Market Review – Fundamental Perspective 18 December 2017

Global equities gained with the S&P 500 closing at record highs on Friday after a Republican agreement on the shape of US tax cuts aimed at boosting growth in the US. Despite the USD starting the week lower than its G10 peers this morning, our traders have noted an immense year end demand for USD which is likely to lift the currency into 2018 .
In the US, Congress made rapid progress on reconciling the differences between the House and Senate tax bills, paving the way for a vote this week. The GOP is expected to deliver a final version of the tax cut bill that could be signed into law as early as Christmas week. The potential passage of the US tax bill could also provide some support to the USD into the holiday break.
Focus will also be on the release of PCE inflation data and FOMC minutes this week.
At the EU summit on Friday, European leaders agreed to move onto the second phase of Brexit negotiations. Barclays Research thinks “…this helps reduce the risk of an early negotiation breakdown and increases the possibility of a prolonged transition period…”.
In Europe, the outcome of the Catalonian election on Thursday will be closely watched. Recent polls (Metroscopia) suggest that the pro-independence parties will not win the majority of the popular vote.
We think EURUSD is priced for a positive outcome; hence, a scenario in which further tensions arise could weigh on the EUR.
Elsewhere in EM, ZAR rallied to a three-month high (vs. USD) as delegates at the ruling ANC conference elect a new leader. Cyril Ramaphosa, the anti-corruption candidate, is expected to win the contest as President Zuma’s successor.
Several central bank meetings are also in focus this week. We expect the BoJ (Friday), Riksbank (Wednesday), NBH (Tuesday), BoT (Wednesday) and CBC (Thursday) all to keep their policy rates unchanged.

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