Euro up as Catalonia blinks
By Peter Rosenstreich
With all the force of a wet noodle, Catalonia’s presumed declaration of independence was instead a weak climbdown – prompting a rally of the Euro up to around 1.185 USD. Still there is uncertainty about Spain’s unity, and the Euro might slide back in the near term toward 1.1700, but the European Union has stepped forward toward unity. A strong, unified EU, will clearly influence our trading next spring as Italy heads into a national election.
The Catalan regional government stepped back from the brink yesterday, not breaking free of Spain but merely stating the presumed right to do so. Regional President Carles Puigdemont said he wants to reduce tensions and hold talks with Spain’s central government. The Euro rallied hard on the expiry of an immediate threat, sovereign spreads narrowed and IBEX rallied. But not all risk is off. Spain’s Deputy Prime Minister María Soraya Sáenz de Santamaria reiterated that the central government views Catalonia’s independence-moves as illegal and non-negotiable.
December US rate hike looking more likely
By Arnaud Masset
At the moment, the market is pricing in a 76.5% probability that the US Federal Reserve will hike its prime rate change by 0.25% on 13 December 13. The certainty is likely to increase today, when the Fed publishes the minutes of its Open Market Committee meeting of 19-20 September: these probably will give more hints on rates and on the details of impending bond sales to reduce the Fed’s bloated balance sheet. Fed-watchers will also be looking for cues on inflation and the outlook for further rate-hikes in 2018.
The US dollar eased slightly on Wednesday, a consolidation after the sharp reversal of the last few days. It should trade sideways ahead of the FOMC minutes publication. If the minutes show an unexpected dovish tone, the greenback will temporarily weaken.