GLOBAL ECONOMIC OUTLOOK

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2 GLOBAL ECONOMIC OUTLOOK During the last month the impression has been of a US economy that has somewhat stabilized after the sharp reversals of the 1st quarter, culminating in the emergency Federal Reserve interest rate cuts and rescue of Bear Stearns in March. This impression of stability has been enhanced by relative calm in the credit markets as the new funding measures introduced by the Federal Reserve (and the Bank of England ) have ensured bank liquidity. Bank capital ratios are being addressed by substantial infusions from sovereign wealth funds and by calls on shareholders through rights issues. As liquidity has improved there are signs of some renewed interest in higher yield credits and spreads have tightened somewhat. However consumer spending remained under pressure as oil prices were up by nearly 20% in dollar terms in April and payrolls contracted by over 200,000 in the 1st quarter. Wage growth has been flat in real terms and the housing sector has seen further price falls and reduced sales of new and existing homes. Countering these trends were broad stability in the manufacturing and service sector data, while durable orders increased largely due to strong external demand. This was a recurring theme in the near completed earnings season with large cap US multinationals reaping the benefits of the weak dollar and fairly buoyant demand from the rest of the globe. In addition the energy and farm sectors are booming as food and oil prices remain at record levels. However the recent sharp decline in wheat prices illustrates that a supply response is starting in terms of additional production from more acreage and higher yields in more normal weather conditions. With a fiscal stimulus in the form of tax refunds being implemented from early May, consumer spending may bounceforafewmonths. At their meeting on April 30th the Federal Reserve Open Market Committee cut rates again to 2% and are likely to pause for a period to assess the impact of the monetary and fiscal stimulus put in place. In Euroland, the ECB has remained consistently concerned about inflation, reinforced by the Euroland outturnreaching3.6%inapril,wellabovethe2%target zone. Unlike the Fed, the ECB ignores core inflation (about 2%) as they fear 2nd round affects of headline inflation feeding into wage agreements especially in the better organized labour markets in Europe. Their stance has also been vindicated year to date by continuing strong activity data in the key French and German economies and the limited impact to date of tighter lending standards on bank credit availability (although anecdotally not so in Ireland). However early May data indicate that weakness in Euroland may finally have arrived due to the influence of recessionary conditions in the US and UK, the strong Euro currency and high oil prices. Manufacturing and retail trade surveys have started to weaken, while German CPI for April has fallen from 3.3% to 2.6%. In addition, recently reported retail sales for Germany and Spainshowquitedramaticyearonyearfallsof6.3%and 8.7% respectively. In Ireland risks to growth for 2008 remain high as the exchange rate versus Sterling and the Dollar continues to be unfavourable, while inflation has spiked again due tofoodandenergyprices.unemploymentisonasteady move higher as layoffs in construction remain unmatched by growth elsewhere. The most recent Irish Purchasing Manager s Survey produced by NCB showed a record low out turn of 44.7 indicating a sharp contraction. PTO 1

3 GLOBAL OUTLOOK (contd.) The timeliest indicator of activity, Government exchequer tax revenues continue to disappoint. A much greater than planned deficit out turn for Government finances for the year is most likely. The UK economy is under strain from much tighter lending standards, higher mortgage rates and falling house prices, although consumer spending has been resilient in the first quarter. The more competitive pound is boosting the manufacturing sector although the fallout from the credit crunch is leading to significant job losses in the City. It is likely that consumer spending will slow sharply in the second quarter and the Bank of England should ease further. The BRIC countries (Brazil, Russia, India and China) continue to perform relatively well and have a bias to tighten policy to slow growth and offset inflationary pressures. Brazil was recently upgraded to investment grade while Latin America in general continues to perform well as a provider of resources for the global economy. The ANZ countries are facing a slowdown as much higher inflation and interest rates along with very strong currencies are acting to slow growth rates. The RBNZ may ease rates in the 2nd half of 2008 but Australian rates are likely to stay high through to The Japanese economy remains sluggish after a short lived bounce in activity in the last 3 months. Weaker exports are starting to hurt while consumer confidence is low. 2

4 EQUITY MARKET SNAPSHOT April was a much brighter month for equities as earnings from major US companies were well generally well received. The impact of a US slowdown was countered by increased demand from emergingmarketsindicatingthattheworldmaybeinapositiontocopewithnearrecessioninits largest economy. There were also little in the way of further surprise lurking in the earnings releases ofusbanks signaling that the worst of the credit crisis may beover. The mega capdow Jonesindexgained5.6%inAprildenominatedinEuro.TheFTSE toppedthismaking7.9%ineuro terms as higher commodity prices boosted its large proportion of miners. The Dax(Germany) and CAC (France) also showed strong gains while the all encompassing Eurostoxx rose 5.4% in the month. Japan s Nikkeialso responded to a renewalof calm to marketsas it gained 7.5% in terms of euro in April despite some worrying economic releases towards the end of the month. Table 1: Indices Percentage Change(denominated in Euro) Source:Bloomberg1 st May2008 INDICES Current April YTD 1yr 2yr 3yr 5yr ISEQ Dow Jones Nasdaq FTSE DAX CAC Eurostoxx Nikkei MSCI World

