Market Review – Fundamental Perspective 7 December 2017

Global equity markets drifted lower for a fourth day after a bout of profit taking this week in a fairly quiet session. In FX, CAD declined (vs. the USD) after dovish commentary from the Bank of Canada, whilst AUDUSD fell to the lowest since June after October trade data missed estimates.
President Trump formally recognized Jerusalem as the capital of Israel yesterday and announced that he will initiate the relocation of the US embassy from Tel Aviv to Jerusalem, despite warnings from leaders across the globe that the move would undermine peace efforts. The announcement heightens political uncertainty within the region but ILS price action has remained stable and constructive in a quiet flow environment.
The Bank of Canada kept policy unchanged, retained its cautious tone and remained data dependent. We reiterate our call for the BoC to hike late in Q1 18 or early in Q2 if NAFTA risks dissipate, with the risk of a significant delay if they do not. The market is pricing a little more than two hikes on a one-year horizon, bringing downside risk to the CAD in case of disappointment.
The RBI also stayed on hold, but the BCB cut rates. Both moves were expected, with the Indian central bank maintaining a neutral monetary policy stance, albeit with one member of the MPC voting for a 25bp cut. Meanwhile, the BCB cut the Selic rate 50bp, to 7.0%, reflecting the prior decline in inflation.
In the UK, PM Theresa May struggled to agree a Brexit deal with Northern Irish unionists which led Ireland’s prime minister to warn that a divorce settlement might not be completed until early next year. PM May continues to remain under pressure, with a number of sources reporting that David Davis allies are launching bid to find her replacement.
GBP flow dynamic remains two-way with GBPUSD support coming in at 1.3350 ahead of 1.3200. Meanwhile, resistance is at 1.3550 ahead of the highs of the year in the 1.3660 area. EURGBP support is found at 0.8730-90 with resistance at 0.8860.

PCM Enterprise - Development Firms Review