GLOBAL MARKETS UPDATE - MONDAY 25 SEPTEMBER 2017

Posted on 25 Sep 2017

As widely expected the Federal Reserve kept interest rates on hold and confirmed it was to start unwinding its massive holdings of fixed income securities, acquired during its quantitative easing programmes.

Theresa May used a speech in Florence to set out the UK's position on how to move Brexit talks forward.

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United Kingdom

The FTSE 100 rose 1.3% over the week.

Theresa May set out plans to effectively keep the UK in the EU until 2021 through a transition arrangement. Following Brexit, the UK would pay €20bn into the EU budget in 2019 and 2020 and the prime minister did not rule out further payments yet to be agreed in negotiations. During the transition period, the UK would continue to abide by EU rules and would continue to benefit from free trade.

UK retail sales grew 1% in August compared with the previous month, driven by strong sales of clothing and non-essential items. Sales were 2.4% higher than the same month the previous year.

Credit rating agency Moody’s downgraded the UK's credit rating from a Aa1 rating to Aa2 amid concerns about the UK's public finances and fears Brexit could damage the country's economic growth.

US

The S&P 500 ended the week unchanged.

The Federal Reserve kept interest rates on hold, but held onto its forecasts for another rate hike by the end of 2017 and three more in 2018. The Fed also announced it will start to reduce its $4.2trn portfolio of US Treasury bonds and mortgage-backed securities in October, by cutting up to $10bn each month from the maturing amount it reinvests. However, the Fed lowered its prediction for 2019 to two rate rises and forecast a lower long-term equilibrium rate of 2.75%, down from 3.0%.

Janet Yellen Fed chair noted that the hardship caused Hurricanes Harvey and Irma may hurt growth in coming months but said she does not expect it to "materially alter the course of the national economy in the medium term".

Uber was stripped of its license to operate in London.

Apple shares had their worst week in 17 months amid mixed reviews for new product offerings and muted demand for the iPhone 8.

Anadarko Petroleum rallied after announcing a $2.5bn share buyback through to the end of 2018.

Europe

The FTSE Eurofirst 300 gained 0.7% over the week.

The "flash" reading of the eurozone composite purchasing managers’ index rose to 56.7 in September, compared to 55.7 in August. Manufacturers enjoyed their best month since early 2011. There were also signs that the pick-up in business activity had been accompanied by rising price pressures, with input cost and selling price inflation accelerating for the second month in a row.

German factory activity rose to near a six-and-a-half year high in September, and France’s private sector also grew at its fastest pace in six years.

Germany went to the polls over the weekend, with Angela Merkel expected to win a fourth term as chancellor.

In Madrid, the Spanish government continued to try to quash Catalan moves to hold an independence referendum on 1 October, saying they were illegal.

Emmanuel Macron succeeded in pushing through high-profile labour law changes in France. The changes are designed to bolster the economy.

Japan

The Nikkei 225 rallied 1.9% over the week.

The Bank of Japan kept interest rates on hold, but a new board member voted in favour of further monetary easing.

Toshiba agreed to sell its memory chip business to a consortium led by Bain Capital for $18bn.

Pacific Basin

Credit rating agency Standard & Poor’s cut China's credit rating by one notch from AA- to A+, saying its debts had raised "economic and financial risks". It also cut its long-term rating on Hong Kong, citing “spill-over risks” to the territory.

New Zealand’s GDP rose 0.8% in the second quarter compared to the previous quarter, up from a revised rise of 0.6% in the first quarter.

Emerging Markets

Hungary’s central bank eased monetary policy, reducing its overnight deposit rate to -0.15%, while leaving its main policy rate steady.

Bonds

The yield on the two-year Treasury bond rose 6bps over the week, having jumped to 1.45% following the Fed announcement, its highest level in almost a decade. The yield on the 10-year Treasury bond also rose 6bps over the week, closing at 2.26%, having touched a mid-week high of 2.29%.

Commodities

Brent oil traded at a five-month high, climbing back above $55 a barrel, amid speculation to an extension of output cuts by big producers.