5 BOND MARKET SNAPSHOT Table 2: Bond Yield Basis Point Change Source: Bloomberg 6th May year Yield 3 Month Change 6 Month Change 1 Year Change US UK Eurozone Japan After a dramatic easing cycle the Federal Reserve looks likely to now take a back seat and assess the impact of their actions. The reduced likelihood of further easing pushed bond yields higher. The Bank of England are likely to continue easing as the fallout from housing and consumer weakness spreads. Recent language from the ECB has indicated a bias to tighten as they continue their battle against inflation. Table 3: Interest Rates PolicyRate 6 MonthForecast US UK Eurozone Japan

6 FX MARKET SNAPSHOT Table 4: Currencies Percentage Change Source:Bloomberg 1 st May2008 Current 3 Month Forecast April YTD 1yr 2yr 3yr 5yr EURUSD EURGBP EURJPY GBPUSD The Euro has shown some weakness versus the Dollar in recent weeks coming back from as high as 1.60 as the Federal Reserve has signaled a likely halt in their easing cycle for now and economic data from Eurozone (PMI and Germany s IFO) showed signs of weakness. The Euro also came off its highs against Sterling on the back of these data after a dramatic run to Renewed calm in equity markets saw the carry trade back in favour pushing the Euro higher against the Yen. Euro v Dollar 1yr Chart Source: Bloomberg 5

7 COMMODITY MARKET SNAPSHOT Table 5: Commodities Percentage Change(changes denominated in Euro) Source:Bloomberg1 st May2008 COMMODITY Current April YTD 1yr Crude Oil Gold Copper Crude oil continued to surge in April despite the slight recovery in the Dollar. This recent push is due to supply factors rather than Dollar driven as the world contemplates a global shortage. Crude Oil 1yr Chart Source: Bloomberg Gold on the other hand maintained its inverse correlation with the Dollar as it slid 3% in the month. The dollar gains reduced the appeal of dollar priced commodities used to hedge against inflation, on speculation the world's largest economy will recover this year. Copper prices rose almost 3% in euro terms in April as stockpiles dropped in China (the world s largest user of the metal). 6

8 OUR RECOMMENDATIONS Further to our shift in stance in April we retain our positive view in May as the US economy has continued to stabilize. What has surprised in the last month is the continued strength of commodities particularly metals and oil. This is down to a combination of supply constraints and strongdemand.thesecularstorydominatesfornowandthusweneedtoupgradeourstanceto neutral on these commodities. During the last month we have recommended investment in the oilmajors,royaldutchshellandtotal,astheyhavelaggedmovementsinthepriceofcrude. We continue to favour US large caps as recent earnings have highlighted their ability to profit from a global exposure. We recommend Coca Cola, McDonald s, DuPont and Accenture. Having been buying financials on dips we now believe an outright overweight allocation is appropriate forusfinancials.thebestwaytoplaythisviathespdrfinancialsectoretf(xlf). We upgraded emerging markets (specifically the BRIC countries Brazil, Russia, India, China) to neutrallast month given theextent of theselloff(chinais 42% offitsoctober highs).we believe they have bottomed and they are showing signs of recovery so we now upgrade our stance to overweight. Brazil itself should be considered for investment as Latin America continues to benefitfromstrongglobalgrowthandasithasbeenupgradedtoinvestmentgradebys&p.both currency and stock gains are likely. Inflation concerns are starting to dominate the thinking of most central banks now and the credit crunch appears to be easing. Therefore we reduce all bond exposures to underweight, while recommending increased exposure to high yield credits and FRNs. With regards to currencies the Dollar has likely bottomed on a trade weighted basis and should make further gains as the year progresses, especially versus the Yen and Sterling. Asian currencies, because of the cheapness against the Dollar and domestic inflationary pressures, are raised to overweight versus the Dollar. As volatility returns to more normal levels, the carry trade is likely to regain form with investments in higher yielders (e.g. Turkey, BRIC countries, ZAR) versus low yielders, especially the Yen. The Aussie Dollar is favoured versus the New Zealand Dollar where recessionary influences are growing and rate cuts are likely soon. 7

9 OUR STANCE The table below reflects our current recommendations on the markets: Negative Neutral Positive Japan UK Europe Ireland USLarge Cap: McDonalds, Coca Cola, DuPont, Accenture Equities US Financials: US Financial Sector ETF Oil Majors: Total, Shell Emerging Markets: MSCI Brazil ETF Bonds US Europe UK Japan FX GBPUSD EURUSD EURGBP EURJPY USDJPY High Yielders: SA Rand, BRIC currencies, Turkish Lira, Mexican Peso Commodities Oil Gold Copper Disclaimer: GlobalReach Securities is authorised by the Financial Regulator under the Markets in Financial Instruments Directive(MiFID). This supervision does not, however, imply that the Financial Regulator is responsible in any way, or has any views on, the merits of the products or services offered by GlobalReach Securities. Past performance is not indicative of future results. This is for information purposes only and not a solicitation to do business. 8

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