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The Market Last Week

Global equity markets ended mostly in the green last week. UK markets ended the week on a positive footing, amid gains in retail sector stocks. In economic news, UK’s retail sales surged higher-than-expected on a monthly basis in August, led by inflationary pressures and higher sales volumes. European markets painted a positive picture for the week, after Eurozone’s Markit manufacturing PMI advanced to its highest level in nearly 7 years in September, while services PMI notched its strongest level in 4 months in September. Adding to the positive sentiment, growth in Germany’s manufacturing sector expanded at its fastest pace in 6 years in September, while services sector activity jumped to a 6-month high in the same month. Additionally, the region’s consumer confidence surprisingly rose in September, reaching its strongest level since April 2001. US markets closed mostly firmer for the week, boosted by gains in health care sector stocks. On the macro front, US flash Markit manufacturing PMI advanced in line with market anticipations in September. Further, building permits surged to its highest level in 7 months in August while Markit services PMI dropped more-than-expected in September. Asian markets closed mostly in the green last week. In major news, the Bank of Japan senior officials voted 8-1 to leave its asset-buying programme and negative interest rate policy in place. Also, the central bank maintained an upbeat outlook for the economy, signaling its conviction that a solid recovery will gradually accelerate inflation towards its 2.0% goal without additional stimulus.

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Currency Update

The EUR ended higher against the USD, following upbeat economic releases across the Eurozone. On the data front, Eurozone’s annual consumer price index (CPI) advanced at par with preliminary reading in August, marking its highest level in 4 months. Additionally, ZEW economic sentiment index rose in September from August while the region’s current account surplus saw an expansion in July. Furthermore, Germany’s ZEW economic sentiment index soared more-than-expected in September, boosted by robust growth figures in 2Q17 and increase in investment activities and bank lending by both private and public companies. The British Pound ended weaker against the greenback, after the Bank of England (BoE) Governor, Mark Carney, stated that any hike in the interest rate in the coming months will be "gradual" and "limited". The US Dollar ended mostly higher against its major peers, after the US Federal Reserve (Fed) indicated that it will start unwinding its $4.5tn balance sheet in October.

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Fed hints an end to stimulus programme, leaves rates steady…

The US Fed indicated that it will begin trimming down its $4.5tn balance sheet in October, initially by just $10.0bn per month. Moreover, Fed Chair, Janet Yellen, stated that the normalisation process would be gradual and predictable. The Fed left the benchmark interest rate unchanged in the range of 1.00% and 1.25% but indicated that one more hike is likely before the year-end. Further, the Fed remained confident about the economic outlook, while highlighting the temporary damage of recent hurricanes on growth. Moreover, the central bank estimated that the US economic growth should reach 2.4% this year, revised from a June forecast of 2.2%.

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The Week Ahead

Going ahead this week, investors will keep a close watch on the US Fed Chair, Janet Yellen, the ECB President, Mario Draghi and the BoE Governor, Mark Carney’s speech for further cues. On the data front, US GDP and consumer confidence along with Eurozone and German CPI will be on investors’ radar.

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