Market Review – Fundamental Perspective 6 November 2017

Global equity markets closed marginally higher, led by the NASDAQ, DAX, and Nikkei while oil extended an advance above $55 a barrel. JPY fell to the weakest level since March (vs. the USD) after Bank of Japan Governor Kuroda said it is crucial for inflation to exceed the 2% target, signaling there is little appetite for tapering stimulus.
In contrast, the Bank of England joined the Fed on the path to normalization last week. The MPC raised rates for the first time in a decade and guided that more hikes are likely to be appropriate if data evolves as the BoE expects. In its base case, the MPC envisages two hikes over the next three years, close to what the market is pricing.
Also last week, the Fed kept policy on hold and President Trump announced that Fed Governor Powell will be nominated to replace Fed Chair Yellen when her term expires in February. In focus today, Federal Reserve Bank of New York President Dudley is expected to announce his retirement (CNBC).
An early departure would mean the top 3 positions at the Fed changing over within a relatively short period after Vice Chairman Fischer retired in October; nevertheless, Powell is unlikely to materially change the outlook for Fed Policy in 2018, relative to current Chair Yellen.
Friday’s US employment data came in mixed but we view the report as consistent with ongoing strength in the labour market. Non-farm payrolls disappointed rising 261k, vs. expectations of 313k, whilst September was revised higher by 51k. Headline unemployment came in stronger than expected at 4.1%, vs. expectations of 4.2%. Whilst the USD initially weakened, it recouped its losses and traded with a bid tone across the board after markets interpreted the report as positive overall.
More central banks meet this week, led by the RBA on Tuesday. Policy announcements will also come from the central banks of Poland and Thailand on Wednesday, and the RBNZ and BNM on Thursday. All of these banks are likely to remain on hold, in the view of our economists and consensus.

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