The Weekly Update

US 10-year Treasury yields rose 6 basis points over the course of last week testing the 3% level again as it did back at the beginning of August; it followed a busy week from central banks outside the US broadly moving in a positive direction, and perhaps being seen to be on track for slowly closing the chasm between interest rate policies on opposite sides of the Atlantic. The S&P 500 Index gained 1.16% recovering the previous week’s losses and the US dollar weakened slightly from 95.37 to 94.93 according to the DXY Index.

Towards the end of last week the European Central Bank, Bank of England and the TCMB (the Turkish Central Bank) announced policy decisions. The BoE unanimously decided to hold its policy rate at 0.75%. Contrastingly the TCMB demonstrated its independence by ignoring Turkish President Recep Tayyip Erdogan’s bluster for stuffing the economy with cheap credit to raise their 1 week repo rate all the way to 24% from 17.75%. Prior to the announcement the lira was down over 40% this year but it pared 3% of these losses immediately following the news. The ECB published their policy rate, holding at -0.4%, along with the ECB committee forecasting flatter figures for economic growth: down 0.1 percentage points to 2% and 1.8% for 2018 and 2019 respectively. This primarily reflects the impact of global trade tensions, but in the following press conference in Frankfurt Mario Draghi spoke of “underlying strength of the economy” and expectations “that the downside risks are going to be mitigated by the improvements in the labour market and rising wages”; he went on to stress again that risks continued to be “broadly balanced” and that “Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term.”  On Friday, the Bank of Russia also raised rates 25 basis points to 7.5% and expects inflation in the 5-5.5% range in 2019 returning to 4% in 2020; it also extended the pause in foreign currency purchases until end-December.

In the week ahead the Japanese Central Bank meets to set monetary policy alongside leadership elections that should extend Shinzo Abe’s tenure as Prime Minister for a further three years. Elsewhere however, focus moves from central banks towards the courts as on Thursday the Senate Judiciary Committee are expected to vote on Kavanaugh’s nomination to the US Supreme Court. On the data front the week ahead sees Eurozone CPI data on Monday and UK’s CPI on Wednesday (both expected to show signs of slowing in August) along with EIA crude oil inventories and Brazil’s policy rate announcement. US jobless claims and Euro area September consumer confidence figures are on Thursday along with corresponding PMIs and French GDP on Friday.

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