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US Federal Reserve hints at "patient" approach to rate rises

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In the week that saw the US government end its longest partial shutdown in history, all eyes were on the Federal Reserve. It announced its latest interest-rate decision on Wednesday in a move that has ramifications for markets around the world. It decided to leave rates unchanged and, crucially, said it would be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.”

In a dovish note, it added it would take “global economic and financial developments” into consideration, a broader stance that markets welcomed.

In the UK the focus of the week was initially on the Brexit votes in parliament on Tuesday, which essentially gave Theresa May a mandate to attempt to renegotiate with Brussels – a plan which the EU swiftly rebuffed. It appears to raise the chances of a no-deal Brexit, although the outlook is constantly changing.

China and the US said solid progress was made during their two days of talks on Wednesday and Thursday this week in Washington, and President Trump said that a new presidential summit is likely in the hope of settling the economic conflict within weeks. The US said it had reiterated demands for reforms in China, particularly around the forced transfer of technology from US firms. If no solution is found by March 1, tariffs on Chinese goods worth $200billion are set to rise to 25% from 10%. Given that China is already suffering an economic slowdown, this prospect is putting pressure on the Chinese authorities and also spooking global markets.

It was generally a downbeat week of economic data in the UK. The Nationwide House Price Index for January, released on Thursday, said that prices were only 0.1% higher than a year ago – the slowest annual pace of increase since 2013.

Economists are increasingly suggesting that prices will begin to fall in the near future.

Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said it was possible annual prices will go into decline before long, given steep discounting during this period of Brexit uncertainty.

Echoing the sentiment of the Nationwide report, the GfK Consumer Confidence Index for January hit a negative reading of -14, a sharp deterioration from a year ago. It is also the lowest “overall” consumer confidence score since July 2013.

Contributing to this “overall” reading are sub-sectors: the score for sentiment around the general economic situation over the next year fell to -39 in January – the worst reading since 2011 and close to the levels seen during the height of the financial crisis in 2008. This was blamed on the uncertainty surrounding Brexit.

However, the reading for personal finances actually rose by two points with a score of +1, attributed to falling inflation, rising real wages and high employment levels.

Click here to read this week's Market Roundup and Company Focus

Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

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