Posted Oct 19, 2017 by Martin Armstrong
The “Catalan Crisis” as it is now being referred to, is just that, a crisis. Spanish government ministers said they will meet an activate the Article 155 which allows them to take over control of the Catalan region. With Carles Puigdemont saying he will proceed with independence if he is faced with continued “repression” from Spain. The IBEX 35 subsequently lost 74bps over the course of the day. The Spanish 10 years traded up +2bps for the day at 1.63%. Today’s very successful 4.5 billion EUR Spanish bond sale helped ease fears of the ongoing situation. It will be interesting to see the price reaction of these European bonds, after the ECB announces there will be no more asset repurchasing. Who will then be buying?
Not the best news coming from the UK today, Retail sales slumped -0.8% MOM (compared to estimates of -0.1%) for the month of September. Clearly the GBP strengthening had something to do with this as the GBPUSD went from 1.29 to 1.35 during the beginning of September. Retail should pick up into the Christmas weeks, as the GBP points back down with mounting fears over Brexit. EU leaders today urged May to do more to break the deadlock over the Brexit negotiations. It will be very surprising if the UK was to come out on top from this situation. The FTSE 100 lost 26 bps, but the Dollar gained 38bps against the Pound.
Although the Euro strengthen against the dollar today, most if not all the European markets gave back returns from yesterday’s decent run in the equities and the ongoing troubles in Catalonia. Recent revenues announcements from European companies also fail to inspire much growth prospects in the region.
A continuing story of more positive fundamental news emerging from the US, as the Jobless claims beat expectations of 222k vs 240k. The Philadelphia Fed Manufacturing Index, which surveys around 250 manufacturers in the Philadelphia district, outperformed expectations of 27.9 vs a forecast of 22.0. Later today we should hear an estimate of the Federal Budget Balance for September which is estimated to be around +6B dollars. Couple this with a possibility of Tax reform in the US, really show the strength the US is currently carrying. Today we will see if a budget measure which will help the Republicans pass a tax reform without Democratic support. The senate and house of representatives must settle on a budget resolution for the Republicans to then be able to enact a tax bill. After opening significantly lower, the US markets all rebounded to close flat for the day. The same story with the US bonds, with the majority of the curve shifting down approximately 3bps in yield. Brazil index was the big loser in the region closing down 49bps.
Asian markets, Japan and Taiwan were the only real winners today with the index increasing 40 and 37 basis points respectively. Hang Seng slumped 1.92%, the biggest daily loss this year. Reports claim this is due to the property market not performing so well, yet this is in contrast as this week there was a record 5.15bn sale of a Hong Kong Skyscraper by the HK richest individual – therefore no signs of slowing down at the top of the market! We wish a Happy Diwali to our readers from the AE Team.
Overall not the best day in the markets, we will look for any news regarding the tax bill as that will surely be a catalyst for higher or lower prices in the stock markets. Catalan situation doesn’t look to be improving. Tomorrow we will see CPI numbers from Germany. We will also get the Canadian CPI numbers as well as core retail sales. In the US we will get Existing home sales and CFTC numbers from Spec positions. Lastly to close the week we will have Fed Chair Yellen speak to give us a better idea on a December rate hike.
2’s closed 1.53% (-3bp), 10’s at 2.32% (-3bp), 30’s 2.83% (-3bp), Bunds 0.39% (0bp), France 0.80% (+0bp), Italy 2.02% (-1bp), Greece 5.46% (+3bp), Portugal 2.28% (-4bp), Spain 1.62% (+2bp), UK Gilts 1.28% (-4bp).