Market Review – Fundamental Perspective 16 October 2017

Risk sentiment has opened this week on a positive note with Asian equities ex. Japan reaching decade highs and the Nikkei 225 rallying for a sixth consecutive day to its highest level since 1996. The USD has opened marginally higher versus G10 peers after softening modestly last week and crude oil jumped ~1% on reports of deadly clashes between Kurdish and Iraqi forces.


GBP ended last week with a choppy session after a number of Brexit headlines created spurts of volatility. This week, price action is likely to be driven by a plethora of data releases, including inflation, employment and wage growth, especially ahead of the next BoE meeting in November.


The market currently implies around an 85% chance of a rate hike in November so incoming data is more likely to affect market expectations of the bank’s future policy path rather than the November decision as the latter is almost fully priced in.


GBPUSD finds support in the 1.3250 area with resistance coming in at 1.3325 ahead of 1.3400. Meanwhile EURGBP support comes in at 0.8870 with resistance at 0.8930.


USD came under pressure last Friday after US September CPI printed at 2.2% y/y versus expectations for a 2.3% y/y increase. Fed Chair Yellen will speak to the National Economists Club on Friday but few other events are scheduled this week and the US data calendar is relatively light.


German coalition-building efforts and the aftermath of Austria’s general election on Sunday where the 31-year-old leader of the right-wing Austrian Peoples Party, Sebastian Kurz, has already declared victory will likely set the tone for the EUR this week.


The 19th Chinese Communist Party Congress starting on Wednesday will be closely watched this week for clues on the upcoming economic agenda. Barclays Research expects President Xi to “…emphasize the importance of financial/economic risk controls, boosting national GDP and per capita income, SOE reforms, and financial market and CNY liberalization…”.


In Japan, focus will be on the upcoming general election on 22 October which will play a critical role in shaping the country’s economic policy and market outlook. Recent surveys indicate declining support for Abe’s opposition, the Party of Hope, and most Japanese investors expect the ruling parties (LDP-KP) to win the majority.

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