Financial markets are likely to suffer another turbulent week as Russia stays under scrutiny and President Clinton faces domestic problems. Meanwhile, comments by the Federal Reserve Board chairman, Mr Alan Greenspan, may increase speculation of an early US interest rate cut.
Investors will also be closely watching developments in Latin America, particularly in the currency markets.
According to Mr John Beggs, chief economist at AIB, one of the key issues will be the debate on the election of Mr Viktor Chernomyrdin as prime minister of Russia. "If this is not resolved, there could be a third attempt which would result in the dissolution of parliament and further panicking," Mr Beggs warned.
However, the Labour Day holiday in the US today should mean that trading will be reasonably subdued in European markets as dealers will be cautious of moving too far without Wall Street's input, he added.
One danger, however, is that a break can be an opportunity for investors to get even more nervous and can contribute to an even larger sell off in subsequent days. US investors will be closely assessing Mr Greenspan's comments, made late on Friday.
He said that it is not credible "that the US can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress". This is interpreted by some as making an early cut in US interest rates more likely, which may support equity markets but hit the dollar.
One key area of concern for the US is Latin America, where trading was suspended on the Sao Paolo stock market in Brazil after shares there fell by 10 per cent on Friday night.
In Britain, attention will centre on the two day meeting of the monetary policy committee at the Bank of England. According to Mr Beggs, an interest rate rise is now off the cards, but the committee is very unlikely to move in any direction at this stage.
Another issue which dominates the markets is Mr Clinton, according to Mr Beggs. The dollar is already falling as people realise the US will be affected by the contagion in Latin America as well as the Far East. However, now the threat of moves towards impeachment of President Clinton are also likely to hurt the dollar and will not be supportive of equity markets. Mr Beggs also points to the possibility that more governments may seek to introduce exchange controls along the line of the Malaysians. "We are seeing that governments now believe that free movements of capital are too free and are so large they can destroy a reasonably well run economy.
"As funds realise they are in jeopardy in this way, they will move back into safer western markets and into bonds rather than equities. The selling is quite indiscriminate and is not over yet."
