Global markets were strong last week as the Federal Reserve and Bank of Japan both exceeded expectations during their policy meetings. The Bank of Japan tweaked its policy, preferring to target government bond yields rather than interest rates. There were growing concerns in Japan over the adverse impact of negative interest rates on the real economy. As a result, the Bank has targeted a 0% yield on 10-year Japanese government bonds as well as looking to “steepen” the yield curve, which will help banks, insurance companies and the pension industry. Furthermore, they have vowed to overshoot the 2% inflation target, to ensure that deflation cannot rematerialize. While the Federal Reserve elected to maintain interest rates at their current level, the subsequent commentary indicated that lower rates for longer are now more likely. That being said, an additional rate rise this year remains on the cards.

Now there has been a broader range of data following the Brexit vote in June; it is clear that economists overestimated the initial impact a leave vote would have on the economy. Services and manufacturing PMI, industrial production and retail sales are all higher than anticipated. Until there is more information on what a Brexit will mean, the vast majority of the economy, and notably consumers, are continuing as normal. Furthermore, manufacturing and exporters are being supported by a weaker currency, making their products more competitive abroad.

The escalation of fighting in Aleppo and destruction of the UN aid convoy has brought the Syrian war and geopolitical risk back to the forefront. Accusations continue to fly between Russia and the US who support different sides in Syria, although they are both fighting against IS expansion. Russia, under President Putin, is becoming ever more probing, increasing nervousness in Eastern Europe. After a period of military underspending by Western European governments and noises from prospective president Trump that the US may not come to the aid of a NATO member, Russia is growing in confidence.

German and Japanese CPI are released on Thursday and Friday respectively, and US consumer confidence is announced tomorrow.