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North Korea dominates news flow

Global markets generally ended September in positive territory, despite an intensifying war of words between US President Donald Trump and North Korea. The UK was an exception, however; the FTSE 100 Index fell by 0.8% over the month, driven down by Brexit-related worries.

During September, European Council President Donald Tusk warned that insufficient progress was being made in Brexit talks, although he did acknowledge that the UK’s “philosophy of having a cake and eating it is finally coming to an end”. Meanwhile, ratings agency Moody’s downgraded the UK’s credit rating from Aa1 to Aa2, citing concerns over the strength of the UK’s public finances and uncertainties surrounding the economic impact of Brexit. The UK economy expanded more slowly than initially expected during the second quarter, growing at an annualised rate of 1.5%.

In the US, the Federal Reserve (Fed) confirmed that it will begin to unwind its substantial asset portfolio, beginning in October and cutting up to US$10 billion each month. Although recent hurricanes and tropical storms have imposed “severe hardship” on the communities affected, the Fed believes that they are unlikely to have a material effect on the course of the economy. The US economy grew at an annualised rate of 3.1% during the second quarter. The Dow Jones Industrial Average Index climbed by 2.1% over September as a whole.

German Chancellor Angela Merkel won a fourth term in office, but was put under pressure by a smaller-than-expected share of the vote. Expectations for growth in the eurozone’s economy continued to strengthen at the European Central Bank (ECB), which now expects the region to expand by 2.2% during 2017. Having grown at a quarterly rate of 0.5% in the first three months of 2017, the eurozone’s economy expanded by 0.6% during the second quarter. The Dax Index rose by 6.4% during September, while the CAC 40 Index climbed by 4.8%.

Japan’s Prime Minister Shinzo Abe surprised investors in September by calling a snap General Election that will take place in October. Against a backdrop of “national crises” and escalating pressures from North Korea, he wants to strengthen his mandate and continue with his programme of fiscal reforms. Mr Abe also announced a stimulus package worth two trillion yen. Despite the problems created by North Korea’s threats, the benchmark Nikkei 225 Index rose by 3.6% over September.

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