Market Review – Fundamental Perspective 30 October 2017

Global equity markets were driven higher last week by supportive developments in policy and economic data. Most equity markets rose, oil prices surged on expectations for an OPEC production cut extension and European government bonds rallied on a dovish ECB.
USD has opened the week slightly on the back foot against G10 peers whilst EUR has so far been unperturbed by further unrest in Catalonia over the weekend.
The Catalan parliament voted on Friday to become an independent republic which resulted in the federal government dissolving Catalonian parliament and taking over control of ministries in a temporary measure until regional elections are held in December.
Barclays Research thinks that “…independence remains unlikely in the near term as it would require important constitutional changes…”.
In the UK, the BoE’s rate decision on Thursday will be the main focus this week and the bank is widely expected to raise the Bank Rate by 25bps. A stronger-than-expected UK GDP print last week coupled with above target inflation and a tight labour market all suggest that a rate hike is in order.
Barclays Research stated that “…although the BoE is likely to communicate the start of a mini hiking cycle, we do not expect further rate hikes in 2018…”.
In the US, President Trump is expected to announce the new Fed chair anytime this week and the two top candidates are currently Taylor and Powell. A hawkish nomination (Taylor) could support USD but the Fed’s policy path will be driven more by incoming economic data.
The FOMC is scheduled to meet on Wednesday and Barclays Research thinks the meeting is “…unlikely to change market expectations of a December rate hike (84% priced in)…”.

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