ViewPoint revisited - Oil

Rewind the clock back to ViewPoint on 27th January.

We presented research suggesting that crude oil could reach $50 per barrel by mid year and that the long run fair value of crude oil could be $64 per barrel, driven by a number of prevailing economic and market conditions (see figure 3).

Last week, crude broke the psychologically important $50 barrier, continuing on a bull run that started on 16th February. One factor influencing this is the FED’s investment in US government backed debt, a step taken to stimulate the US economy as it should lead to lower interest rates. As consumer borrowing is driven by lower interest rates, consumer spending increases along with the demand for goods and services, finally resulting in a new demand for oil and increasing oil prices.

A weakening dollar along with some positive market sentiment from the US could support a "long" view on oil.

For more information on oil, login to the research centre, and type “CRUD” into the “search stocks” box. This provides access to the ETF securities exchange traded fund, which tracks the DJ - AIG crude oil sub index.

For more opportunistic investors, oil is one of the many instruments you can trade through a Barclays Stockbrokers CFD or Spread Trading account.

Past performance is not an indicator to future returns.

Deflation – what is it and can you beat it?

In recent months the global recession has taken hold and caused governments to resort to a range of measures to help breathe life into the global economy. Deflation has now come to the fore as a new threat to the recovery of the global economy. But what is deflation? And how can you spot and indeed take advantage of any opportunities that are in the market just now? This weeks ViewPoint considers the impact deflation could have on the economy.

Deflation is a sustained decrease in the general price level of goods and services that occurs when the annual inflation rate falls below zero %. Last week the UK Retail Price Index fell to zero, its lowest level in 49 years. If this trend continues the UK could be in for a period of deflation which is damaging to the economy as consumers adapt their buying behavior in anticipation of further falls in prices. This in turn can have a knock on effect on all sectors of the economy, particularly high street retailers and manufacturers who will, generally speaking, struggle to sell goods and services at normal market rates.

Change in prices in year to Feb 2009

So if things are so bad does that mean there aren’t any opportunities available to investors? How can investors ensure they make the most of their investments if deflation becomes a reality?

If you believe that deflation may have a significant impact on the future economic outlook, here are a few investment ideas that you may wish to consider:

• Fixed interest investments such as Bonds and Gilts benefit from deflation as they pay a set rate of interest known as the coupon. This will effectively become more valuable if deflation takes hold. Visit our fixed income site where you can find a range of bonds and gilts…..
• Earners – are stocks that pay a regular dividend which can be an added bonus when looking for an opportunity for selective stock picking. Of course in tough economic times there is downward pressure on certain firms to refrain from paying a dividend and use the assets of stock or cash to support the ongoing liquidity of the business rather than paying out to shareholders. The following are just some of the top Earners currently holding a strong buy recommendation from a panel of impartial market commentators based on their dividend yield.
• You can find these by logging in to the Research Centre.

Earlier this week, the Chairman of the US Federal Reserve, Ben Bernanke, gave the first televised interview by a Fed chairman since 1987, in which he stated that the US recession will probably end this year. Although he also commented that the biggest risk to this recovery is the potential lack of political will to attack the problems of the “Credit Crisis”.

Actions speak louder than words, so the surprise announcement on Wednesday that the Federal Reserve will be buying $300bn of US Government debt, should increase liquidity in the markets. The Fed also announced that it will be doubling the purchase of securities from Fannie Mae and Freddie Mac, to $1,450bn.

Such bold actions will undoubtedly have had political support, thus removing the hurdle that Bernanke suggested may impede recovery.

As a result of these announcements, the US equity markets rallied on Wednesday, specifically in the financial sector. If you think that this marks the beginning of the end of recession in the US, you may want to get exposure to this power house of the world economy in your portfolio.

You could consider the iShares S&P 500, which tracks the performance of the S&P500 Index, or if you’re looking for enhanced returns on the US Market, the US Top 500 Supertracker Investment Note, which is currently available in the secondary market, might be for you.

