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The Market Last Week

Last week, global equity markets ended on an upbeat note, after the US President, Donald Trump proposed a plan to slash corporate tax from 35% to 20%. UK markets finished in the green last week, buoyed by a rise in banking sector stocks, as Bank of England (BoE) Chief Economist, Andy Haldane, sought to downplay the effects of higher interest rate. On the data front, the final reading on UK economic growth was revised lower on an annual basis in the second quarter of 2017. European markets ended in the positive territory in the last week, amid a rise in financial companies. In economic news, Eurozone’s economic sentiment index advanced more than market expectations in September, reaching its highest level since July 2007. Separately, German unemployment rate surprisingly dropped in September, while the nation’s business sentiment indices portrayed a weaker picture in September. US markets ended higher for the week, after the Republican party revealed plan for tax reforms in the US. In other major news, the Federal Reserve (Fed) Chairwoman, Janet Yellen, indicated that Fed may have overstated the strength in the US labour market and inflation rate; and it was most appropriate to lift interest rate at a gradual pace. On the data front, the final figures revealed that US economic growth gained momentum on an annualized basis in 2Q17, rising at its quickest pace in more than two years. Asian markets closed mixed for the week. In Japan, the Bank of Japan’s (BoJ) summary of opinions revealed that most central bank members considered maintaining the current policy framework as it still remains far from meeting its inflation target.

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Currency Update

The US Dollar ended higher against a basket of major currencies last week, following comments from Fed Chair, Janet Yellen, which pointed towards an interest rate rise before the year end. The Pound ended on a weaker note against the USD last week, after the final figures for UK economic growth showed a downward revision in the second quarter of 2017. The Euro ended on a weaker footing against the US Dollar last week, after an IFO survey showed Germany’s weak business climate and expectations in September.

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Last week’s key speeches and the US tax reform plan

Last week witnessed speeches and comments from key central bank speakers across the globe and saw the unveiling of a major tax reform plan by the US President, Donald Trump. He has proposed in his plan to cut corporate tax from 35% to 20% and largely end the taxation of non-US earnings. Since the President has taken office, this could be the first legislative success for the Republican party. On the other hand, the US Fed Chair, Janet Yellen stated that it is appropriate to hike interest rate at a gradual pace and hinted towards one more rate hike before the year ends. The European Central Bank President, Mario Draghi expressed confidence that consumer prices are likely to rise and reach the ECB’s target, albeit cautioning that monetary policy stimulus is required to achieve the target in a sustainable way. Moreover, the BoE Governor, Mark Carney, stated that interest rates were likely to increase in “relatively near term”, provided the UK economy continues to show signs of strengthening.

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The Week Ahead

Going ahead this week, traders will keep a watch on the Markit survey for manufacturing and services PMIs across the globe along with US employment report and Fed Chair, Janet Yellen’s speech for further direction.

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