The economic news flow continued to be grim during the quarter and it was no small wonder that the FTSE 100 Share Index touched a new low point of 3460.7 on 9 March. The previous technical support level that dated back to the lows of late November 2008 was breached alarmingly as fear stalked the global financial markets again.

However, as often the case when despondency is at an extreme level, global stockmarkets have recovered sharply and the recent bounce in global markets has taken the FTSE 100 back up to 3911 as we go to press. The reasons for the bounce are partly technical and partly a return of confidence brought about by the new “Geithner” plan announced on March 24th which will allow public-private partnerships in the US to purchase up to $1,000bn worth of so called toxic assets.

Previously there appeared to be a complete loss of credibility in the measures taken by the UK government to stabilise the economy. The UK government has now reached agreement with Royal Bank of Scotland (RBS) and Lloyds Banking Group about the insuring of toxic assets. RBS will insure some £325bn of existing toxic assets under the Asset Protection Scheme announced in January 2009 and Lloyds £260bn. RBS is committed to lend £25bn more in mortgages and business lending and Lloyds £28bn. The Government has a holding of 70% of RBS ordinary shares and will also hold non-voting shares. It will hold at least 65% of Lloyds which with non-voting shares will potentially take its interest to 75%. This action may help increase bank lending, but the overall total may still not be enough, as many foreign banks have withdrawn from the UK. The view of the government is that banks are best managed in the commercial sector and in private ownership.

The Monetary Policy Committee cut base rates in the UK from 1% to 0.5% on 5th March as expected. In addition, the Bank of England announced plans to purchase, over the next three months, £75bn of gilts with a maturity of between 5 and 25 years. This quantative easing led to the yield on the 10 year gilt falling to below 3.00% briefly. However, towards the end of March the UK gilt market started to suffer as the Bank of England indicated that it might scale back gilt purchases after all and inflation data came in higher than expected. The yield on the 10 year gilt is 3.35% at the time of writing. The confused signals from the Bank of England are worrying.

One reason for the weakness of UK equities has been some notable cuts and “passing” of   dividend payments. Since the beginning of the year 49 companies have passed dividends (including Xstrata, Barclays, Anglo American, Liberty, Lloyds, William Hill, Old Mutual, Persimmon and Wolseley) and 27 have reduced dividends (including HSBC). However, we should not forget that some companies are still raising their payouts. For example, in the past few weeks including Arriva, Balfour Beatty, Cobham, Keller, Pearson, Standard Chartered, Ultra Electronics and WPP. The complicated structure of a placing and rights issue used by Wolseley to raise£1bn indicates that the appetite of the institutions and private investors for capital raisings is now probably close to exhaustion Large recent rights issues have included Xstrata £4.1bn, Hammerson £584m, British Land £740m, Land Securities £756m and HSBC £12.5bn.

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