Market Recap: Week of September 22nd

Most major equity indices moved higher last week with markets buoyed by the monetary policy statement from the US Federal Reserve and also the news that the Kingdom would remain United, for now! The S&P 500 closed up 1.25%, while the yield on the US 10-Year Treasury barely reacted to the FOMC’s projections of a steeper expected path of interest rates, up just 0.01% over the week to 2.62%. The Nikkei 225 Index was the strongest performer of the major bourses, up 2.34%, boosted by a weaker Yen.

The Scottish referendum dominated news in Europe, with financial markets nervously awaiting the outcome of the vote. The triumph of the “Better Together” campaign eased concerns shown in recent weeks. However, it was clear from the result that this is a country divided; just 55% voted to retain the status quo with strong support shown mainly from the elderly voters and the more affluent areas of the country.

The first of the ECB’s targeted longer-term refinancing operations (TLTROs), 4 year funding at 0.15%, was deemed a failure with banks borrowing just €83 billion. This was well below market expectations, making the “detailed modalities” of Draghi’s ABS purchase programme even more important.

Outlook

European equity markets have opened lower this morning after a weak session in Asia overnight. On the macro front this week we have the final estimate of second quarter GDP from the US along with reports on durable goods orders and housing. There are a host of Purchasing Managers Index (PMI) surveys from around the globe as well as consumer and business confidence surveys which should provide a useful update on the momentum behind the economic recovery. The Bank of Japan will report the August inflation data on Friday.