Global equity markets traded sideways through most of the third quarter, with their modest local currency performances boosted by the continuing weakness of the US dollar. Global bond markets on the other hand were far more volatile, trading sharply lower on stronger than expected US and Japanese data early in the quarter, only to recover later as the data turned more mixed. Again, global bond index performance was boosted in US dollar terms by the relative strength of the Euro and Japanese Yen.

We have consistently argued for the past three years that the global economy was operating in "post-bubble" mode, and that economic and corporate performance was almost certain to prove disappointing relative to the almost perpetually bullish consensus. At the same time we recognised explicitly that there would equally certainly be periods of apparent economic strength or recovery, before the weight of the post-bubble imbalances asserted itself again. The past couple of quarters clearly appear to have been such an interruption to what we still perceive to be the dominant trend. If anything the imbalances - most clearly seen in the extraordinary scale of the ballooning US current account deficit which is the counterpart of the still ballooning levels of debt in the US economy - have gotten worse over the course of 2003. As the economics editor of the London Financial Times put it, "it is the best recovery foreign money can buy!" At the same time the engine of any sustainable recovery - job creation - is still not firing. Indeed, in contrast to the so-called "jobless" recovery of the early 1990's, since the US recovery "officially" began at the end of 2001 the US has actually shed around 2 million jobs. This is rather the job-loss recovery. Our view remains that, unless job creation suddenly starts again, the rate of US saving must and will rise over the coming years, leaving a gaping hole in global demand, which the rest of the world will find very difficult to fill.