Market Review – Fundamental Perspective 11 October 2017

Asian equity markets rallied yesterday with the Nikkei 225 closing at the highest level since 1996. In FX, EUR gained (vs. USD) after Catalan President Carles Puigdemont suspended the declaration of independence from Spain when he addressed the regional parliament in Barcelona yesterday.
GBP outperformed in the early London session yesterday following better UK data. Manufacturing and construction printed firmer in August after repeatedly falling short of expectations in recent months. Together, this could contribute positively to Q3 growth. However, the widening trade deficit points to ongoing export difficulties, while import strength may point to an upside consumption surprise.
UK data printed the following: industrial production 0.2% m/m (0.2% m/m expected); manufacturing production 0.4% m/m (0.3% m/m expected); construction at 0.6% m/m (0.0% m/m expected); however, trade balance worsened to a £5.6bn deficit in August.
UK politics also remained in focus with Prime Minister May choosing to be silent when asked how she would vote in a second Brexit poll (FT). Shortly after, Chancellor Hammond expressed reluctance to budget for a “no deal” Brexit scenario from the European Union.
In European data, IP surprised to the upside in Italy posing meaningful upside risks to our third quarter growth forecast of 0.4%. Industrial production in France dropped by a moderate 0.3% m/m in August, coming below our and consensus forecasts.
Looking to the day ahead, the key scheduled event is the release of the minutes from the September FOMC meeting. In our view, most participants should view the recent weakness in inflation as dissipating over time, thereby permitting a return of inflation to the target.

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