Market Review – Fundamental Perspective 21 November 2017

Global equity markets finished the day generally higher on Monday as did US Treasury yields and USD. Political uncertainty in Germany was a dominant theme in markets and despite EUR retracing some losses in early London trading, it finished the day around -0.5% versus USD and GBP.
Asian equities are higher as of midday local time and MSCI’s broadest index of Asian shares (ex. Japan) hit a 10-year high. Meanwhile, FX markets were largely unchanged overnight.
After four weeks of coalition talks, the FDP walked out of negotiations causing political concerns around the EU’s largest economy. If Merkel fails to gain a supportive majority in the Bundestag, the President can dissolve the parliament which would require new elections within 60 days.
New elections seems to have become the most likely scenario overnight but there are a number of alternative outcomes possible including the FDP returning to the negotiation table, a minority government of CDU and The Green Party, or the SPD reluctantly agreeing to a grand coalition with the CDU .
GBP traded in a relatively tight range versus USD yesterday and focus was back on Brexit negotiations after reports that the UK is ready to double its current estimated £20bn offer to the EU in return for moving on to trade talks (BBC).
GBPUSD continues to trade within its 1.3000-1.3340 whilst EURGBP finds support at 0.8790 ahead of 0.8730 with resistance at 0.8900.
The latest addition to the MPC, Dave Ramsden, expressed concerns of a prolonged period of sluggish UK growth as a result of Brexit in a speech at a university yesterday. Ramsden was one of two MPC members who voted against a rate hike earlier this month and he said that domestically generated inflation pressure is below levels consistent with the BoE’s 2% target.

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