, Finland, the Netherlands andLuxembourg, have a one-in-two chance of a downgrade within the next 90 days.   In response to the statement, S&P stated that it expected to conduct this review as soon as possible, following the week’s summit of EU leaders.   Because of the lack of progress in the summit and the fact that it has materially failed to address the high levels of debt, the risk of recession and tightening credit conditions which were conditional upon S&P’s decision, I fear that downgrades within Europe are imminent.  One of my main reasons for believing rate cuts are imminent is that these are very largelythe same conditions that S&P gave the US Government, before it cut the US rating recently.   If one of America’s leading companies can downgrade their own countries sovereign debt, then I would envisage that in the same circumstances it is much easier to do the same to European Governments who have flagrantly broken their own rules on a regular basis, whilst paying lip service to stability and growth.   Markets have been bracing themselves for a potential downgrade for France for some time, but few expected Germany’s top rating to be called into question.   Such a move would severely impact the underlying Government’s ability to not only raise funds for themselves, but also to raise the funds needed for the bail out mechanism of the EFSF, which relies on all six AAA rated countries that back it retaining their first class credit rating. France is not planning a third programme of spending cuts and tax hikes, Prime Minister Francois Fillon said on Tuesday, a day after its top triple-A credit rating was put under review. "There won't be a third austerity programme," said Fillon after Standard and Poor's warned that the government's planned measures may be insufficient to meet its deficit target of 4.5 percent of GDP. Standard and Poor's also warned the French government's forecast of economic growth of 1.0 percent next year is too high, saying it expects France to grow by only 0.5 percent in 2012. Fillon later clarified that the French government would not adopt another austerity plan based on its current forecasts, but would wait to see how events progress. "If we have to go further, if other measures must be taken, then the government will take them, but we won't take them based on growth forecasts," but rather "when we know growth (achieved) in the first quarter of 2012)." The French government has sought to reassure investors and maintain its triple-A rating with a series of austerity measures, including the announcement last month of 65 billion Euros in savings by 2016, on top of a 12-billion-euro deficit-cutting package announced in August. The government has said it needs to make 100 billion Euros in savings to balance the budget by 2016. A downgraded would cause serious difficulties for Nicolas Sarkozy's 2012 re-election battle because he has staked his campaign on his personal ability to lead France out of the economic crisis. Unlike Britain, France has focused mainly on tax rises rather than sweeping spending cuts. "If we lose the triple A, I'm dead," the president was recently reported saying in private. A poll this weekend found just over half of French people feared a credit rating downgrade would have a big impact on their daily lives. A one-notch cut it is estimated would hit the country with extra interest payments of up to €3bn. The French government has not balanced its budget for more than 30 years.

 

The European Central Bank acted in the week to try to head off the looming European recession and avert a severe credit crunch by cutting interest rates and offering banks long term loans, whilst at the same time tempering hopes that it would step in and become more active as a lender of last resort.   The ECB’s President, Mario Draghi, poured cold water on expectations that the bank would step up the buying of Government bonds if the European leaders agreed on a move to closer fiscal union later in the week.   He said the Eurozone’s EFSF rescue fund should remain the main tool to fight bond market contagion, despite the limits of its leverage, and added that it was illegal for the ECB or National Central Banks to lend money to the IMF to buy Eurozone bonds, appearing to veto one fire fighting option which had been widely touted.  To counter this, he agreed unprecedented action to supportEurope’s cash starved banks with three yearly liquidity offers and eased collateral rules, whilst at the same time cutting interest rates to a record low of one per cent.   He also highlighted, however, that the decision to cut rates was not unanimous and forecast that European inflation would stay above two per cent for several months yet to come. Whilst all media attention on Thursday was focused on the events at the  European Summit,  the European banking authority said that Germany’s banking system had been shown to be far weaker than previously thought, in a new round of European stress tests, raising the prospect of further tax funded bailouts for the banking sector.   It said that German banks had a capital shortfall which must be made up by next June to €13.1bn; nearly triple the result of a previous test in October, pushing up the European wide deficit from €106bn to €115bn.   Commentators believe that Commerzbank, Germany’s second-biggest private sector bank, which emerged with a capital shortfall of €5.3bn from the test, up from €2.9bn six weeks earlier, is now facing the prospect of nationalisation.   EBA stress tests, which demand that 71 of Europe’s banks hit a new 9 per cent core Tier 1 capital ratio by June next year, is a key part of the broader measures to stabilise the Eurozone financial system.   Worryingly, a number of commentators had expected the figure to fall, particularly as banks have been hoarding profits of late in order to boost reserves which is creating a shortage of funds and exacerbating the credit crisis into more worrying territory.  

