02.03.12 Friday Morning

Volatility has returned to the markets over the past couple of weeks albeit at a lesser extent to the erratic price movements on the run up to the New Year. Conflict between G20 leaders and Germany over the size of Europe's rescue funds, the ECB's second round of unlimited loans, rising oil prices and a mixed bag of data from the US have been the headline factors causing the instability of late. The heightened volatility has resulted in several markets becoming range bound and we have seen an increase in traders attempting to profit under these conditions by day trading both long and short.

The rising oil price, attributed to the intensifying tensions over Iran's nuclear programme, has been a negative effect although the markets have shown resilience up until now. Strengthening US unemployment and consumer confidence and gradual improvements in the housing sector is the major driving force at present although a persistently high oil price may eventually spark fears of diminishing progress in the States. The second offering of unlimited loans by the ECB had negligible effects on risk assets as investors were divided on whether to view the increase in loan applications as a positive or negative. The first round undoubtedly helped avoid a credit crunch and has also prevented a further slowdown in economic activity in the Eurozone which implies another issue of loans may have similar impacts, although the sheer number of financial institutions applying for loans this time around manifests the prevalence of debt concerns across the financial sector.

German Chancellor Angela Merkel has refuted calls by the G20 and IMF to increase the size of the European Stability Mechanism and this debate is likely to rear it's head again as leaders want a larger firewall to prevent a collapse of the Euro.

The second measure of US GDP for the fourth quarter was revised upwards by 0.2% although advances were cut short as Bernanke indicated that additional quantitative easing is unlikely under current economic and market conditions during his testimony to Congress. This news caused gold to fall circa $100 as investors and traders decided an absence of further monetary stimulus will strengthen the dollar and therefore increase the cost of gold for investors outside the US.

International Power was one of the biggest risers in the FTSE 100 this week as the electricity generating company signed two contracts to supply geothermal energy during a 30 year period to the state-owned utility of Indonesia. Media giant WPP also made gains this week of over 4% after releasing results in line with expectations and delivering a significant increase in dividends, and this was despite brokers expressing disappointment in their organic growth estimates given the Euro 2012, US elections and London Olympics this year. In other important equity news, Vodafone joined Visa in a strategic allegiance to offer payment services using mobile phones across its 398m customer base. UK house builder Persimmon outperformed Taylor Wimpey this week as they reported a 55% rise in pre-tax profits for 2011 and a generous dividend plan through to 2021 of £1.9bn implies they are on track and confident on the continuation of their recovery