Market Review – Fundamental Perspective 3 November 2017

Global equity markets were mixed with US equities lower but Asian markets opening slightly stronger today. The GOP House tax cut plan was released yesterday, but the lack of meaningful reform and uncertainty on approval drove US equities, UST yields and the USD lower. As expected, Jerome Powell was officially nominated as the new Fed Chair, with little market reaction.
As widely expected, the Bank of England hiked rates yesterday by 25bp to 0.5% in a 7-2 decision; however, the market perceived the Bank of England’s official statement as dovish vs. September, as it removed indications that the rates “…may need to rise more than expected…”, with Governor Carney pointing to two more hikes in three years.
The initial market reaction in response to the announcement was a sharp unwind of hike expectations, with rates and gilts rallying, while GBP sold off vs. major currencies. GBPUSD traded to a low of 1.3085 (Bloomberg) while EURGBP strengthened to 0.8932 (Bloomberg) following the announcement.
Our traders see GBPUSD short term support at 1.3030 ahead of 1.3000, a move lower opens up support at 1.2780 (Bloomberg August low). Meanwhile, resistance is at 1.3081 (100 dma) ahead of 1.3200-25 and 1.3340. EURGBP support is at 0.8900 and 0.8730 with resistance at 0.8950 and 0.9050.
The US employment report will be the main focus today. We forecast nonfarm payrolls to have increased 325k, and a strong rebound in hiring following the hurricane disruptions seen in the September report

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