Market Review – Fundamental Perspective 14 December 2017

Equities were mixed, with European markets underperforming while US markets printed modest gains. At its December meeting, the Fed increased rates as widely expected by 25bp to 1.25-1.5%, but the USD and UST yields declined as there were two dissenters to the hike decision.
The FOMC made minor changes to the statement but made a substantial upward revision to projected real GDP growth in 2018 to 2.5% from 2.1%, including effects from fiscal policy changes, but kept the inflation forecast unmoved. The median policy path remained unchanged at three hikes per year in 2018 and 2019, broadly in line with our expectation.
The PBoC also hiked rates yesterday, raising the short-term and medium policy rates by 5bp. This is the third such move in 2017 and is consistent with our general outlook. Barclays Research now expect the PBoC to hike by a further 5-10bp after the expected Fed moves in 2018.
Market reaction to the UK employment report was fairly muted. UK employment growth continued to weaken in October but nominal wages recovered back to growth levels last seen 12 months ago.
Despite GBP selling off on uncertainty about PM May’s leadership and recovering after reports of the potential for a softer Brexit, a weaker USD dominated GBPUSD price action overnight taking the pair above 1.3400.
Our traders see next GBPUSD resistance at 1.3450 ahead of 1.3550 and support is at 1.3300 ahead of 1.3200. Meanwhile, EURGBP remains within the 0.8775-0.8840 range.
Several other central banks are in focus today, including the ECB, BoE, Norges Bank, Bank of Indonesia and Banrep. Barclays Research expect rate increases in Turkey of 100bps in the late liquidity window rate, which is broadly anticipated by the market; a hike below 75bps could put pressure on TRY

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