LONDON, 27 January 2003 — Last week initial jobless applications rose unexpectedly to 441,000 following an upwardly revised 358’000. We would dismiss much of the rise as noise. Looking through this noise the underlying trend in claims is probably around 380,000, close to where the current 4-week average of 387,000 stands. Despite the weak job market consumers continue to spend. Looking at the retail figure, retail sales swing back into positive territory with an increase of 0.5 percent in November compared to the past retail sales are not as strong, but in the current environment it is healthy for the US economy.

Combining both, strong retail sales and the latest increase of the consumer sentiment index, a survey by the University of Michigan, it seems that consumers signal enough faith in the economy to keep spending. US consumer confidence rose to 87 from 84.2 in November compared with a nine-year low of 80.6 in October. It indicates that consumers are a little less distressed about personal finances and more optimistic about longer-term prospects for the economy (expectations). In order to revive consumer confidence and global economy, a quick resolution to the Iraq situation should strengthen confidence.

Sliding exports, which were the mainly contributor to Japan’s growth last months, hurt Japan’s principal enterprises. The Tankan index reported minus 9, showing that more companies were pessimistic than optimistic. Bad loans, subdued investments, lower profits, a still weak job market and a faltering US economy were the reasons for low economic sentiment in Japan.

The Swiss National Bank (SNB) decided recently not to cut interest rates or more previously to leave the upper and lower targets for the CHF LIBOR unchanged. Last change was done in July. It was a reaction to the weak global economic environment as well as an appreciation in the CHF. The uncertainty about world economic development continues and a sustainable upswing in Switzerland will come earliest in the second half of 2003. The current monetary policy stance is very expansionary. The CHF should be kept at low attractiveness. Price stability is not at risk (expected yearly average in the next three years of 0.7 percent till 1.6 percent) and the Swiss economic should grow at 1 percent next year. The SNB described the risk of a deflation as “negligible”.

Latest releases from US turned out positive. But it is not enough to put the “soft spot” to an end. The November industrial production rose 0.1 percent, due to a rebound in motor vehicle output. The capacity utilization rate increased by 0.1 percent. On the other hand home sales still benefiting from the lowest 30-year fixed mortgage rate since three decades rose to 1.70 million. For 2002 we are definitely on a positive note, it’s a record year for housing. Homebuilders as well as consumers remain upbeat and are pleased with the favorable financing climate.

Consumers are still concerned about earning and geopolitical developments, which lead them to pour money into savings deposits. It is amazing to see that saving deposits are growing over a 20 percent annual rate over the past 13 weeks. Money with zero maturity hold by consumers at a record 46 percent relative to disposable income. We are still on the levels of the early 1990’s, the time where that the great bull market started!

Generally speaking, we strongly believe there is plenty of liquidity on the sidelines to trigger surprisingly strong growth in the economy and we expect stocks outperforming bonds this year.

(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.)