WEEKLY MARKET ANALYSIS

23 JANUARY 2017

Theresa May provides more clarity

By Florence Tan, Tae Hyon Ahn, Celestee Tan

In her speech last Tuesday, British Prime Minister

Theresa May charted Britains course toward a clean
break with the European Union (EU) while still offering
continued partnership in trade, defense, security and
science to the EU.

IN THIS ISSUE

Theresa May
provides more
clarity
Page 1 2

Read more on page 2 >

Market Performance
Global equities finished the week lower with the MSCI World
Index down 0.42%. In the US, the Dow Jones Industrial
Average decreased 0.29%, the S&P 500 Index shed 0.15% and
the Nasdaq Composite declined 0.34%.

US: Trump in the

House
Page 3

European equities, as measured by the Stoxx Europe 600

Index dropped 0.92% while Japanese stock market benchmarks
also fell for the week (Nikkei 225: -0.77% and Topix 0.74%).
Emerging stocks snapped a three-week winning streak, as
risk appetite eased. The MSCI EM index declined 0.30% led
by MSCI Emerging Europe (-1.37%) and MSCI Asia ex Japan (0.30%). In contrast, MSCI Latin America gained 1.28%.
Within Asia, the Shanghai Composite index was the sole
outperformer, closing 0.33% for the week, as Chinas GDP
accelerated for the first time in two years in 4Q16.
MARKET ANALYSIS PAGE 1

INVESTMENT PRODUCTS: NOT A BANK DEPOSIT. NOT GOVERNMENT INSURED. NO BANK GUARANTEE. MAY LOSE VALUE.

WEEKLY MARKET ANALYSIS

Theresa May provides more clarity (Continued)

British Prime Minister Theresa May set out 12 objectives, including the
announcement that Britain would leave the EUs Single Market and most of the
Customs Union in order to implement immigration control and end the jurisdiction
of the European Court of Justice in the UK.

The government seeks a free trade deal in goods and services with the EU and
other countries such as the US, China and Commonwealth countries. The UK also
seeks a phased implementation process, or transition phase.
Domestically, she confirmed that both Houses of Parliament would get a vote on
the deal concluded with the EU, but ruled out special deals for the UKs
devolved regions, with perhaps the exception of some special arrangements for
Northern Ireland.
Citis view: Accepting exit from the Single Market brings important clarity.
However, Citi analysts believe that the 2 years timeframe provided by Article 50
may not be enough to negotiate the exit arrangements, a free trade deal, a
specific customs agreement, a continuation of the Common travel area with
Ireland and a transition arrangement.
Inflation rises to highest level since July 2014

Bank of
England
likely to be
on hold
despite
rising

Source: ONS as of 17 January 2017.

pressures.
Other data released last week include CPI inflation rising from 1.4% YY in
November to 1.6% YY in December, the highest level since July 2014. Citi
analysts expect further sharp increases in inflation ahead on energy base
effects and sterling weakness, with inflation likely exceeding 3% in 2H17.
Nevertheless, the Bank of England may remain on hold until the Brexit deal
becomes clearer in 2019.
MARKET ANALYSIS PAGE 2

All forecasts are expressions of opinion, are not a guarantee of future results, are subject to change without notice and may
not meet our expectations due to a variety of economic, market and other factors. Likewise, past performance is no guarantee
of future results.

WEEKLY MARKET ANALYSIS

US: Trump in the House

Within hours of becoming US president, President Trump moved quickly to weaken
the rules tied to Obamacare and halting new regulations in general. The incoming
administration also posted a number of policy briefs on the White House website.
These suggest that the incoming administration and 115th Congress may
aggressively pursue the tenets of the Contract, including tax reform, repeal and
replacement of Obamacare, deregulation, and the initiation of an Americafirst brand of foreign policy.
First 100-Days Contract With the American Voter

While the changing

political landscape
creates investment
opportunities, there
will also be periods
of market
volatility.
Source: Citi Research as of 3 January 2017.

The components of Trumps campaign promises outlined in the Contract, and

themes highlighted during his January 11th press conference (e.g. foreign
policy, trade, Obamacare, job creation) can be grouped into four broad
categories:

1) Drain the Swamp Limiting corruption and lobby influence in

Washington
2) Foreign Policy Increasing US terms of trade; extracting rents from
alliances
3) Law & Order Undoing President Obamas legacy and cementing his own
4) Make America Great Again Domestic policies that may bolster the
economy
While financial markets want political stability, political change is
disruptive. This is especially so with President Trump intent on reversing
many of the policies of his predecessor and the likelihood that his
administration
may not adhere to Republican party orthodoxy. While the
MARKET
ANALYSIS PAGE 3
changing political landscape creates investment opportunities for investors,
forecasts
are expressions
of opinion, of
are not
a guaranteevolatility.
of future results, are
subject to changeshould
without notice
and may
there Allwill
also
be periods
market
Investors
continue
to
not meet our expectations due to a variety of economic, market and other factors. Likewise, past performance is no guarantee
of future results.
keep their portfolios diversified.

WEEKLY MARKET ANALYSIS

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MARKET ANALYSIS PAGE 4

All forecasts are expressions of opinion, are not a guarantee of future results, are subject to change without notice and may
not meet our expectations due to a variety of economic, market and other factors. Likewise, past performance is no guarantee
of future results.

WEEKLY MARKET ANALYSIS

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MARKET ANALYSIS PAGE 5

All forecasts are expressions of opinion, are not a guarantee of future results, are subject to change without notice and may
not meet our expectations due to a variety of economic, market and other factors. Likewise, past performance is no guarantee
of future results.