Weekly Market Update

11/09/2017

Last week was dominated by the tragic impact of several natural disasters across the Caribbean and US. As well as taking a terrible human toll, the hurricanes prompted anxiety about their impact on the US economy. Jobless claims were reported at their highest level in more than two years, ascribed in large part to the effect of Hurricane Harvey on workplaces and livelihoods.

A deal to lift the debt ceiling in the US helped mitigate investors’ concerns about North Korea’s nuclear weapons tests. President Trump reached a deal with the Democrats to package a three-month extension of the debt ceiling into a forthcoming bill to provide relief following Hurricane Harvey. Whilst Republicans had sought a longer extension, this temporary measure at least provides some breathing space.

In the UK, retail spending increased last month at the fastest rate in almost two years, as a weaker pound led to more residents opting to holiday at home and to an influx of tourists from overseas. However, the British Chambers of Commerce, became the latest organisation to downgrade UK growth forecasts over the next two years. They expect growth next year to be the weakest since the 2008 recession, with GDP rising by just 1.2 per cent.

The ECB decided to keep interest rates unchanged and confirmed the current monthly pace of €60bn net asset purchases would continue until the end of December. Mario Draghi, President of the European Central Bank, said that it would have to take the euro’s recent strength into account in deciding when to begin reducing its asset-purchase programme.

The bank is widely expected to begin winding down its purchases from January, following improvements in the eurozone economy and amid fears that eurozone central bankers will run out of assets to buy. The stronger euro has caused the ECB to revise downwards its inflation forecasts, whilst raising its growth assumptions. Eurozone inflation has been curbed by the stronger currency, which means that there is less pressure on the ECB to adopt a tighter monetary policy. Any decisions will likely be taken in October (26th) at the next meeting.

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