The Weekly Update

The yield on the 10-year US Treasury tracked marginally higher over the week off the back of broadly stronger US data; including an upward revision to Q3’17 GDP and PCE Deflator yoy readings. ISM prints did, however, disappoint. Yellen’s upbeat testimony (her last as Fed Chair) to Congress and the vote on the Senate’s tax bill also boosted market sentiment; despite the in-house political drama. The Fed’s Beige Book also highlighted a pickup in US economic activity. Meanwhile, the DXY (dollar index) regained some momentum after the Senate’s 51-49 vote on tax-cut legislation. The next step will see the House and Senate work to reconcile their tax bills; one of the differences include the pace and timing of corporate tax cuts; which, according to Mr. Trump, could be sliced to 22%, instead of the House-proposed 20%. So, one to watch in the coming weeks, with an agreed tax-bill expected before the year is up. More importantly, however, Congress faces the Dec. 8 government funding deadline; in order to avoid a government shutdown on Friday.

Other headlines which grabbed market attention last week included: the Bank of Korea’s 25bps ‘dovish hike’ to 1.5%; the central bank stated that inflation is expected to stay ‘in the mid-1% range for some time.’ Meanwhile, OPEC and Russia agreed to a further extension to production cuts (into end-2018) which saw Brent spike higher; according to Russia's energy minister, Novak, ‘everybody recommended to extend the agreement’. However, all parties also agreed that this is a flexible extension; if oil prices were to overheat, the length of extension would be reconsidered. Elsewhere, UK PM May agreed to pay over double the initial exit-fee, in order to kick-start trade negotiations; sterling traded higher against the dollar following the news. All eyes will be focused on the Brexit developments this week (ahead of the EU summit next week), events include: PM May’s meeting with EC president Juncker today, the EC College of Commissioners’ decision on the extent of Brexit negotiations on Wednesday and David Davis’ Parliamentary Committee, expected to be formed on Wednesday.

As mentioned, Brexit developments will be a main feature this week, US employment day releases on Friday will also grab market attention; current expectations are for +199k jobs created in November, no change to the unemployment rate and a pick-up in average hourly wages. Ahead of this we’ll get the factory orders and durable goods readings later today, US PMI and ISM readings on Tuesday and ADP employment change reading on Wednesday. China’s trade data and Caixin PMIs for November will also be of interest, with the former released on Friday. We will also get China’s FX reserve release this week, markets currently expect a spike to USD 3.123tn  in November. Thursday will be dominated by German coalition discussions, and we’ll also get the German IP print, Q3’17 GDP reading for the Euro Area and final revision of Japan's Q3’17 GDP reading.

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