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The Market Last Week

Global equity markets ended in the positive territory last week. UK markets finished firmer last week, driven by sharp gains in banking sector stocks, after global regulators agreed on the long-awaited financial reform package under the Basel III rules. In major news, the UK and the European Union (EU) had reached a breakthrough in the Brexit negotiation on Friday, and would now move on to the second phase. On the data front, UK’s NIESR estimated gross domestic product advanced more than market forecast in November. Additionally, manufacturing production rose higher-than-anticipated on a monthly basis in October. Adding to the positive sentiment, Markit construction PMI climbed at a stronger pace in November, notching its highest level in five months. Furthermore, BRC like-for-like retail sales rebounded on an annual basis in November. European markets ended the week in green, boosted by gains in financial sector stocks. On the macro front, Eurozone’s gross domestic product (GDP) recorded an unexpected rise on an annual basis in the third quarter of 2017, while recorded a steady reading on a quarterly basis in the same quarter. Meanwhile, Germany’s monthly factory orders surprisingly rose in October. US markets finished the week in green, following upbeat jobs data. Data showed that the US non-farm payrolls advanced at a stronger-than-expected pace in November. Additionally, the ADP employment change recorded a rise at par with market forecast in November. Furthermore, initial jobless claims unexpectedly fell during the week ended 2 December 2017. On the flip side, the nation’s ISM non-manufacturing PMI fell more-than-expected in November, continuing in expansion territory. Furthermore, Markit services PMI surprisingly dropped in the same month. However, the unemployment rate recorded an unchanged reading in November. Adding on, factory orders and durable goods orders eased less-than-expected on a monthly basis in October. Asian markets closed lower for the week. In economic news, Japan’s annualised GDP advanced at a stronger pace in 3Q17. However, Nikkei services PMI recorded a drop in November. Separately, China’s Caixin services PMI advanced in the same month.

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Currency Update

The EUR ended weaker against the USD, after Eurozone’s Sentix investor confidence index declined more than market anticipations in December. Furthermore, the 19-nation economy’s retail sales dropped more-than-expected on a monthly basis in October. Meanwhile, Germany’s Markit services PMI registered an unexpected decline in November. Further, industrial production surprised with a drop on a monthly basis in October, led by a decline in automobile production. The British Pound ended lower against the greenback, after UK’s Markit services PMI recorded a more-than-expected drop in November, amid increasing prices. Furthermore, construction output unexpectedly declined on a monthly basis in October. However, the nation’s monthly industrial production recorded a flat reading in the same month. Meanwhile, trade deficit surprisingly narrowed in October. The US Dollar strengthened against its major counterparts, amid upbeat economic releases in the US. In contrast, the flash Michigan consumer confidence index recorded an unexpected drop in December.

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UK and EU reached a “breakthrough” in Brexit deal…

British Prime Minister, Theresa May, and European Commission President, Jean-Claude Juncker, announced on Friday that UK and the EU have reached a significant milestone in the Brexit negotiation and opened the door to the next phase, particularly trade. The deal indicated that there will be no “hard border” with Ireland and further, the rights of the EU citizens in the UK and the UK citizens in the EU will be protected. Further, the “divorce bill” would amount to between £35.0 billion and £39.0 billion.

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The Week Ahead

Going ahead this week, investors will keep a close watch on the FOMC, the Bank of England and the European Central Bank’s (ECB) interest rate decision along with the Federal Reserve Chair, Janet Yellen and the ECB President, Mario Draghi’s speech for further direction. On the data front, the US and UK’s consumer price index along with the US retail sales data will be on investors’ radar.

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