Last week was generally positive following the central bankers conference, with equity markets on both sides of the Atlantic rising sharply while yields on major European government bonds fell to record lows.
Overall the DAX posted strong gains, and even the CAC 40 performed well, shaking off the French cabinet restructuring with ease. The S&P 500 reached a new all-time high, while US Treasuries remained stable. Neither the second aid convoy making its way from Russia to Ukraine (while the Ukrainian government dissolved the parliament to make way for new elections), nor US President Obama’s decision to send reconnaissance aircraft into Syrian airspace, managed to dampen the exuberance. All because European Central Bank (ECB) President Mario Draghi apparently opened the door to the possibility of fresh money in the form of quantitative measures.
The US Federal Reserve (Fed) continues to feel its way forward. Labour-market figures are certain to play a key role here and we have the latest figures being announced this Friday, with the consensus expecting the US economy to have added a further 220,000 jobs in August, combined with a fall in the unemployment rate to 6.1%. There continues to be debate over the speed of the recovery and it appears that the US monetary authority still does not know exactly what it will do and how to best calibrate its actions in due course.
In the UK, there is unlikely to be any policy change on Thursday even though last month saw two members of the Monetary Policy Committee (MPC) vote to raise rates. Currently inflation remains contained whilst weak wage growth provides some relief to any possible rate hikes.
Eurozone inflation fell to an expected five-year low of 0.3% last week. Combine this with Mario Draghi’s comments and this creates some opportunity of further stimulus action in the future. Although deflation appears a real threat, investors are focusing upon more imminent geo-political concerns particularly as Russia braces itself for tougher sanctions from Europe in the coming days. This is certainly driving markets and perhaps overshadowing more important monetary policy concerns.
This text is for information purposes only and should not be taken as any advice given.
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