How satisfying to see that stock markets are not falling precipitately. However, they are falling. Equity markets were already decidedly bearish, now they can but worsen. Obviously airlines, aircraft builders, tourism and insurance are suffering directly, and investment banks will go through even more pain. There are clear signs that US consumer confidence has taken a hit, on top of the decline it was already undergoing. Defence and security industries will benefit, although more slowly. The absolute levels of the DJIA and Nasdaq are now at where we thought (back in early 2000) they needed to be for several months before they could gradually move up once again. Unfortunately profits have been falling so fast (and this before September 11), that the adjustment in average PEs we have been looking for has still not happened. Like it or not, the stock markets have therefore quite a way to fall. Putting an absolute level on the bottom of the indices is a fool's game, but we do think the average PE on the Dow will be a good indicator. The underlying performance of the economy will determine whether earnings bolster the PEs from below or whether price levels will have to come all the way down to adjust to diminished earnings.

Investors the world over are ratcheting up the level of safety in their portfolios. In bonds, spreads have widened considerably more for corporates than for emerging markets sovereigns. There has been a strong move to the Swiss Franc and to both short-term government bonds and cash. Everyone is very conscious of the imminence of deficit financing on both sides of the Atlantic, as defence spending increases and airline subsidies return, even as the tax base shrinks. There will therefore be once again a plentiful supply of government long-term bonds, and the risk of inflation has reappeared (just as it began to look like the deflation risk was growing). We have closely reviewed our recommendations on maturities, and feel they are still appropriate, although in need of careful monitoring, especially for the euro. Inevitably, all investors will be increasing their cash holdings, despite the poor returns, as they watch and wait for that moment when they feel equities return to favour.

At the risk of boring readers with our repetition, we allow ourselves to point out, once again, that the policy of our firm to be very leery of corporate bonds is based on the danger of the unexpected bad surprises. September 11 was as bad as they come.

The decline of the dollar has been on the cards (and in our weekly!) for many months, and shows every sign of continuing. Westward M&A flows have already stopped. Now bond inflows are slackening as the Japanese repatriate funds to cover their losses (the Nikkei may stage small recoveries but remains very bearish). There cannot be too much enthusiasm for US equities from abroad. The euro's "cash in your pocket" day is approaching fast, and our pro-euro position on that event alone remains intact.

It all seems so irrelevant at this time, but the UK Tory Party has a new leader to lengthen their journey through the wilderness.

Recommended average maturity for bonds in each currency (changed 08 and 15.08).

Since last Tuesday, all major Central Banks have added plenty of liquidity to the market. After Monday's reopening of the US equity markets, the FED again cut its interest by 0.50%, followed by similar moves by a majority of other Central Banks. Nevertheless, all US stock indices fell nearly 7%, but have since stabilised. So long as the market does not know what kind of action the USA is planning and the possible consequences of further terrorist attacks, the equity markets will remain under pressure because uncertainty is bad for stocks.

As expected, the BoJ has stepped into the market twice since the beginning of the week, propping the exchange rate of the USD/JPY up from 117.-- to 118.--. No assistance from any other Central Bank was detectable. So far, these interventions have not had a big impact as the market seized the chance immediately to sell the dollar down again, direction 117.--. It might be interesting to see if the BoJ is still "sterilising" its intervention, or is the intension to leave the extra liquidity in the market. This which would be a very clear sign of further easing. Mr.Shiokawa (Finance Minister) has made it very clear that the only way of escaping the deflationary spiral in Japan is be a weaker yen.

EUR/USD: The bottom of the Euro has clearly moved higher and 0.9000-0.9050 area remains the major support for the time being. As the behaviour has changed in the market to sell into any dollar rallies, there is likely to be good support around 0.9110/50 area. Only a clear break on a weekly basis of the resistance at 0.9280 would open the door for a move to .9400 followed by 0.9550.

USD/CHF: Save haven buying of CHF and a lot of S/L provoked a major move taking out all supports in thin market conditions to test levels below 1.60. Only a weekly close below 1.5900 would provoke further appreciation of the CHF with an objective of 1.5500. Key resistance has now become the 1.6250 to 1.6300 zone with some good selling interest up there.

USD/JPY: As long as the exchange rate stays below 118.00, the downside objective remains 115.50, and only regular BoJ intervention is preventing the yen from appreciating further. However, the willingness of Japanese monetary authorities to weaken the Yen is still there. Thus, any huge sell off in the direction of 115.00 or below should be used to establish a long USD/JPY position. Upside resistance is 119.00 followed by 121.30 major.

EUR/JPY: Due to continued capital repatriation, this cross should remain in a broad consolidation range of 105.50 to 111.--. Lasting strength of the yen at levels below 106.- would provoke the BoJ, whereas levels above 110.-are still used by Japanese exporters to sell the EUR/JPY.

USD/CAD: Owing to recession fears, all commodity currencies are suffering for the time being. Despite the fact that we think the actual level of 1.5735 represents a good buying opportunity for medium term purposes, we prefer to take a wait and see stance for the time being. Support comes in at 1.5480 and next resistance area is 1.5780 followed by 1.5900.

AUD/USD: The Aussie has been heavily sold off, with all major US investment banks dropping their positions once again after having recommended it as a strategic buy. Fears of recession and thin markets have pushed the AUD even below its major support at 0.5000, to test levels of around 0.4880. Next targets on the downside are 0.4830, 04750 , while 0.5050 acts as tough resistance for the time being.

GBP/CHF: Safe haven buying of CHF in a uncertain market environment pushed GBP/CHF through medium term supports at 2.3850. The next objective comes in at 2.3180 followed by 2.2950. Upside resistance comes in at 2.3650. Extreme volatility will remain.