Market Review – Fundamental Perspective 29 January 2018

Asian equities pared earlier gains after US equities closed last week up after strong earnings data boosted risk sentiment. Last week’s key theme was a weaker USD across the board, which was partially spurred by Treasury secretary Mnuchin’s allusion to the benefits of a weaker currency. GBP was among the biggest beneficiaries with GBPUSD trading above 1.43 on conciliatory rhetoric about the prospects for a soft Brexit.
UK Q4 GDP printed stronger than expected on Friday (0.5% q/q vs. 0.4% q/q consensus) with the rebound driven by the service sector. In the US, Q4 GDP printed marginally lower than expected (2.6% q/q vs. 3.0% q/q consensus) but confirmed our expectations of yet another quarter of buoyant growth at 2.6%.
GBP has come under pressure at the start of the week on concerns about the state of the Conservative Party, with several reports discussing the weakness of Prime Minister May within her party. Further criticism of the Prime Minister’s Leadership came after Trump commented that he would take a “tougher” approach to the Brexit negotiations.
Today the EU General Affairs Council will meet to determine the details on the Brexit transition period, and is likely to mandate the Commission to open transition talks and to confirm the recent easing in concerns about a disorderly Brexit.
Our traders see GBPUSD support at 1.4083 ahead of 1.4000; EURGBP support is at 0.8685, with short term resistance at 0.8800 ahead of 0.8925.
Looking to the week ahead, the key event is the FOMC meeting on Wednesday (there is no press conference) ahead of the US employment report on Friday. We believe the Fed is likely to reiterate strong activity and labor market data, and continue to expect the Fed to hike by 25bp in March, June, September and December.

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