Market Review – Fundamental Perspective 12 October 2017

Equity markets continued their rally with both the S&P 500 and Nasdaq hitting new intraday highs and the Dow closing at a record high. In FX, the USD extended its losses after slightly dovish FOMC minutes and EUR remained on course for a strong week as the immediate threat of Spain’s breakup over Catalonia’s independence bid receded.
The minutes to the September FOMC minutes delivered little additional information. They hued closely to the main messages delivered in the September FOMC statement, press conference, and projection materials. Many participants judge that “at least part” of the softening in inflation was due to idiosyncratic or one-time factors. However, concerns over inflation remain elevated, and some on the committee think the disinflation may prove more persistent than expected.
Yesterday’s minutes are consistent with our outlook for a further 25bp rate increase this year at the December meeting, conditional on incoming data. Markets are pricing c. 75% probability of a December rate hike
A softer USD led GBPUSD higher, in the absence of domestic data or political headlines. Our traders see GBPUSD short term resistance at 1.3300 and support at 1.3175. EURGBP remains within the 0.8900-0.9000 range.
Also in the US, the fourth round of NAFTA renegotiations began. An agreement on competition was announced yesterday, but now the negotiations move to more contentious topics. Canadian Prime Minister Trudeau met with President Trump to discuss trade and defense, and the US president again reiterated that ending NAFTA and having a bilateral treaty with Canada is a possibility.
USDCAD traded soft overnight, in line with the broader USD sentiment, whilst MXN underperformed on NAFTA uncertainty.
Market focus now shifts to Brexit negotiations and news related to the selection of Fed Chair Janet Yellen’s replacement, ahead of tomorrow’s US inflation data.

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