FOREX

The local currency lost approximately 43 cents in the week ending October 5 to close at $70.84.

It fell another 32 cents last week to close at $71.16 on Friday.

Week-over-week depreciation of less that half a point brings year-to-date decline to 5.9 per cent. This outcome doubles the decline to this period last year.

In the long term, continued pressure is expected on the local currency as inflows retract.

However, there could be an appreciation of the currency because of the 14.34 per cent variable rate CD placed on the market Friday by the Bank of Jamaica. This should influence brokers to sell USD to get Jamaican liquidity to enter the instrument.

The Jamaican dollar should revalue in the short term, but continued pressure is expected in the medium to long term.

MUTUAL FUNDS

It was generally a quiet week for the global markets. Both the Dow Jones and the S&P 500 indices hit all time record highs before retreating, while still remaining within sight of the highs.

The Producer Price Index came in above analyst expectations on Friday morning, indicating manufacturing resilience, and a sound measure of the U.S. economy.

The retail sales figures were also higher than expected, which, coupled with the PPI levels, provided more evidence to the U.S. Federal Reserve that the inflation factor would still have to be considered for their next meeting at the end of this month.

This, however, does not mean that the Fed would be considering a rate hike, but rather, consensus has actually shifted to an expectation of no action by the Fed come October 31. Of course, that is the view today; next week could be an entirely different story, especially in light of the CPI numbers due out on the 17th.

Effects of the weaker U.S. dollar were evident this week as the trade deficit figure narrowed in the month of August.

American made goods became cheaper globally thus increasing demand overseas, a good sign particularly for the earnings of those companies involved.

However, it may still be too early to shift positions to U.S. sector weighted funds as short term volatility may continue, particularly in light of uncertainty regarding the strength of that economy, to extricate itself from the grips of a recession next year.

The equity, and thus the equity mutual-fund asset class, remain a sound investment choice for the medium to long term, so even when faced with these mixed signals, it is always prudent to buy, and to buy in regular intervals, as long as the purchases remain within "investment portfolio-specific" profiles.

Compiled by Vaughn Cunningham and Christopher Chin-Loy of Dehring Bunting and Golding. Email: info@mydbg.com

Taken from The Sunday Gleaner, October 14, 2007