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The Market Last Week

Global equity markets ended mostly higher last week, as geopolitical concerns between the US and North Korea eased. UK markets ended the week on a positive footing, amid gains in mining sector stocks. Further, UK’s ILO unemployment rate unexpectedly declined to its weakest level since 1975 during the April-June 2017 period. Additionally, average weekly earnings rose higher-than-expected in the same period. Moreover, the nation’s monthly retail sales advanced more than market expectations in July, as upbeat spending on food offset a downfall in the purchase of other goods. European markets finished the week in bullish territory, after the Eurozone’s economy expanded on a yearly basis in 2Q17. Furthermore, trade surplus widened more than market forecast in June. US markets painted a negative picture for the week, as investors remained uncertain over US President, Donald Trump’s pro-growth policy agenda following a rebuke by business leaders. In major news, the Federal Open Market Committee’s (FOMC), July meeting minutes showed that the policymakers were extremely worried about recent weakness in the inflation and some of the members called for halting interest rate hikes till the time it was clear that the trend was transitory. On the macro front, US housing starts recorded an unexpected drop on a monthly basis in July. Moreover, monthly building permits eased more-than-expected in the same month. Asian markets closed mostly in the green last week. On the macro front, Japan’s annualised GDP surged at a faster pace in 2Q17 to its highest level since January-March 2015, while China’s annual industrial production rose less-than-expected in July.

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Currency Update

The Euro ended in bearish territory against the Greenback after the European Central Bank (ECB), in its July meeting minutes, stated that the board members were highly concerned about the persistent strength in the Euro. On the data front, Eurozone’s industrial production declined more-than-expected on a monthly basis in June, its first drop since February. Furthermore, Germany’s economic growth slowed down in 2Q17. The GBP ended weaker against the USD, after UK’s consumer price inflation recorded a less-than-anticipated rise on an annual basis in July, amid a decline in fuel prices. The US Dollar ended firmer against its key peers, after US monthly retail sales rose at a stronger pace, notching its highest level in 7 months in July, amid a rise in the sale of automobiles and building materials. The nation’s preliminary Michigan consumer sentiment index grew more-than-forecast to its highest level in 7 months in August.

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Fed wary over weak inflation while the ECB fretted over appreciating Euro….

The FOMC, in its July meeting minutes, revealed that some policymakers were of the view that inflation still remained low and further interest rate hikes should be dealt with caution, while others expressed concerns that delaying further rate hikes could push inflation higher into dangerous territory. Meanwhile, the Federal Reserve (Fed) signaled that it stood prepared to commence reduction of its $4.5 trillion portfolios of Treasury bonds and mortgage-backed securities. Separately, the ECB’s July meeting minutes showed that the senior officials were highly anxious about the strength in the Euro and warned that easy financing conditions "could not be taken for granted" and further believed that the currency could rise in value again. Moreover, the policymakers stated that the duration and pace of the ECB’s €2.3 trillion bond-buying programs were not the only measures to adjust their stance and "more policy space" was needed in either direction.

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The Week Ahead

Going ahead this week, investors will keep an eye on the Eurozone’s and Germany’s ZEW economic sentiment index and UK’s GDP data for further cues. Moreover, Markit manufacturing PMI in the Eurozone and US along with US preliminary durable goods orders data will be on investors’ radar.

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