Market Review – Fundamental Perspective 28 November 2017

Markets were relatively subdued yesterday. Asian equities fell in line with the decline in commodities, with crude oil falling for a second day after reaching two year highs and ahead of OPEC’s meeting in Vienna on Thursday
In FX, JPY reversed its gains after yesterday’s risk rally which was partly fueled by reports (Kyodo News) that Japan detected radio signals suggesting that North Korea is preparing for a missile launch. Meanwhile, the Bloomberg dollar index was little changed as the US tax debate gets underway.
While one downgrade to South Africa’s local-currency rating was largely expected, yesterday’s sharp reversal in USDZAR happened quicker than expected after ZAR sold off initially on Friday.
Notable supply of USDZAR above the 14.00 level catalysed the pair to sell off and trade through trend line support at 13.80 (Bloomberg September low). Our traders expect USDZAR to trade in line with broader USDEM until the ANC conference in mid-December.
The Bank of England published its annual stress tests results alongside its Financial Stability Review looking at the health of UK banks. Five of the seven banks passed the health check but none need to raise capital. The Bank of England also raised the countercyclical capital buffer rate to 1%.
In the US, new home sales for October surprised to the upside rising 6.2% m/m to 685k, taking sales to the highest level since 2007. Also, New York Fed President William Dudley - who is retiring from the central bank - said in a speech yesterday that the US economy is running at close to full employment and growth is expanding at an above-trend pace.
Focus now turns to Fed Chair designate Powell who testifies in Congress today. In remarks released ahead of his hearing by the Senate Banking Committee today, Powell said he expects the central bank to continue raising its benchmark interest rate and trimming its balance sheet under his leadership. Any further views from Powell today will be important as the market begins to assess the outlook for monetary policy under his leadership

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