Market Review – Fundamental Perspective 3 October 2017

Risk sentiment opened the fourth quarter on a positive note with global equity markets closing largely higher yesterday. US equities made new highs and the USD rallied after a strong ISM print.
Spanish bond and equities underperformed following the unofficial Catalonia referendum on Sunday. The regional government of Catalonia has called for a general demonstration today.
US ISM manufacturing came in at a decade high of 60.8 for September (consensus: 58.1) which points to continued strong sentiment and activity in the US manufacturing sector.
EURUSD broke previous lows of 1.1717 on the downside this morning after the USD bid tone continued overnight. Short term support now comes in at 1.1665.
GBP traded with an offered tone yesterday after PMI manufacturing data came in lower than expected (55.9 vs. 56.2). GBPUSD now finds support at 1.3230 with resistance at 1.3300.
The Conservative Party Conference is still ongoing which may cause some near term volatility in GBP. PM May is expected to deliver a key note speech tomorrow at 12.30.
As expected, the RBA kept its cash rate unchanged at 1.50% this morning and there was no significant changes to the statement as the economy remains on a path of gradual recovery.
AUDUSD sold off by around 0.3% and Barclays Research expects the bank “…to remain patient and wait for signs if of a more broad-based recovery…” before changing policy.
This month will see the beginning of the Fed’s balance sheet normalization which will cause a decline in excess reserves of $1.8 trillion over three years. The unwind of QE will be slower than the build-up in order to give financial markets enough time to adapt to the new market conditions.

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