david.fm

- From the G20 Summit it is clear that U.S./European views diverge and deficit spending to boost internal demand in Europe isn't seen highly by countries like Germany where the budget shortfall is only 5%. This has been confirmed by German Chancellor Merkel.

- The Rate decision of Thursday (or better said the comments during press conference) is certainly going to be very important to determine if the sellout in Europe will reach a bottom or will continue throughout the summer. In terms of growth the euro countries 0.2% (from 0.1%) was mostly influenced by exports growth from 1.7% to 2.5%. A weaker Euro, welcome by France and other European countries, can further boost exports. The main issues affecting the European countries are unemployment at 10.1% (April)and debts. On a positive note inflation is around the target of 2% with no current pressure. This will allow the rates to remain low for quiet some time. While there is no expected change in the rate what will be said will be important - Trichet comments last month impacted negatively the markets so what will be said to re establish conference is very important.

- In the UK again there is no expected change in the rate. GDP Growth was at 0.4% (higher than euro countries) but inflation is now at 3.7%. Spending cut have been announced and as a main issue they have to limit inflation.

- I see the European banks as a crucial indicator on how the market will move. Libor has now more than
doubled to 0.5% and could increase further. Some European banks are becoming "addicted" to borrowing at a low rate
and invest in high yield government bonds and to avoid any negative influence in the European banking system stability
in the Sovereign debt market have to established. Banks should also be provided with incentives to lend more to small
and mid size European companies that can be the engine of growth. Policy makers should establish strong guarantee for banks to avoid any failure.

- Conclusions: What will be said during the central banks press conference can influence the market both ways. We are in a very sensitive market and European countries (including Hungary) bad news can affect the market strongly.
I maintain that there are good opportunities in Europe, especially from export oriented companies and good banks but I would recommend hedging the portfolio through precious metals like Gold, Platinum and Silver. An allocation of even a significant part of the portfolio (10%) will be a good hedge against highly volatile equity markets.