Market Review – Fundamental Perspective 13 November 2017

Asian equities were mixed, with the Nikkei 225 pulling further away from the 25-year high tested last week whilst Hong Kong stocks were firmer. The USD trimmed an advance that saw it gain against majority of its major counterparts. GBP declined as pressure mounts on UK Prime Minister Theresa May after a raft of political headlines and increasing criticism over Brexit discussions.
GBP traded with a bid tone at the end of last week after UK Industrial Production beat expectations coming in at 0.7% m/m, vs. 0.3% m/m consensus. IP strength was primarily driven by manufacturing, which has benefited from the recent momentum in global growth as well as the continued boost from FX depreciation. However, this was partially offset by the broad-based weakness in construction, potentially a signal of Brexit-related uncertainty.
GBP has come under pressure at the start of the week on the back of weekend reports that as many as 40 Conservative MPs have agreed to sign a letter of no confidence in Theresa May (Times), just 8 short of the total needed to trigger a leadership challenge.
Also noted were reports of a leaked letter from Boris Johnson and Michael Gove to PM May addressing the Brexit transition, in addition to comments by Chief negotiator Michel Barnier around the EU preparing for a ‘No Deal’ scenario.
Focus turns to a busy week of UK data including UK inflation, employment and retail sales. In the US, continued talks on tax legislation in the Congress will be closely watched, along with US inflation and growth data. Also in focus will be central banker speeches from ECB President Draghi, Fed Chair Yellen, Bank of England Governor Carney and Bank of Japan Governor Kuroda at a conference organised by the ECB on Tuesday. In particular, a hawkish stance from Bank of England Governor Carney could prompt a repricing of the Bank Rate expectations

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