The move also sparked quite a reaction in the Foreign Exchange (‘FX’) markets with the US Dollar weakening sharply. Barclays Capital Research opinion suggests that this “further loosening of an already expansionary US monetary policy will leave the USD vulnerable throughout the remainder of 2009”, with 1.4500 being the target for the Euro vs the US Dollar by year-end (current level 1.3700).

Whatever your ViewPoint on the outlook for major global currencies, for the experienced investor, you have the opportunity to access the world’s most liquid market, the foreign exchange market, via FX on BARXdirect from Barclays Stockbrokers. Here you will find all the research, news, analysis and technical trading tools to help you navigate your way around the global foreign exchange markets, FX is a high risk investment and you can lose money.

Please remember however, that the value of these investments may go down as well as up and you can lose money as well as gain. Barclays Stockbrokers do not give advice and if you have any doubt about the suitability of these investments you should seek professional advice.

More information

iShares S&P 500

  US Top 500 Supertracker Investment Note

  FX on BARXdirect

17 March 2009

The Bank of England’s ‘quantitative easing’ policy kicked in last week with £2billion of gilts being bought by the bank at auction.

The reaction of the Pound to this policy implementation has been quite muted as investors appear uncertain about the effect it will have on the UK economy in the medium and long term. Sterling has been trading broadly lower since the March 5 announcement but research from Barclays Wealth suggests that the prospects for sterling are favourable throughout the course of 2009.

Elsewhere in the currency markets, the Japanese Yen has been attracting a lot of investor attention as the Japanese fiscal year-end approaches. This period often means widespread repatriation of funds into Japan by companies with overseas earnings and the Yen can strengthen as a result. But with the Japanese economy apparently deteriorating quite severely, will any boost in the currency’s value in the next couple of weeks be sustainable?

Whatever your ViewPoint on the outlook for these and other major global currencies, for the experienced investor, you have the opportunity to access the world’s most liquid market, the foreign exchange market, via FX on BARXdirect from Barclays Stockbrokers. Here you will find all the research, news, analysis and technical trading tools to help you navigate your way around the global foreign exchange markets, FX is a high risk investment and you can lose money.

More on FX

Alternatively, you might be interested in Gilts & Bonds, visit our Fixed Income microsite and see this weeks ‘Bond of the week’ for information on the impact of quantitative easing on the Gilt market, or view our range of Fixed Income iShares.

Commodities

Commodity prices remain weak as recession dominates market sentiment, but the latest Barclays Wealth Signpost research remains positive on precious metals, especially gold. Physical investment demand in gold has surged lately and the status of gold as a ‘safe haven’ seems unlikely to change.

Gold a wise mans gift
Find out more about exchange traded commodities

This week oil prices plunged to $40 per barrel as yet more bad economic data sent stock markets sharply lower. The view from Barclays Wealth suggests that the downward correction could be close to its end and forecasts a modest recovery by the end of the year.

For more information on oil, login to the Research Centre, and type “ETFS” or “CRUD” into the “search stocks” box or for more opportunistic* investors, oil is one of the many instruments you can trade through a Barclays Stockbrokers CFD account.

Please bear in mind that investing in commodities is high risk; their values are volatile and you can quickly lose money.

*Results taken from those clients who took part in a Barclays Stockbroker’s web poll:

Volatile market conditions......
• make me seek greater security for my capital - 16% (187)
• provide the opportunity for short term wins- 70% (806)
• make me withdraw from the market to return when they are more settled - 14% (162)
(Total responses: 1,155)

Seeking alternative returns?

The BoE has cut rates to 0.5%. This marks the sixth interest rate cut since October 2008 and given this historic low, investors are increasingly focused on sourcing alternative sources of return on their investment.

We have just launched two new FTSE 100 Investment Notes, available exclusively to Barclays Stockbrokers clients which have been tailored to provide investment opportunities depending upon an investor’s view and appetite for risk.

