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Catalonian Independence eclipses even Tory party schism

Catalonian Independence eclipses even Tory party schism

GBP
The UK construction Purchasing Managers’ Index (PMI) index declined to 48.1 for September from 51.1 the previous month, below consensus expectations of an unchanged reading and the weakest print since July 2016. Although the residential sector continued to expand, there was a significant contraction in the civil construction sector due to being dominated by uncertainty. There was, however, further upward pressure on prices with the inflation index at a seven-month high.

European Union chief Brexit negotiator Michel Barnier stated that before being able to move on to stage 2 of the talks there was still serious discrepancy on financial settlement and that withdrawal terms needed to be agreed as soon as possible. The Lord Mayor of London warned that a transition deal needs to be in place before year-end, thus increasing time pressures significantly.

The combination of weaker-than-expected data and Brexit concerns pushed Sterling lower with fresh three-week lows near 1.3220 against the Dollar while GBPEUR reached levels of around 1.1260; the Pound gained some respite, especially against the Dollar, ahead of crucial UK PMI Services data due this morning.

USD

US and German bond yield spreads narrowed slightly which curbed Dollar buying. September car sales produced a very strong reading which will underpin wider retail sales data. Underlying caution was more pronounced as there will be a raft of US data releases over the remainder of the week. As well as today’s ISM non-manufacturing data, the latest ADP data is scheduled ahead of Friday’s employment report. The markets are likely to be even more cautious than usual given that the headline non-farm payrolls release will be distorted by the impact of hurricanes Harvey and Irma.

The Euro recovered to highs above 1.1770 in the US trading session and the Dollar drifted lower this morning as underlying momentum faded.

EUR

In the Eurozone yesterday, the Producer Price Index (PPI), an index measuring the change in prices for domestic producers, showed an increase of 0.5% to 2.5% year on year and exceeded expectations of 2.3%.

The Catalonia situation persists with a 24-hour general strike in the region. There were reports late in the US session that the Madrid government was looking at invoking the constitution to remove powers from the Catalan administration while regional leader Puigdemont stated that independence could be declared within days. There was also strong criticism of the Catalan Administration from King Felipe, although the market reaction was measured.

Today, the market’s attention will turn to the final Services and Composites PMIs figures for the European economy, while the European Central Bank’s (ECB) Draghi is set to deliver opening remarks at the inauguration of the ECB visitor centre in Frankfurt. Market investors and traders will scrutinise his words for clues on upcoming monetary policy direction.

Data To Watch:
8:00am EUR Non-monetary policy’s European Central Bank (ECB) meeting
9:00am EUR Markit Services PMI (Sep) Purchasing Managers’ Index & Composite PMI
9:30am GBP Markit Services PMI (Sep) Purchasing Managers’ Index
1:15pm USD ADP Employment Change (Sep)
2:45pm USD Markit Services PMI (Sep) Purchasing Managers’ Index & Composite PMI
3:00pm USD ISM Non-Manufacturing PMI (Sep)
6:15pm EUR European Central Bank’s President Mario Draghi’s Speech
8:00pm USD Fed’s Bullen Speech
8:15pm USD Fed’s Chairman of the Federal Open Market Committee Janet Yellen Speech

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