Market News & Insights
17 November 2017

Timing is Everything

Markets in Europe managed to halt their five day losing streak yesterday, with some cautious buyers returning to markets after the worst run of daily loses this year. With sharp declines in the market last week, it remains to be seen whether we’ll receive two successive weekly declines. No such issues here for the US markets, with the Nasdaq making another record close last night. These gains were no doubt aided by the US House of Representatives approving a broad package of tax cuts which would see US company rates cut from 35% to 20%. This is only the first of many hurdles however for the reform, and we are sure to see steeper hurdles ahead. For now however markets appear to be hopeful, with the US 2 year yield hitting its highest level in 9 years. Markets have continued to back the Fed to remain on their upward trajectory path for rates, with the December almost completely priced in, while it also forecasts a further 3 hikes in 2018.

Yesterday saw another disappointing economic indicator for the UK, this time it was Retail Sales which fell year on year for the first time since 2013. The month on month figure however fared better, growing +0.3% and beating market expectations of +0.1%. The pounds reaction to the data was relatively mute with investors not forecasting another rate hike any time soon.

In Brexit related news, David Davis is learning the reality of just how stubborn the EU are prepared to be. Davis is now pointing the finger at Germany and France for the Brexit deadlock, suggesting the UK will fail to hit next week’s deadline to agree a bigger “divorce bill”. I start to get the feeling that had these talks taken place 3 years ago when the Eurozone was in a far worse state economically, than perhaps a better deal could have been sought. This year however, Eurozone growth is expected to mark its best year in a decade, outpacing both US and Britain simultaneously for the first time since 2007-08. This growth is expected to continue well into 2018 according to economists in a Reuters poll, with economists also foreseeing the ECB reaching its inflation target of 2% by the second half of 2019. With such optimism has not been seen among Reuters economists since the financial crisis. With Britain’s economy looking at going the other way, is there really a worse time for the UK to commence talks?

On the currency front, EURUSD’s failure at 1.1880 has seen the euro retreat back below the 1.18 level, with 1.17 targeted. While GBPUSD needs to pushup through 1.3250 level to cement moves higher here, failure here would see a return of a run down through 1.31. On the EURGBP front 0.9020 remains the key support level for the pair.