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Global equity markets ended lower last week, amid ongoing turbulence in the stock markets. UK markets ended the week on negative footing, as Bank of England signalled at the need for interest rate hike earlier and potentially larger than previously anticipated. Additionally, UK’s services sector activity growth fell to its lowest level in 16 months in January and industrial output dropped to its lowest level since 2012 in December. European markets ended the week lower, amid losses in energy sector stocks. On the macro front, Eurozone’s Sentix investor confidence index unexpectedly dropped in February. Germany’s trade surplus narrowed more than expected in December. Further, its industrial production declined on a monthly basis in December. US markets ended the week in the red, due to increasing concerns that the US Federal Reserve (Fed) would raise interest rates more than three times, in response to growing inflationary pressures and on higher bond yields. On the data front, the ISM non-manufacturing PMI advanced more than market expectations in January. Further, initial jobless claims surprisingly declined to its lowest level in nearly 45 years for the week ended 3 February 2018. Asian markets closed sharply lower during the week, mirroring slump in the US equity markets.

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Currency Update

The EUR ended lower against the USD, after the European Central Bank (ECB) President, Mario Draghi, warned that inflation progress could be disrupted in the medium term due to the recent strength in the currency. The GBP ended weaker against the USD, as the European Union’s Chief Negotiator, Michel Barnier, stated that a Brexit transition deal may not be in reach at the moment. Additionally, the UK trade deficit and industrial production data for December was disappointing. The US Dollar ended higher against its key peers last week, after a short-term funding bill to end the government shutdown was passed by the US lawmakers. Further, the ISM non-manufacturing PMI advanced more than market expectations in January.

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Slump in Stock Markets: Whom to blame?

Downturns in the market are normal, but the global equity markets saw a brutal decline last week. Rising inflation is one of the reasons for the slump, as rising costs will prompt the Fed to raise interest rates more aggressively. Increasing inflation has also led to a rise in yields for the 10-year Treasury note, which rose to a high of around 2.88% last week. With rise in technology, algorithm-based trading has gained momentum leading to sharp decline in stock prices due to automated trigger selloff. Also, most of the indexes were at its peak without any pullbacks, so correction in stocks was entirely normal.

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The Week Ahead

Going ahead this week, investors will keep a close watch on consumer price index of major economies and monthly budget statement in the US. On the data front, gross domestic product across Europe will be on investors' radar.

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