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The Market Last Week

Global equities ended the week on a positive footing, amid buoyant corporate earnings reports. UK markets ended the week in green, amid weakness in the British Pound. In major development, the Bank of England (BoE) raised its benchmark interest rate by 25 basis points to 0.50%, registering its first rate hike since July 2007. On the data front, UK’s Markit manufacturing PMI unexpectedly advanced in October, driven by a rise in domestic demand and export orders. Further, the nation’s service sector surprisingly rose to its highest level in six months in October. European markets ended firmer last week, after Eurozone’s economy grew at a stronger pace on a quarterly basis in 3Q17. Furthermore, the region’s unemployment rate surprised with a drop to its lowest level since January 2009 in September. Adding to the positive sentiment, economic confidence across the Euro-area surged to its highest level since January 2001 in October. Additionally, the business climate index advanced more-than-expected in the same month, its highest rise since March 2011. Meanwhile, the consumer price index in the Eurozone grew at a slower pace on a yearly basis in October, justifying the European Central Bank’s (ECB) cautious approach for rate hikes at its October policy meeting. US markets ended in positive territory last week, after the US House of Representatives unveiled the long-awaited tax cut plan which would reduce the US corporate tax. Separately, the Federal Reserve (Fed) kept the key interest rate steady in the range of 1.00% and 1.25%, while signaling towards an expected interest rate hike in December. Moreover, the central bank indicated that US labour market has strengthened and economic activity has been growing at a faster pace despite disruptions caused by recent hurricanes. Asian markets closed mostly firmer last week. The Bank of Japan (BoJ) kept its monetary policy on hold and lowered its forecast for inflation to 0.8% from 1.1% in 2018 and to 1.4% from 1.5% in 2019.

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Currency Update

The EUR ended stronger against the USD, amid upbeat economic releases in the Eurozone. The GBP ended weaker against the USD, on “dovish hike” by the BoE and indicated that any further increases are likely to be gradual and limited. The US Dollar ended mostly higher against its major counterparts, after US unemployment rate surprisingly declined in October, reaching its lowest level since December 2000. Furthermore, the US Markit services PMI recorded an unexpected rise to its highest level since August 2005 in the same month. However, non-farm payrolls advanced less-than-expected in October. In other news, the US President, Donald Trump, nominated Jerome Powell as the next Chairperson of the US Fed.

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The BoE raised the interest rate, signalled towards a longer horizon for any future rate hike…

The BoE’s Monetary Policy Committee voted 7-2 in favour of increasing the benchmark interest rate to 0.50% from 0.25%, its first rate hike in ten years, in an effort to combat rising inflation and bring it back to its 2.0% targeted level. Further, the central bank stated that interest rates would rise at a gradual pace and to a limited extent in the near future. Meanwhile, in its November inflation report, the BoE projected two more rate hikes in the next two years, capping the base rate at 1.00% by 2020. The central bank Governor, Mark Carney, indicated that the Brexit talks would be the most important factor for the next move on interest rates, which could either go up or down.

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The Week Ahead

Going ahead this week, investors will keep an eye on the ECB President, Mario Draghi's speech and US preliminary consumer confidence index along with China’s inflation report for further direction.

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