LONDON, 2 December 2002 — After having seen single euro-zone inflation releases, the final harmonized euro area indices of consumer prices increased by 2.3 percent in October. As expected, the rise was entirely due to energy. The core inflation, which excludes food and energy, has been declining more slowly than anticipated. We expect the downtrend in (core) inflation to continue in the coming months, this is mainly because of a strong euro and weak business cycle.

According to Eurostat, euro area industrial production fell by 0.6 percent in September. Country-wise, the report confirmed the view of the national industrial production readings: All big countries (Germany, France and Italy) shared the sluggish trend in September. The weakness was essentially concentrated in intermediate and capital goods, while consumer goods were doing better. The deceleration in industrial activity confirms the poor figures of the German ZEW survey, which dramatically plunged, but is still pointing to an industrial production growth of around 2 percent.

In the United States bullish sentiment moved above 50 percent for the first time since May, climbing to 50.6 percent. Bearish sentiment fell further below 30 percent, slipping to 28.1 percent from 43.2 percent in mid-October. Taking the difference and calculating the 4-week moving average more investors are bullish than bearish. However, the market is still very volatile, especially in the short-term, while long term we remain bullish on the outlook for stocks.

Last week’s releases about the US economy contained more positive than negative news. Retail sales (ex autos) were unexpectedly strong. Producer price index (PPI) were higher than expected, which is good news in the sense that deflation fears decrease. Initial jobless claims showed the four-week average declining below 400,000 for the first time in 10 weeks, indicating a stronger job market. One of the most important figures we looked at was the release about consumer sentiment, which increased nicely to 85.0 following 80.6 in October. Consumers view the future for the economy more favorably, but heir assessment of the present situation remains weak. Higher stock prices as well as the half-point cut in the Fed’s lending rate probably contributed to boost consumer confidence. The latest consumer confidence reading, points at consumption growth of 3 percent.

At its meeting on Nov. 7, the European Central Bank (ECB) decided to leave the minimum bid rate on the main refinancing operations unchanged at 3.25 percent.

According to the monthly bulletin: “In view of the high uncertainty on future growth, and its implication for medium term inflationary developments, the governing council has discussed extensively the arguments for and against a cut in the Key ECB interest rates. The view has prevailed to keep interest rates unchanged”

ECB President Wim Duisenberg expects that economic growth returns to rates close to the potential in the course of 2003 (due to a recovery of growth in private consumption, as well as stronger investments). Moreover, financial markets have shown signs of stabilization in recent weeks. Nevertheless, the uncertainty surrounding this scenario remains high.

The ECB officials have signaled in the November monthly bulletin, that they may cut interest rates at the bank’s next meeting on Dec. 5. Clariden Bank is sticking to the view that the ECB will cut 50bp of easing most likely in a single move.

(The information contained herein is for information only and should not be construed as an offer or a solicitation to purchase, subscribe, sell or redeem any investments. While Clariden Bank uses reasonable efforts to obtain information from sources, which it believes to be reliable, Clariden Bank makes no representation or warranty as to the accuracy, reliability or completeness of the information)