25th September 2017 Market Update
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?? GBP – Sterling closed lower on the week after Moody’s downgraded the UK’s credit rating to Aa2. The firm also commented that they only see 1% growth this year and doesn’t expect growth to recover to historic trends over the coming years.
The news caused the pound to drop off its most recent highs following a better than expected retail sales report on Thursday and proposals by Theresa May of a transition period of two years during which the UK would have access to the EU single market.
This week, markets will be focusing on the final reading of second quarter growth on Friday as well as remarks by Bank of England Governor Mark Carney on Thursday.
?? EUR – The euro continues to remain at multi year highs against the US dollar following very supportive data. August’s Inflation data on Monday beat expectations, as did services and manufacturing data on Friday.
Over the weekend, German chancellor Angela Merkel won her fourth term in the German elections. However she will be scrambling to form a new coalition after current junior coalition partner, SPD, announced they would go into opposition. The win by Merkel was largely anticipated by markets and hence there has been limited moves on the euro but volatility is likely to be seen depending on how long it will take Merkel to form a majority government.
Today Mario Draghi is set to testify about the economy before the European Parliament Economic and Monetary Affairs Committee. Any confirmation of when the ECB is likely to start tapering its QE programme could add to further euro strength. Flash inflation figures for September are also due for release on Friday.
?? USD – The big news from last week saw the Fed signal they will look to reverse its current stimulus programme as well as indicating they are likely to raise rates again in December. Whilst the US dollar gained ground initially from the news, the gains were erased by the end of the week.
Fed Chair Janet Yellen will be in focus this week, as she is set to deliver a speech titled “Inflation, Uncertainty and Monetary Policy” on Tuesday. Data wise final figures of second quarter growth are due on Thursday as well as durable goods orders on Wednesday.
Today – ECB President Mario Draghi Speech
29/09/2017 – Flash Inflation Figures – Forecasted to rise to 1.6%
26/09/2017 – Fed Chair Janet Yellen Speech
27/09/2017 – Durable Goods Orders – Expected to improve to 1%
28/09/2017 – Q2 GDP – Expected to remain at 3%
27/09/2017 – RBNZ Interest Rate Decision – Expected to remain at 1.75%
28/09/2017 – Mark Carney Speech
29/09/2017 – Q2 GDP – Expected to remain at 1.7%
Our View: Sterling has managed to claw back the losses it suffered late on Friday and is back trading near the highs of last week. However with little data due out this week, further gains may well be limited unless Mark Carney talks up the potential of an interest rate hike when he speaks on Thursday.
Key focus for the markets this week will be Draghi’s speech today as well as Yellen’s speech on Tuesday. After the Fed announced their monetary easing measures last week, we could well see Draghi follow suit and announce firm easing measures for the Eurozone. If so we could see some euro strength today.
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