Global credit conditions will be watched very closely and are likely to have a pivotal influence over the week. Further… … credit-related fears would maintain pressure for an unwinding of carry trades and a general shift away from higher-risk assets.

In contrast, any sustained relief in credit markets would lessen demand for safe-haven low-yield
assets such as the yen. A very important feature is likely to be a sustained
increase in volatility.

The net risks suggest that there
will be a further tightening of conditions, especially as there were further
important warning signs at the end of last week with Libor rates rising and
evidence of increasing fear. Year-end considerations will also have a
significant impact in tightening liquidity and this will increase the risk that
carry trades will be unwound in the short term.

The second key influence is likely
to be comments and actions from global central banks in response to the
credit-related difficulties and currency volatility.

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