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The Market Last Week

Global equity markets ended mostly in red last week, following mixed earnings from major companies across the world. UK markets ended the week on a negative footing, amid a decline in mining sector stocks and after UK’s GfK consumer confidence index recorded a drop to its weakest level since the Brexit referendum in July. European markets ended mostly lower last week, amid continued strength in the Euro. Furthermore, the Eurozone’s flash Markit manufacturing PMI eased more-than-anticipated in July, marking its lowest level since January while Germany’s flash Markit manufacturing PMI declined more than market expectations in the same month. Additionally, the nation’s flash Markit services PMI surprisingly dropped in July. US markets painted a negative picture for the week, led by disappointing earnings reports from major companies and a downfall in shares of tobacco firms. On the macro front, US economy accelerated in the second quarter of 2017, supported by robust consumer spending and business investments. Further, preliminary durable goods orders for June bounced back into positive territory to its strongest level since July 2014, boosted by a rise in orders for civilian aircraft. Additionally, the nation’s flash Markit manufacturing PMI registered a rise in July, reaching its highest level in 4 months, supported by robust growth in output, new orders, employment and stocks of inputs. Moreover, CB’s consumer confidence index unexpectedly rose in July, notching its highest level in 16 years, led by a strong job market. Asian markets closed mixed in the previous week. In economic news, Japan’s unemployment rate declined more-than-forecasted in June. Further, the national consumer price index (CPI) advanced at par with market expectations in the same month.

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Currency Update

The EUR ended on a bullish note against the USD, after Germany’s preliminary CPI advanced to a 3-month high on an annual basis in July. Moreover, the GfK consumer confidence index surprisingly advanced in August, notching its highest level in sixteen years. Further, the Ifo business climate index recorded an unexpected rise to its highest level since 1991 in July. Additionally, the currency was propped up by the Eurozone’s economic sentiment indicator which recorded a surprise rise in July, its highest since 2007. The British Pound sterling ended higher against the Greenback. Data indicated that the UK economy slightly expanded in the three months to June, boosted by a strong growth in the services sector. The USD ended weaker against its major counterparts, following statements by the US Federal Reserve (Fed) concerning recent inflation trends.

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Fed leaves interest rates unchanged, hints at rolling back its balance sheet “relatively soon”

The US Fed kept the benchmark interest rate steady in a range of 1.00% to 1.25%, as it remained a tad concerned about recent inflation levels in the US. The Federal Open Market Committee (FOMC) expects that with gradual adjustments in the stance of monetary policy, economic activity in the nation will expand at a moderate pace. Further, the central bank signaled that it is close to trim down its $4.5 trillion balance sheet as early as September. Moreover, it pointed towards robust economic conditions in the economy, with strong job growth and expansion in consumer and business spending.

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The Week Ahead

Going ahead this week, traders will keep a tab on the European Central Bank’s non-monetary policy meeting, the Bank of England interest rate decision and meeting minutes for further cues. On the data front, investors will eye US ISM manufacturing and non-manufacturing PMI, non-farm payrolls and unemployment rate along with German and Eurozone unemployment rate, the region’s GDP and inflation report for further direction.

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