 

The New European treaty Discussions went on until 5am Friday morning, but the EU 27 failed to agree on treaty changes as Britain used its veto.  Agreement was reached by 23 countries on new fiscal compact and strengthened economic policy coordination, with 3 of the non-euro countries consulting their parliaments before agreeing. Other announcements included the “rapid deployment” of the €440bn European Financial Stability Facility, to prop-up distressed governments and preventing “contagion” from spreading across the eurozone. But the financing of the €440bn remains as illusive as ever so the EFSF is being called “leveraged” which is a worrying acknowledgement of the problem. So far the EFSF has just about managed to raise €11bn from three bond auctions and all of this had been spent as loans to BBB+ Ireland and BBB- Portugal. The new European Stability Mechanism has a non existent €500bn to spend and few details on where the money is coming from, with the new ESM now coming “on stream” by July 2012, one year earlier than previously expected. The overall capacity of the EFSF/ESM will be set in March. The delegates in true European style agreed to provide funds, up to €200bn, to the IMF in the form of bilateral loans, so that the IMF can then lend it back to them. I find it hard that they think that this circular finance is supposed to encourage others to come and lend even more to overly stretched European Governments. Adding to the difficulties the Eurozone faces an imminent and acute funding problem. Member states need to repay over $1,100bn of debt in 2012, the bulk of which is due in the first six months. On top of this, European banks, heavily dependent on state support have around $665 billion of debt coming due by June next year. S&P's Carol Sirou told French radio BFM Business over the weekend that the ratings agency would analyse the impact of the agreement on confidence in the economy and financial markets. S&P would also consider whether the agreement might prompt the European Central Bank to play a more aggressive role in tackling the crisis before taking a downgrade decision, she said.” It (the decision) will be in the coming days once we have all the necessary elements and reflection," she said.

 

To the bureaucratic mind the solution to Europe's self inflicted problem is to create a single treasury and impose a single economic policy, with single tax-and-spending policies but As Martin Wolf of the Financial Times pointed out in the week, the “debt crisis” isn’t really about debt. It’s really about huge imbalances within the EU. The German current account surplus is way too big, whilst Greece, Spain, Portugal and Italy are running negative current account balances and the extremes have to be eliminated for it to survival. There is one more scenario that the summit attendees appear to be forgetting, or ignoring and that is Social breakdown, Greek style.  In other countries as jobs disappear and lost generations take to the streets and banks refuse to lend mass protest and strikes, some violent, from London to Athens were a regular features of 2011 and look set to increase next year as The ultimate outcome of the Great Brussels Fiscal Discipline Summit is more blood on the streets of Europe. The summit deal struck by all EU countries except Britain lacks the necessary "firepower" to tackle the underlying causes of the eurozone crisis, the Austrian chancellor said on Saturday. The Eurozone crisis has now moved on to a more worrying and frightening stage following the failure of the major European Governments to tackle the underlying issues, which has put the likes of Greece into an economic debt death spiral.  I expect Sovereign ratings to be cut across the board very soon. During the week, a research note from Goldman Sachs strategists suggested that the FTSE 100 could fall to 4,700 in the coming three months, attracted significant attention.   The new research also noted that the market would be back up at 5,400 within six months and rally to 5,800 by the end of 2012.   Unfortunately, I do not share their latter optimism, particularly after having seen such a dismal performance from the European political leaders, who had warned yet again that this last summit was a make or break for the single currency zone. Time is very quickly running out if markets are not to impose a solution, worryingly politicians appear to think they have all the time in the world. With regards to Britain being isolated after the veto, Terry Smith the City veteran aptly described the situation when he said that “Britain is as isolated as somebody who refused to join the Titanic just before it sailed."  So now in the next few weeks it is over to the markets to give their verdict on the latest proposals - hang on tight.