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The Market Last Week

Global equities ended the week in positive territory, as traders sounded upbeat about the global economic outlook and likelihood of success for the US tax reform. UK markets ended higher during the week, driven by weakness in the British Pound, following speculation that Britain could face another general election by late 2018. On the data front, UK’s Markit services PMI unexpectedly advanced in September. European markets ended the week on a positive footing, boosted by a weaker Euro. In economic news, growth in Eurozone’s services sector activity surprisingly increased in September. Meanwhile, the region’s manufacturing activity growth was slightly sluggish in September, compared to its preliminary reading. Further, retail sales recorded an unexpected drop on a monthly basis in August. Separately, Germany’s Markit manufacturing and services PMI both came in line with the preliminary reading in September. US markets finished the week in the green, after the US House of Representatives approved a $4.1 trillion budget plan to help them move forward with the much-anticipated tax bill. On the macroeconomic front, US manufacturing sector recorded an unexpected rise to its highest level in 13 years in September. Furthermore, the nation’s services sector expanded at a stronger-than-expected pace in September, notching its highest level since August 2005. Adding to positive sentiment, the nation’s unemployment rate unexpectedly fell to its lowest level in 16 years in September. Meanwhile, non-farm payrolls recorded its first monthly drop in seven years in September. Asian markets closed mostly in the green last week, tracking gains on Wall Street. Data indicated that Japan’s Nikkei manufacturing PMI recorded a surprise rise in September.

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Currency Update

The Euro ended lower against the greenback, after the European Central Bank (ECB) meeting minutes disclosed that the central bank could wait for a long time to start easing its bond-buying programme and as concerns over Spanish political turmoil continued. Further, Eurozone’s manufacturing and services sector’s disappointing data weighed on the currency. The GBP ended weaker against the USD, after the Bank of England’s meeting minutes disclosed policymakers’ warning that Brexit posed “substantial risk” to the ability of British companies to borrow from European banks. The Pound fell further amid worries that the UK Prime Minister, Theresa May, could be ousted by her own MP’s in the coming months. On the macro front, UK’s manufacturing sector eased more-than-expected in September. Further, Markit construction PMI contracted for the first time in 13 months in the same month. The US Dollar ended stronger against its major counterparts, following robust macroeconomic releases in the US, reflecting strength in the economy.

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Policymakers discussed QE unwinding options at September meeting: ECB minutes

The ECB’s September meeting minutes indicated that senior officials debated over the various options to scale back its bond-buying programme, focusing on the choice between the pace and the intended duration. Further, minutes noted a “broad agreement” among the governing council that the substantial support was still needed to ensure that inflation returns to target, while also commenting that October’s meeting would be the right time for the bulk of decisions. The minutes also revealed that policymakers agreed that the recent strength in the Euro exchange rate represented a source of uncertainty.

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The Week Ahead

Going ahead this week, investors will keep an eye on the FOMC meeting minutes, US consumer price inflation, advance retail sales and the flash Michigan consumer confidence index along with UK’s NIESR GDP data for further direction.

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