Primarily concerned about protecting capital (i.e. making sure that you get your money back at the end of an agreed term) and achieving a reasonable return on it? Then the FTSE 100 Protected Defined Returns Investment Note might interest you. Or do you view the decline in markets as setting us up for a period of growth, and you want to take the opportunity to achieve significant returns? Our FTSE 100 Accelerated Returns Investment Note Issue 3 could be for you. Please bear in mind that the value of both of these investments can fall. You may get back less than you invested.

Also remember that tax planning is important to maximise the proportion of your returns that you retain, but in an environment where these returns are under pressure as a result of market volatility then investing tax efficiently can make a significant difference to you. Both these Investment Notes are ISA and SIPP eligible if purchased in the ‘primary market’.

Our new online Tax Centre brings you a host of information around tax-efficient accounts and factors to consider when investing, we'll also post important changes to tax regulations, current allowance levels and comment on topical issues in this section.

In the past week, we’ve seen the markets take another battering with the FTSE 100 dropping back down to lows similar to those seen late last year, losing around 6% of its value.

And although this is generally bad news for everyone’s portfolio for those who are overweight in some of the worse affected stocks and sectors, this will be all the more painful.

It all goes to emphasise the importance, for investors with a mid to long term investment horizon, to have a balanced portfolio and the key to achieving that – diversification.

Diversifying across asset classes is obviously important and you could consider adding Fixed Income, ETFs, Funds and Investment Notes to help diversify your portfolio.

Find out more about our full range of products

but investors shouldn’t forget to diversify within an asset class as well, none more so than equities. Many investors like to ensure that their equity investments are spread across sectors that have different dynamics in different market conditions.

Pharmaceutical companies could be the antidote to market volatility

The two UK pharmaceutical giants, AstraZeneca (AZN) and GlaxoSmithKline (GSK), are members of a very elite and exclusive club – they are among the seven stocks in the FTSE 100 that saw their share price rise over the course of 2008.

Pharmaceutical companies fit the defensive prescription well – demand for drugs remains steady no matter what happens in the wider economy. Drug companies are also generally highly cash generative and unlikely to cut their dividend payments, which adds to their appeal to investors, however, drug development in the early stage is expensive and are not always granted a licence to be sold, this can affect future projected profits.

Why don’t you think about diversifying your equity portfolio by considering the three stocks to watch that we have highlighted below - that may allow you to take advantage of this trend, remembering that selecting your own investments is not for everyone. You can lose money as well as gain.

Stocks to watch

Login to the Research Centre and enter the epic code into the 'Search Stocks' box to read the latest 'Barclays View' on these or any other stocks

Alternatively, why not login to the Research Centre and use our 'Stock Tools' to investigate the Pharmaceuticals and Biotechnology sector.

BTG (BGC)
The company recently completed a merger with Protherics and its investment case is now underpinned by more than £75m of recurring royalty revenues, a buoyant R&D pipeline and a strong cash position. The company also hopes to cut around £10m a year from its newly merged cost base. The company has 11 products in development.

ImmuPharma (IMM)
ImmuPharma has developed a drug called Lupuzor to treat lupus. This is an autoimmune disease – the body starts to attack itself – which affects around a million people around the world. It is an inflammatory disease that attacks multiple different organs and can be fatal. There is currently no cure or specific treatment for the disease. Immupharma signed a deal with the US company Cephalon at the end of last year granting them a worldwide license for the drug. The total deal could be worth up to $500m.

Neuropharm (NPH)
Neuropharm will announce results of the final stage of its trials of a low dose version of generic Prozac to treat autism in children this quarter (Q1 09). Research has shown that many of the behavioural difficulties associated with the condition are due to abnormally low levels of the neurotransmitter, serotonin. Prozac increases the levels of serotonin in the brain and it is hoped this will help autistic children’s brains to develop more normally. The company is targeting the US market where there is greater willingness to use drugs to treat behavioural problems in children.