Weekly Market Insight
September 25th 2017

Sep 25, 2017 Written by Duncan Donald, CEO.

We open the week with the news of the German elections. Angela Merkel’s CDU party may have seen their worst return at the ballots for 70 years but they will still be the largest party in what is likely to be a 4-way coalition. That being said, recent comments from Schulz, the leader of the SDP, suggested a coalition with Merkel was not going to be a possibility. The elections did raise some concerns, namely, the increase in votes for the right-wing AFD, with them winning seats in the Bundestag. This, alongside the potential issues of a further diluted coalition hamper Merkel’s ability to govern both domestically and in the EU being such a precarious time. We saw EUR/USD 1.1950 slide to 1.1890. In the Eurozone we had Mario Draghi talking earlier today, suggesting the ECB must be patient in order to see inflation rise back to its target. He also mentioned that uncertainty was caused by currency volatility, with the ECB accommodating the economy as it still needed to absorb slack. He is due to speak again on Friday.

In the US, Trump is again hitting the headlines for questionable reasons as stars of the NFL, NBA and Hollywood reacted to his outlandish comments regarding the recent protests by members of the America’s sporting elite. This could come at a very bad time for the president, as he battles to exert credible authority on North Korea and is struggling to get his health care bill through the house with is being highly unlikely in 2018.

Last week we saw a very hawkish sentiment from Janet Yellen in her FOMC statement with rates remaining unchanged, as expected, as well as announcing the beginning of the tapering. It was the statement that caused the biggest reaction, with the committee leaving a further hike in December in the table while they seemed unfazed by the divergence from the inflation target. They will see 3 further sets of inflation data prior to having to make that call, but the delivered tones got the market buying dollars. We have Yellen speaking tomorrow so monitor for any further comments. US Consumer Confidence on Tuesday, Durable Goods on Wednesday and GDP on Thursday.

In the UK cable finished the week down, despite strong retail sales numbers earlier in the week, in addition, latterly in the week, we saw the upsurge in the dollar on the Fed meeting. Late on Friday, Prime Minister May delivered the minimum that was expected of her, in Florence, resulting in the sterling positivity turning – markets were indeed underwhelmed. The EU are still reviewing the exact details of her proposed exit bill and expectations are for an EU response this week. Rating agency Moody’s downgraded the UK to Aa2 from Aa1 due to the Brexit uncertainty, at a time when the economy was already under strain. Nationwide house price data on Wednesday, Mark Carney Speaks on Thursday, UK Current Account data on Friday.

Have a great week

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