UK inflation surprised to the upside hitting a 6-month high of 2.7% in August, exceeding economist expectations of 2.4%. Sterling rose on the back of this data, which was driven by an increase in prices for recreational goods, transport and clothing. This unexpected spike narrows the gap between inflation and wage growth; data for the 3-months to July showed wages, excluding bonuses grew by 2.9%. August earnings figures are not available until October, but we expect living standards will be squeezed over the medium-term.

Trade war hyperbole, predominantly from the US, rumbled on throughout the week. Trump announced further tariffs of $200bn on Chinese exports to the US with an implementation date of 24th September. Initially set at 10%, Trump announced that tariffs would rise further to 25% in January next year. The higher rate came as a surprise to economists and markets and was more severe than expected. China retaliated by announcing tariffs in the range of 5-10% on $60bn of US imports. This tit for tat trade spat had little effect on US markets, with the S&P hitting a new intra-week high.

On Friday, US markets were subject to quadruple witching. The quadruple witching phenomenon can cause increased trading volume and volatility in certain equity markets and is a term given to the expiration of futures and options, which occurs on the third Friday each quarter (March, June, September and December), on the same day, in the last hour of the trading session.

This week, the focus will be on the Federal Open Market Committee meeting and press conference with Chairman of the Federal Reserve, Jerome Powell; it is widely anticipated that the Fed Funds Rate will increase from 2% to 2.25%.