Investors waiting for Alistair Darling’s much-trailed Budget have more to be concerned about than planned capital gains tax changes or imposts on high-earning ‘non-domiciles’ in the City.

The FTSE 100 Share Index has been at 5,800 points and lower, nearly 1,000 off its 52-week high, as the credit crunch coincides with raw material price increases and a crop of disappointing corporate announcements.

Indeed, contrarian investors might be tempted to reach for their cheque books, such is the consensus for gloom. A clear majority of institutional fund managers polled by the Cantos financial communications group expects financial market turbulence to persist for the foreseeable future.

Underwhelmed by rate cut
The latest 0.25 per cent interest rate cut by the Bank of England’s Monetary Policy Committee (MPC) to 5.25 per cent has provoked howls from some business quarters as being too little, too late.

The British Chambers of Commerce has added its voice to the chorus, with a survey suggesting a fall in annual economic growth from 3.3 per cent in the third quarter of 2007 to 1.1 per cent this year, and has called on the MPC to again cut rates, sooner rather than later, to avoid a recession.

But, when fear replaces confidence, interest rate cuts may not have the desired effect. The Japanese learnt this in the 1990s, when cautious consumers kept on saving, rather than spending, despite years of zero or negative interest rates, and Ben Bernanke of the US Federal Reserve could find similar caution now makes Americans slow to respond to its series of rate cuts.

Banks globally facing an estimated £205 billion of losses on reckless sub-prime mortgage loans are turning tough on more reliable corporate and personal clients, with as yet incalculable effects on the overall economy. When one ‘rogue trader’, Jerome Kervier, can lose a major bank such as France’s Société Générale £3.6 billion apparently out of the blue – although traders all over the market recall a spate of eyebrow-raising orders from ‘Jerome’ in the run-up to the debacle – confidence in the system, not unnaturally, comes under strain.

Commodities still bubbling
Monetary authorities, including the European Central Bank, now seem more willing than hitherto to acknowledge that recession is as much of a danger as inflation, although, with US wheat stocks at a 60-year low and the price of wheat futures soaring, food prices are set to continue rising. Oil prices are sending the same message for fuel bills.

The scramble for raw materials helps to explain why Chinese aluminium group Chinalco joined with Alcoa of the USA to spend £6 billion on 12 per cent of Rio Tinto. This could thwart BHP Billiton’s £70 billion-plus bid for Rio, a bid whose near monopolistic consequences for iron ore supplies has provoked protests from Japanese and other steel-makers.

China, of course, is supposed to be the new engine of international growth. The decision by China Investment Corporation, the country’s £100 billion sovereign wealth fund, to pump £15 billion into foreign investments, with more on the way, is one pointer.

In the short term, several market players suspect the China show is being kept on the road at all costs ahead of the Beijing Olympic Games in August. After that, they argue, things could change, for a while at least, even though the longer-term outlook presumably remains benign.

Special situations
As we have remarked before, when everything looks intractably gloomy and all the market sages are united in pessimism, that is traditionally the time to look for a market upturn. There will probably have to be some more corporate shocks yet, and the authorities will need to feel inflationary pressures are diminishing – as they are not at present – before the stage is set for a convincing market revival.

Meanwhile, look to special situations and favoured sectors to provide excitement. Witness the new highs scaled by Eastern Platinum, on the impact of South Africa’s power supply problems, and Hardy Oil & Gas, with interests in India and Nigeria. Anglo-Swiss mining giant Xstrata has risen fivefold in three years and remains within sight of £40 on attentions from Vale of Brazil.

Waste management specialist Biffa has lately attracted attention, when its acceptance of a £1.2 billion offer at 350p from Montague Private Equity and Global Infrastructure Partners prompted suggestions of possible rival approaches from French utility Suez, Terra Firma private equity group and others.

Big names still suffering
It is, however, a different story with pharmaceutical giant GlaxoSmithKline, where outgoing CEO Jean-Pierre Garnier has warned that earnings this year will fall by a ‘mid single-digit’ percentage this year, having slipped more than one per cent in 2007. Problems with GSK’s Avandia ‘blockbuster’ diabetes drug and the end of patent protection for five other drugs have sliced a third off the company’s share price in what is often hailed as a ‘defensive’ sector to less than £11 in two years.

One victim of strong wheat prices is Premier Foods, maker of Hovis bread, where the margin squeeze has stirred fears over repayments of £1.675 billion of debt and talk of an imminent dividend cut. Premier has said it is not considering a rights issue and, with a £2.1 billion committed credit facility until 2012, does not expect to breach its banking covenants, but at 107.75p it has lost two thirds of its value in a year.

As the Northern Rock quadrille proceeds, with Treasury, Virgin, management and
other interested or potentially interested parties playing their parts, the shares have rallied from 63p to 95p, a fraction of last year’s £12.51 peak, though the Rock’s recent 6.9 per cent one-year access bond, guaranteed by the government, has proved popular.

Robert Tyerman is news editor of Growth Company Investor, the UK’s leading magazine for AIM and small-cap analysis.