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Global equities ended mixed last week. UK markets ended the week on a negative footing, as the British Pound strengthened against its major peers. On the macro front, UK’s public-sector net borrowing posted a less-than-anticipated deficit in December. Furthermore, the BBA mortgage approvals surprisingly declined in December, reaching its lowest level since April 2013. European markets ended the week in red, amid strength in the Euro. On the data front, Eurozone’s preliminary Markit manufacturing PMI declined higher than market expectations in January, remaining in expansion territory. Further, Germany’s flash Markit manufacturing PMI dropped more-than-expected in the same month. US markets ended the week in positive territory, amid upbeat corporate earnings. On the macroeconomic front, US economic growth slowed down on a quarterly basis in 4Q17. Additionally, the country’s advance goods trade deficit surprisingly widened in December. Further, the preliminary Markit services PMI unexpectedly dropped to its lowest level since April 2017 in January. However, initial jobless claims grew less than market forecast for the week ended 20 January 2018. In contrast, preliminary durable goods orders advanced to its strongest level since June 2017 in December, driven by a strong demand for civilian aircraft and aviation parts. Asian markets ended mostly firmer last week. The Bank of Japan’s (BoJ) December monetary policy meeting minutes revealed that majority of officials believed that it was appropriate to stick to the central bank’s current monetary policy stance as inflation remained far from its 2.0% target. However, some policymakers stated that there is need to consider raising interest rates or reducing purchases of risky assets if the economic recovery continued.

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Currency Update

The Euro ended stronger against the greenback, after the European Central Bank (ECB) President, Mario Draghi, remained optimistic on the Eurozone’s economic growth. In economic news, Eurozone’s consumer confidence jumped to its highest level since August 2000 in January. Furthermore, the region’s flash Markit services PMI unexpectedly advanced in January, its highest rise since August 2017. The GBP ended firmer against the USD, after UK’s gross domestic product (GDP) advanced at a faster pace on quarterly basis in the fourth quarter of 2017. Additionally, the ILO unemployment rate remained steady at its lowest since 1975 in November. Moreover, the average weekly earnings recorded a steady reading in the same month. However, the claimant count rate rose in December. The US Dollar ended weaker against its key peers last week, as comments from the US President, Donald Trump and Treasury Secretary, Steven Mnuchin raised the prospects of a currency war. Adding to the negative sentiment, US economic growth unexpectedly slowed down on a quarterly basis in the last quarter.

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ECB announced no change to its ultra-easy monetary policy, warns over strengthening Euro

At its January monetary policy meeting, the ECB, kept its ultra-easy monetary policy on hold and reiterated its pledge to keep the key interest rates unchanged for an extended period and well past the end of its bond-buying programme, until a sustained rebound in inflation is achieved. Further, the ECB President, Mario Draghi, indicated that recent economic data confirmed a “robust pace” of economic expansion with inflation likely to rise in the medium term. However, he warned that the recent surge in the Euro represents a source of uncertainty for the inflation outlook and merited monitoring.

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The Week Ahead

Going ahead this week, investors will keep a close watch on the FOMC interest rate decision along with the Bank of England Governor, Mark Carney’s speech for further cues. On the data front, US employment report, ISM manufacturing PMI and consumer confidence along with Eurozone’s GDP figures and the unemployment rate data will be on investors’ radar.

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