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Global equities ended higher last week, as investors assessed key interest rate decision from the major central banks’ during the week. UK markets ended the week in green, boosted by gains in commodity-related stocks and amid weakness in the British pound. In major news, the Bank of England (BoE) kept its benchmark interest rate steady at 0.50% and its asset purchase facility at £435.0 billion, as widely expected. The central bank’s December meeting minutes revealed that growth in the fourth quarter of 2017 “might be slightly softer” than in the third quarter. On the data front, UK’s consumer price index (CPI) unexpectedly advanced on an annual basis to its highest level in six years in November. Further, retail sales accelerated on a monthly basis in November. European markets ended the week on a negative footing, weighed down by losses in utility sector stocks. In economic news, the European Central Bank (ECB), in its December monetary policy meeting, held the benchmark interest rate steady at 0.00%. On the macro front, Eurozone’s ZEW economic sentiment index dropped more than market expectations in December. Meanwhile, the single currency bloc’s industrial production rebounded higher than market forecast on a monthly basis in October. Furthermore, the preliminary Markit manufacturing PMI surprised with a rise in December. Additionally, the flash Markit services PMI unexpectedly rose to its highest level in 80 months in December. Moreover, Germany’s preliminary Markit manufacturing PMI surprisingly advanced in the same month. Further, the flash Markit services PMI surged to its strongest level in 24 months in December. US markets ended the week in positive territory, driven by rise in telecommunication sector stocks. In the major economic event, the Federal Reserve (Fed) raised its key interest rate to a range of 1.25% to 1.50%. On the data front, the US CPI advanced at a par with market expectations on an annual basis in November. Furthermore, advance retail sales rose more-than-expected on a monthly basis in November. Additionally, the flash Markit manufacturing PMI unexpectedly rose in December. Asian markets closed mostly lower last week. Data revealed that China’s annual retail sales advanced less-than-expected in November. However, industrial production edged up in line with market expectations in the same month.


Currency Update

The Euro ended lower against the greenback, after the ECB stated that it would keep its aggressive monetary stimulus in place despite a strong economic recovery in the Eurozone, in order to “sustain inflation” towards the ECB’s target. Further, the ECB increased the 19-nation economy’s growth forecast to 2.4% for 2017, up 0.2% and to 2.3% for 2018, up from 1.8% predicted earlier. The GBP ended weaker against the USD, amid persisting fears over Brexit. Data indicated that UK’s ILO unemployment rate recorded a steady reading in the August-October 2017 period. However, the average weekly earnings grew in line with market expectations on an annual basis in the same period. The US Dollar ended mixed against its major peers last week, amid rising concerns over the proposed legislation to overhaul the US tax bill. On the macro front, US manufacturing production grew as expected on a monthly basis in November. Further, industrial production rose less than market forecast on a monthly basis in the same month.


Fed raised the key interest rate, left 2018 policy outlook unchanged…

At its latest monetary policy meeting, the Fed hiked its benchmark interest rate by a quarter percentage point to a range of 1.25% to 1.50%, as anticipated, citing a tightening labour market and strengthening the economy. Further, the central bank raised its US economic growth forecast to 2.5% in 2018, up from 2.1% estimated earlier, as officials expect a modest boost to the economy from the Trump administration’s proposed tax cuts. The Fed’s projection of three additional rate hikes in 2018 and 2019 remained unchanged and further, confirmed that it would step up the monthly pace of shrinking its balance sheet to $20.0 billion beginning in January.


The Week Ahead

Going ahead this week, investors will keep an eye on the Bank of Japan’s interest rate decision along with the BoE Governor, Mark Carney’s speech for further direction. On the data front, UK and US GDP figures, US preliminary durable goods orders along with UK and German GfK consumer confidence index will be on investors’ radar.

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