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Week in review: sometimes boring’s best for markets

This week, the major events influencing global financial markets were not so much tales of the unexpected as stories of the entirely predictable. After a year of shocks and political upheaval, investors were reassured by the relative ennui of central banks’ actions. The US Federal Reserve (Fed), Bank of Japan and the Bank of England all conformed to market expectations in terms of monetary policy. And after a year of political surprises – Brexit, Trump and the like - the populist bandwagon came to a halt as the people of the Netherlands rejected Geert Wilders’ Freedom Party (PVV) in Wednesday’s election.

Boring was best for the US as the Fed announced its widely anticipated third interest rate hike in two years. The main rate was raised by 0.25 percentage points to a range between 0.75% and 1% as strength in the US jobs market, improved economic growth and rising inflation encouraged the central bank to move rates a little closer to normal levels. Janet Yellen, Chair of the monetary authority, said that progress over the last few months had been made “in exactly the way we anticipated”. She also mentioned the Fed’s “confidence in the path the economy is on”.

No fear

Share prices in the US were boosted by the news, although they fell back a little by Thursday’s close. The main S&P 500 index gained a respectable, if unremarkable, 0.37% in dollar terms over the week. On the other hand, the US currency fell against a variety of its international peers. Higher interest rates usually provide support for a country’s currency, but in this case investors were comfortable that the Fed will stick to its plan of increasing rates very slowly, producing the opposite effect for the greenback.

The tranquil ambience was reflected in the performance of the Chicago Board Options Exchange VIX index, a volatility measure that is often called Wall Street’s ‘fear gauge’. The index fell 3.6% on Thursday, dropping for the fourth time in five days.

Meanwhile, there was smooth sailing for UK investors this week. They were happy that the Bank of England showed little inclination to navigate uncharted monetary policy waters. Borrowing costs in the UK were kept at a record low of 0.25% in order to provide ballast for the economy, a decision that sent the FTSE 100 index to a record high. The index gained nearly 1% over the week to Thursday’s close. One ripple of uncertainty came in the form of a dissenting voice on the Bank’s monetary policy committee, however. Member Kristin Forbes voted to raise rates to reduce the risk of a too-rapid rise in UK inflation.

In company news, Japanese car maker Toyota provided a surprise boost for the UK economy, announcing plans to spend £240 million on upgrading its factory in Derby, a move which could safeguard the jobs of the 2,500 people it employs there. An announcement from Japan’s central bank caused little disturbance, though. The Bank of Japan’s decision to leave Japanese interest rates unchanged was widely expected.

Wilder things have happened

Finally, the result of Wednesday’s general election in the Netherlands was hailed as a rejection of populism in the Eurozone. Far-right challenger Geert Wilders was roundly defeated by the incumbent Dutch prime minister, Mark Rutte, whose VVD party became the largest in the country’s 150-seat parliament. Wilders’ downfall was deemed reassuring in the run-up to next month’s French Presidential election, which will be contested by the National Front’s Marine Le Pen. Germany’s Angela Merkel called the result from the Netherlands a “good day for democracy”.

And finally…

Australian cycling took a decidedly caprine course this week, after some Perth-based pedallers decided to map out a 130-mile, goat-shaped ride around the city on a popular route-tracking app (no kidding, you can see the image here). Apparently, Ben Jones and his companions from the city’s Fight Club cycling group decided on a goat on the basis that they are “easy animals to draw in profile”, but other animal-shaped paths are planned for the future. Some commentators have pointed out the aptness of the billy’s beard being in the Leederville area of the city, a district popular with hipsters. Mr Jones, perhaps fearing for restrictions on his future leisure time, also said he had been keen to complete the first attempt before his child is born. We don’t know why. After all, he could always get a nanny.

Image credit: PRISMA ARCHIVO / Alamy Stock Photo

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