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The Market Last Week

Global equity markets ended mostly in the red last week, as worries increased over North Korea’s nuclear programme and as the impact of Hurricane Harvey on the US economy dented investors’ confidence. UK markets closed the week on a negative footing, amid losses in mining and insurance sector stocks. Data indicated that UK’s Markit services PMI declined more-than-expected to its lowest level in 11 months in August. Moreover, Markit construction PMI surprisingly eased in August, weighed down by a strong downfall in the commercial sector and notching its weakest level in 1 year. Meanwhile, the British Chambers of Commerce cut its growth forecast for the UK to 1.2% from 1.3% in 2018. European markets fell, amid strength in the Euro and as geopolitical tensions increased risk aversion among investors. In economic news, Eurozone’s monthly retail sales retreated in line with the market anticipations in July, led by a decline in auto fuel and food, drinks and tobacco sales. The 19-nation economy’s final Markit services PMI unexpectedly declined in August. US markets finished weaker last week, weighed down by losses in banking and insurance sector stocks. On the macro economic front, US factory orders recorded a drop in line with market anticipations to its lowest level since August 2014 in July, amid a decline in demand for transportation equipment. Moreover, final durable goods orders dropped more-than-expected on a monthly basis in the same month. The US ISM nonmanufacturing PMI grew less-than-expected in August while the final Markit services PMI unexpectedly declined in the same month. In major news, the Fed Beige Book indicated that even though the US economy expanded at a modest to moderate pace in July through mid-August, there were few signals of an acceleration in inflation. The Fed expressed concerns about a prolonged slowdown in the auto industry. Asian markets closed weaker for the week. On the data front, annual consumer price index (CPI) for China accelerated at a faster pace in August and annual producer price index advanced sharply to its highest level in 4 months in the same month.

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Currency Update

The EUR ended stronger against the USD, after the ECB raised its Eurozone economic growth forecast to 2.2% in 2017. Furthermore, the Eurozone’s economy advanced at a faster-than-expected pace on a quarterly basis in 2Q17, driven by higher domestic demand and investment. The British Pound ended in the green against the greenback, after UK’s monthly manufacturing production expanded at a stronger pace this year in July, following a rebound in car production. Additionally, monthly industrial production advanced in line with market expectations in the same month. NIESR estimated GDP registered an increase in the June-August 2017 period. The US Dollar weakened against its major counterparts, after Fed Governor, Lael Brainard, argued that the central bank needs to pay careful attention to underlying inflation before hiking interest rates again, as longer-run price pressure trends in the US appear to be lower.

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The ECB could unveil plans to scale back its quantitative easing programme in October: Draghi

The ECB maintained its main rates while confirming that asset purchases will continue at €60.0bn ($71.76bn) per month at least until December. The central bank further stated that if the outlook deteriorated, it could increase the size of the programme. The Euro rallied and the European stocks plunged after the central bank President, Mario Draghi, stated that the committee members had held early talks on how long to maintain its quantitative easing program and hinted that the ECB could announce changes as soon as next month. Further, the ECB raised its economic growth forecast for this year to 2.2% from 1.9% previously. However, it lowered its forecasts for inflation to 1.2% next year from 1.3% previously and to 1.5% in 2019 from 1.6%.

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The Week Ahead

Going ahead this week, investors will keep a close watch on the Bank of England interest rate decision along with US, UK and Germany’s CPI for further cues. US retail sales and preliminary Michigan consumer confidence index will be on investors’ radar.

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