Market Review – Fundamental Perspective 10 November 2017

US equities, US Treasury yields and USD fell yesterday following concerns about the Republican tax plan given differences between the Senate and the House versions of the plan.
Risk assets generally underperformed due to spillover effects from US markets and Asian equity indices are mostly weaker as of midday local time.
The Senate Financial Committee presented the highlights of its version of tax cuts yesterday and it contained marked differences from the House version. The Senate bill could delay the implementation of corporate tax cuts by one year and it would fully eliminate State and Local Tax (SALT) deductions which could be a major source of disagreement with House Republicans.
The House and Senate versions of the bill need to be reconciled before it can become law hence differences at this stage could make it harder to implement the tax cuts.
The new round of Brexit negotiations that began yesterday produced no breakthrough in talks and its impact on FX was limited. Reports later in the day indicated that PM May is ready to increase the Brexit payment to the EU in order to speed up negotiations.
GBPUSD support comes in at 1.3000-1.3060 with resistance at 1.3180 and 1.3340. In EURGBP, support is found around 0.8730 with resistance at 0.8875.
Barclays Research now expects the BoE to hike rates again in November 2018 and November 2019 which is in line with guidance from Governor Carney who has indicated that “two hikes over the next three years” seems appropriate.
AUD came under some pressure overnight after the RBA revised its projections for inflation lower for 2018 and 2019 which likely reduces the probability of an RBA rate hike in H1-18.
UK Industrial and manufacturing production will be in focus this morning and Barclays Research expects UK production to “…continue to enjoy gains as currency depreciation supports exports and sentiment surveys indicate continued strength in export orders…”.

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