Global credit conditions will be watched very closely and are likely to have a pivotal influence over the week. Further credit-related fears would maintain pressure for an unwinding of carry trades and a general shift away from higher-risk assets. In contrast, any sustained relief in credit markets would lessen demand for safe-haven low-yield assets such as the yen. A very important feature is likely to be a sustained increase in volatility.

The net risks suggest that there will be a further tightening of conditions, especially as there were further important warning signs at the end of last week with Libor rates rising and evidence of increasing fear. Year-end considerations will also have a significant impact in tightening liquidity and this will increase the risk that carry trades will be unwound in the short term.

The second key influence is likely to be comments and actions from global central banks in response to the credit-related difficulties and currency volatility.