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In many areas there remains anticipation of a slowdown with the expectation being that a cyclical downturn in US housing will lead the way with interest rates, increasing unemployment and higher fuel prices compounding the effect.

Despite some signs of a slowing economy, inflation indicators continue to rise providing cause for concern for the Federal Reserve - despite the number of rate rises since mid 2004. The major concern is ensuring that the monetary tightening does not result in a hard landing. The housing boom has been possibly the largest contributor to growth in recent years via building activity, household durables and increasing property values. The increased property values have lead to sustained consumer spending and consequently any fall in the housing market will have a subsequent effect on the High Street. The US trade deficit also hit its highest ever level in July of $68bn, largely driven by the higher price for oil imports. All these factors ensure the US has several concerns to contend with over the coming months.

Europe has performed reasonably well in recent months, largely as a result of Germany, France and Italy. Business confidence in Germany has been the strongest since reunification. Despite pockets of weakness, employment levels are also increasing and the effect on household income has been seen by stronger consumer spending, although these data are somewhat patchy. Fuel prices are yet again driving inflation higher and the ECB is mindful of inflationary pressures. Jean Claude Trichet remains fairly convinced that the ECB is well placed to ensure that higher energy prices don't impact upon wages and his recent speeches have carried a more upbeat message than elsewhere in the world. Consumer spending remains reasonable in the UK although rising unemployment figures and subdued wages growth result in lower than historical levels of spending.

While Japan has experienced good business activity this is not filtering down to other areas of the economy such as household income and consumption. It is definitely a watch-and-wait scenario to see how Japan develops going forward. Although on historical measures there is still cause for optimism.

Real Estate and large cap companies have been responsible for most of the growth in China this year and the expectation is that property will continue to be a good asset to hold benefiting from inflation. New property in China is taken up quickly, while the secondary market in cities remains practically non-existent. Investors are rapidly moving towards Eastern economies, and whilst there is great divergence across Asian markets, countries such as China and India have performed well and demonstrated earning stability. China as a whole has under performed other emerging markets; but despite this effect there have still been some impressive returns within the region: the Philippines and Indonesia have both shown strong returns and, with the resurgence of the technology sector, we can hopefully look towards Korea and Taiwan coming back into the picture. Overall the outlook for Asia over the long term looks fairly positive.

Rates remained unchanged (5.25%) at the Fed's meeting on 20th September but there was talk of an inflation target regime. This is a departure by Bernanke of Greenspan's concerns that if a target was breached it would reduce credibility of the organisation and cause concern amongst the public. There is much debate within the Fed as to whether this is an appropriate move and indeed whether they actually have a generally accepted measure and understanding of inflation. This approach is similar to that adopted by the UK in 1992 when it was forced out of the European Exchange Rate Mechanism, and hereafter experienced a CPI averaged inflation rate of 1.8% and consequently why some in the US believe this would be a pragmatic way forward.

US economists are forecasting below average growth over the next 18 months and warnings have been issued that the economy could do much worse if falling house prices cut consumer spending. We are at the start of some very negative data coming out of the US and the much anticipated slowdown now looks like more of a certainty, the depth and length of the downturn is what is currently keeping commentators guessing. With concerns regarding US growth and corporate profitability, many are looking to a falling oil price in the hope that it lends support to equities. It will be difficult for the US dollar to appreciate strongly amidst the negative data and as such there is the potential for investors to turn to commodities rather than currencies when seeking gains. Gold could be the beneficiary of such a move, whilst it has been a volatile asset in recent months a weak dollar would make it relatively cheap and help boost the short term price. The gold price is ultimately at risk from what occurs with the dollar and oil but the start of the Indian wedding season is historically a great benefactor for gold when supply becomes in great demand.

The story remains similar in many economies. The Bank of England made a surprise increase in interest rates in August to 4.75% but this theme has been seen across many diverse countries such as China, Australia and Europe in a bid to curb inflation. The expectation of a slowdown is being factored in on a global basis. In Japan, investors are likely to start to favour bonds over equities as a slowing US would impact upon cyclical stocks and even those stocks that have made recent gains are at risk of a sell off.

All of the above suggests a doom and gloom scenario. Time will tell, but not all market commentators agree with this sentiment. Among the great many bears there are those who still offer a ray of hope in coming months. Many analysts are suggesting that what can occur is a decoupling of markets from the US, in effect, previously if the US consumer fails to spend there has been a slowing generally of global growth and investors make a move towards bonds/cash. Going forward, what we may experience is that areas such as Japan, Europe and various Emerging Markets will start to break away from the influence of the US. It has been suggested that we are potentially worrying too much and if careful about where we invest there is still more growth to come. Large manufacturing companies in Japan are still showing increased confidence, French consumer spending is at a 7 year high and in most of Europe (while the macro outlook may be less than perfect) stocks on the whole are supported by solid fundamentals and attractive earnings. There are a significant number of advocates that suggest economies such as Japan, India, Brazil and the majority of Asia will remain independent of what happens in the US and even Europe has the chance that it will not suffer the full effects of a US slump. Some analysts have predicted growth in the US will halve during 2007, whilst non-US growth will dip, moderately.

What is ultimately apparent is that the future is far from clear. The best way forward for investors is to ensure they have a diverse and balanced portfolio which can quickly adapt to events as they unfold.

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This commentary should not be seen as a recommendation or solicitation to invest. Anyone considering investing should first seek advice specific and appropriate for their own needs, objectives and risk appetite.