Financial markets like to pretend they operate on rational economic principles, but in the next week they are more likely to be driven by an entirely human condition - the need for a holiday.


The main equity indicators across the globe on Friday closed in positive terrain after a week in which the biggest surprise for investors had been that the market had become so stable after the dramatic turbulence earlier this month.

Bankers and analysts predict this note of relative calm could continue over coming days, allowing traders to relish a rare moment of summer boredom.

"Next week will not be dictated by economic fundamentals or even technical factors, unless you call no one being around a technical factor," said one banker at a big commercial lender. "Our head of loans, debt capital market syndication and hedge fund sales are all on holiday next week. The junior people just aren't going to make the decisions."

In short, big decisions by major bankers and investors about where they put their money are on ice at many groups, meaning the markets are unlikely to see great activity. However, thin trading volumes could lead to volatility as small movements are exaggerated.

The holiday effect is particularly pertinent in Europe, where bankers traditionally take long summer breaks in August. But even in the US, where people take fewer holidays, many desks will not be fully manned until after US Labor Day, the first Monday in September.

Critically, decisions on the selling of syndicated loans are not likely to be made until September, after the holiday period, so it will not be known until then whether the estimated $300bn pipeline of unsold loans held by the banks as a result of the credit turmoil can be unblocked.


"We will have to wait until September before we panic on this one, when a lot of investors return from holidays," said a banker. "If by September, we can't sell on these loans, then we might have a problem."

Another reason for the possible outbreak of calm is that some investors are waiting to see just how much damage the August market swing has inflicted on the portfolios of the trading desks of the investment banks or hedge funds.

If it becomes clear that the losses will prompt more liquidation of assets, that could potentially reawaken the financial turmoil next month. But if the losses are small, this may fuel hopes that the markets are heading for a rebound.

The three main equity indices, in London, New York and Asia, ended the day and week in the black.

The FTSE 100 finished 0.4 per cent up on the day and 2.6 per cent up on the week. The MSCI - Asian shares, excluding Japan - finished 2.43 per cent up on the day and 10.6 per cent up on the week. And the S&P 500 was 0.2 per cent up on the day and 1.4 per cent up on the week at the end of London trade.