Market Review - Fundamental Perspective - 14 May 2018

Despite escalating geopolitical risks, global equities generally rose last week with the S&P up almost 2.5%. In FX, the USD’s sharp and broad-based rebound that has dominated markets since mid April, seems to have stalled in the near term. Stabilization in risk sentiment, soft US wage and core inflation data, cleaner positioning and the rapid pace of the USD appreciation raise risks of a near-term retracement
The notable underperformer overnight has been TRY with USDTRY increasing by c.1% in Asia trading after President Erdogan’s comments over the weekend that interest rates will be at different levels after June 24, the date of Presidential elections
Last week’s key development was US President Trump’s withdrawal from the JCPOA on Iran. This only led to a muted market reaction as the decision had been broadly expected. Nonetheless, geopolitical tensions should not be overlooked, especially in light of the escalating tensions between Israel and Iran after last week’s missile launches
GBP had a quiet end to the week on Friday after some volatility over Thursday’s Bank of England meeting. Given the central bank’s increased focus on data, sterling is now likely to be very data dependent and thus this week’s focus is on the release of the UK’s employment report (Tuesday)
Our traders currently see GBPUSD support at 1.3450, while resistance lies at 1.3620 and 1.3660. In EURGBP, support comes in at 0.8785 ahead of 0.8725 and 0.8690, and resistance is around 0.8840-75
In Italy, equities and front-end BTP yields came under pressure last week as the two populist parties, 5SM and Lega, held government talks. The newly proposed economic program which includes tax cuts, a universal income and a roll-back of previous pension reform will likely result in substantial fiscal slippage in the absence of credible economic measures

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