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To: goldsnow who wrote (21312)	10/10/1998 9:18:00 AM
From: goldsnow	Respond to of 116764

WEEK AHEAD-Assessing market positions top priority 11:24 a.m. Oct 09, 1998 Eastern By Deepthi Wickremasinghe LONDON, Oct 9 (Reuters) - Data and central bank policy meetings in Europe will be overshadowed as shattered financial markets try to regain their equilibrium in the week ahead. Analysts said the resignation of Italian Prime Minister Romano Prodi added to market uncertainty and the situation there would also be monitored. The recent plunge in dollar/yen of over 19 yen and the consequent collapse at the long end of the U.S. Treasuries market, echoed in European bonds, had completely overturned market outlooks and required a period of reassessment, they said. ''It is clear there have been a lot of very significant moves and people will need some time to fathom which of them are justified and which aren't. That will be the preoccupation,'' said Ian Douglas, global bond strategist at Warburg Dillon Read in London. ''You might find some people coming in and nibbling at trades that they wouldn't have touched in the past week because there was neither the liquidity nor the appetite to do anything other than try and get out of all the risk positions.'' Investor risk aversion would continue to drive the dollar lower versus the mark and yen. But the Japanese economy remained fundamentally weak, analysts at J.P. Morgan said. ''Once risk aversion turns we expect the dollar/yen to resume its march towards 150 yen,'' they said in a research note. The fortunes of dollar/mark rested on the prospect that the Federal Reserve was likely to insure against a growth setback more speedily than the European Central Bank through lower interest rates in the coming months. ''We expect dollar/mark to fall to a level that provokes the ECB into lowering interest rates. This is probably close to 1.50-1.55 marks early next year,'' they said. The dollar is currently around 1.640/70 marks. In bond markets further weakness was expected before investors started to buy the market. But analysts said there was no fundamental reason for bonds to undergo a further big correction from here. ''I would be a little bit sceptical about whether we have seen enough economic improvements in Japan to really warrant a change in the trend and in the exchange rate to the extent we have,'' said Danyelle Guyatt, fixed income strategist at Deutsche Bank in London. ''Once investors have sold their positions and bought cash they should start to reassess the situation and realise we have got equity market weakness, a global economic slowdown and the safest investment still has to be bonds.'' Italy is no stranger to political uncertainty, but the vote of no confidence in the government and subsequent resignation of the prime minister could not have come at a worse time for investors' appetite for risk, Guyatt said. ''If it goes to an election, the BTP/Bund spread could easily go to 60 basis points within the next trading week,'' she said. Ten-year BTPs are currently yielding 52 basis points over Bunds. In Germany the Bundesbank will hold its regular monetary policy meeting on Thursday. ''There is no expectation the Bundesbank will ease even though eventually we believe either it or the European Central Bank will,'' said Warburg Dillon Read's Douglas. Other events include an ECB council meeting on Tuesday. The Bank's chief economist said in a recent newspaper report the ECB would reveal its monetary strategy soon and a high degree of consensus had been reached among council members. Economic data due this week includes British producer price data on Monday, retail prices on Tuesday and unemployment and average earnings on Wednesday. In the U.S, which has a public and market holiday on Monday, data include export and import prices on Wednesday and the consumer price index on Friday. ((International Bonds +44 171 542 4041, Fax +44 171 542 5285, uk.governmentbonds.news+reuters.com)) Copyright 1998 Reuters Limited.