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The Market Last Week

Global equity markets ended mostly in positive territory last week. The markets trimmed some of their initial gains after North Korea fired another ballistic missile over Northern Japan for supporting a UN Security Council resolution and sanctions over its latest nuclear test. UK markets ended weaker for the week, led by sharp losses in mining sector stocks. Furthermore, the markets went lower after the Bank of England (BoE) hinted that senior officials are mulling an interest rate hike “in the coming months” to curb an accelerating inflation. On the data front, average weekly earnings recorded a less-than-expected rise in the May-July 2017 period. European markets ended the week in the green, boosted by gains in automobile sector stocks. On the macroeconomic front, industrial production rebounded at par with the market forecast on a monthly basis in July, driven by a rise in the output of capital and consumer goods. Germany’s consumer price index (CPI) advanced in line with expectations on an annual basis in August. US markets ended the week on a positive footing, driven by gains in financial sector stocks. Moreover, US Treasury Secretary, Steven Mnuchin, stated that the Trump administration is considering backdating tax reform to the beginning of this year in order to boost the economy. In economic news, US annual CPI rose more than market forecast in August, while monthly CPI surged to its highest level in 7 months in August, amid an increase in the gasoline and rent prices. Additionally, initial jobless claims surprisingly dropped for the week ended 9 September 2017. Asian markets closed mostly in the green last week. On the data front, China’s industrial production advanced less than market anticipations on an annual basis in August. Furthermore, annual retail sales recorded a less-than-expected rise in the same month.

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Currency Update

The Euro ended the week on a negative footing against the greenback, after Eurozone’s trade surplus narrowed more than market expectations in July. The GBP ended stronger against the USD, following the BoE statement which hinted at an interest rate hike. Furthermore, the currency gained support by the UK’s annual CPI that expanded at a stronger-than-anticipated pace in August, notching its highest level in 5 years. Also, the ILO unemployment rate surprised with an unexpected drop in July, reaching its lowest level in 42 years. The US Dollar ended mostly firmer against its major counterparts, following robust US CPI and initial jobless claims data. Meanwhile, advance retail sales unexpectedly fell in August while the flash Reuters/Michigan consumer confidence index eased less-than-estimated in September. Moreover, manufacturing production registered an unexpected decline in August and industrial production surprisingly dipped to its lowest level since 2009 in the same month.

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The BoE hints for an interest rate hike in the coming months…

The BoE’s Monetary Policy Committee (MPC) voted 7-2 to keep the benchmark interest rates steady at 0.25% and its asset purchase facility at £435.0 billion, as widely expected. The British Pound surged more than 1.0% against the Dollar after minutes revealed that policymakers judged “some withdrawal of monetary stimulus is likely to be appropriate over the coming months”, to bring inflation to its 2.0% target and ease the pressure on consumer spending. Moreover, the MPC stated that there was a “slightly stronger picture” for the economy since its forecasts last month, thanks to signs of a stronger housing market, higher employment and a rebound in retail and new car sales.

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The Week Ahead

Going ahead this week, investors will keep a tab on the FOMC interest rate decision and European Central Bank President, Mario Draghi and BoE Governor, Mark Carney’s speech for further direction. On the data front, Markit manufacturing PMI in the Eurozone and US will be on investors’ radar.

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