Market Review – Fundamental Perspective 31 October 2017

Global equity markets fluctuated after weaker than expected China PMI data. However, markets were focused on the investigation into alleged Russian interference and collusion in US elections, which returned and hit sentiment driving US equities lower ahead of a busy political week.
UST yields declined and the USD lost ground vs. most G10 peers, amid month-end flows. Crude oil held to last week’s gains as markets begin to anticipate an extension of the output cut deal at next month’s OPEC meeting.
In the US, personal consumption expenditure (PCE) data was mixed, with strong personal income and spending, overshadowed by soft core PCE inflation. However, US politics eclipsed data yesterday, with the indictment of Paul Manafort (Trump’s campaign manager) and the guilty plea of George Papadopoulos (Trump’s foreign policy advisor) taking momentum away from White House’s legislative effort ahead of the House tax plan.
Also this week, the House Committee on Ways and Means Committee will release its tax plan (Wednesday) and President Trump will announce the new Fed chair (Thursday); Jerome Powell, the closest candidate to status-quo, appears to be leading the contest.
Elsewhere, the Bank of Japan left its Quantitative and Qualitative Monetary Easing (QQE) programme and 10 year yield target unchanged as expected, while downgrading its CPI forecasts for fiscal 2017 and 2018. The Bank of Japan’s new member Kataoka cast the only dissenting vote in favour of additional easing measures, as expected. USDJPY price action was fairly muted as a result.
European data will be in focus today, particularly after Draghi mentioned that that price pressures are still “muted” overall despite “unabated” growth momentum. We expect euro area inflation to print 1.5% y/y in September (core 1.1% y/y). However, we see a risk that headline inflation could ease to 1.4% after preliminary data from Spain and Germany were below our expectations.
Our traders noted two-way flow in EURUSD yesterday. Support comes in at 1.1574 (Friday’s low, Bloomberg) ahead of 1.1500. Meanwhile resistance remains at 1.1660/75 ahead of 1.1715.

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