It was a positive week for global equities and the situation in North Korea failed to have a negative impact on the S&P 500 which hit 2,500 for the first time, writes Ian Slattery
Global equities enjoyed a positive week as Hurricane Irma dissipated and the ‘reflation trade’ gained a new lease of life following solid data. August inflation figures for the US surprised to the upside, jumping 0.4% (the biggest one-month gain since January) which lifted the year-on-year figure to 1.9%.
The inflation data sent expectations of a further US rate rise this year higher, with futures implying an over 50% probability of a move in 2017, up from 30% just a week earlier.
A second North Korean missile launch over Japan did little to dampen the mood as the S&P 500 hit 2,500 for the first time
A second North Korean missile launch over Japan did little to dampen the mood as the S&P 500 hit 2,500 for the first time, whilst European equities also moved higher led by bank stocks. Sterling strengthened over the course of the week as the Bank of England suggested an interest rate increase may materialise in the coming months. This, coupled with positive inflation data, sent sovereign bond prices on both sides of the Atlantic lower.
The global index had a positive week, returning 1.7% in euro terms, led higher by the US. Gold (-2%) was negative over the week, as ‘risk on’ sentiment weighed on the safe haven commodity. Oil had its second weekly gain in a row, up over 5% as US demand and refinery activity recovered post Hurricanes Irma and Harvey.
The influential US 10-year bond yield closed at 2.20%, up from 2.05% a week previously (bond yields move inversely to prices). The German equivalent stood at 0.43% from 0.31% a week ago, and the EUR/USD rate stood at $1.19 and EUR/GBP was at £0.88.
THE WEEK AHEAD
Wednesday 20th September
No change in policy is expected when the US Fed meets, although the subsequent statements will be closely watched for any indication of future policy.
Thursday 21st September
The Bank of Japan meets, where similar to their US counterparts, no change in rates or policy is expected.
Friday 22nd September
Eurozone manufacturing and services PMIs go to print, where the key gauges will be watched for further signs of economic improvement.
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