United States

This week the S&P500 gained 1%, DJIA is up 0.60% and NASDAQ100 remained somewhat unchanged. The VIX volatility index registered a sharp decrease of more than 20%, signaling that market participants expect a brief calm period following the Brexit turmoil. In addition, VIX ETFs were the most shorted funds during last week.

Following the Fed’s decision against a September rate hike, the DXY (an index that tracks the dollar performance against a basket of other currencies) fell 0.5% due to strengthened EM currencies. Janet Yellen announced that “it made sense to put off a move to give the economy more space to grow”. Current futures suggest that the next rate hike is expected to be in December. 2yr and 5yr US Treasuries are trading at yields of 0.77% and 1.20%, relatively unchanged from the previous week.

Crude oil is sharply up following the announcement that US oil reserves are at a 7-month low, but retraced on the news that Saudi Arabia does not expect to make a deal to freeze output at the next OPEC meeting. Current forecasts from the Washington Post regarding the presidential elections see Clinton leading at 52.8% vs Trump 47.2%.

European Union

Encouraged by the Fed’s reluctance to hike rates and signaling of longer-term dovishness, European bond markets rallied towards the end of the week, with the German 10-year bund yield falling 8bps to -0.08% since market close Wednesday. Euro Stoxx 50 lifted 2.9% over the week, closing at 3033.60.

Concerning FX, the Euro strengthened against the Dollar this week, seeing EUR/USD appreciating from 1.116 to 1.123.

Last week, Eurozone CPI inflation for August was confirmed to be stalling at 0.2%, in line with expectations. This news came as the ECB ramped up its corporate bond buying programme, buying a record €2.657bn of corporate bonds in the same week. Moreover, the Eurozone Consumer Confidence data was as expected, reaching -8.2, while the Eurozone Composite PMI came in at 52.6 which is slightly below expectations of 52.8.

UK

In an unusually quiet period for Brexit news, Donald Tusk revealed last Friday (16th September) that Theresa May had discussed intentions to invoke Article 50 as early as January or February 2017. On the day, the pound weakened by 1.8% against the dollar and GBP/USD has since remained relatively unchanged, ending the week at 1.297.

Aided by a weaker pound, FTSE 100 rallied significantly this week, seeing a 3.0% increase to 6909.43.

Finally, there is a growing confidence that Mark Carney will stay on as a Bank of England governor until 2021 in order to help the country to deal with the economic and financial challenges of leaving the EU.

Rest of the World

The Bank of Japan continues to acquire ETFs as part of its asset-purchase program. Wednesday’s meeting was described as “the most consequential BoJ meeting”, indeed the only news was that BoJ will no longer target the monetary base, but will aim directly for the yield curve. To do so they will no longer increase the base-money at a pace of 80 trillion JPY per year, but will target the overnight rate on excess reserves and the 10yr rate to keep it at zero. Topix and Nikkei both closed the week higher, respectively by 1.27% and 1.46%. The JPY is up against the USD at 101.05.

MSCI Russia index is up 1.8% after the elections that saw Putin’s United Russia Party win with more than 53% of the votes. RUB rose against the USD at 63.92. Next month, according to people confident with the subject, a meeting between Russian and Ukrainian finance ministers is being negotiated.

 

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