Breaking News: Spain moves to suspend Catalonia’s autonomy

Having missed the 8pm GMT deadline to renounce its claims to Independence, the Catalonia Government now faces losing all its powers as Spain moves forward in suspending Catalonia’s autonomy.

 

Prime Ministers Rajoy’s government has confirmed that they will implement Article 155 of the constitution restoring full control of Catalonia to Madrid.

 

The Catalan Parliament has also warned that if there is no dialogue between the two Governments on the matter they will push ahead with a formal declaration of independence.

 

Fear that these latest developments will likely cause more unrest in the region sent Spanish stocks lower with the EUR/USD initially coming under pressure when the 8pm GMT deadline was missed dropping to 1.17686 levels before bouncing back about 1.1800.  At the time of writing the EUR/USD is currently trading at 1.18047.

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British Pound’s Flash Crash: One Year Later

Last October, the British pound experienced a mysterious flash crash that wiped 10% from its value. This included a more than 6% drop in the span of two minutes, bringing sterling to its lowest level in 31 years. Baffled by what transpired, market participants have given several theories about what caused the dramatic drop.

Rogue computer trades, an accidental “fat finger” and harsh comments from French President Francois Hollande on Brexit negotiations were all blamed.

A few months later, the Bank for International Settlement (BIS) found there was no single trigger for the colossal drop.

 

The flash crash wasn’t a new phenomenon,” the BIS said in a report that was released the following January. “Rather, it represents an additional data point in what appears to be a series of flash events occurring in a broader range of fast, electronic markets than was previously the case, including those markets whose size and liquidity used to provide some protection against such event”.

 

For all the mystery surrounding the flash crash, there certainly wasn’t any secret behind the pound’s woes. Just three-and-a-half months prior, Britons voted to leave the European Union (EU) in a watershed moment that would reshape the future of the pan-European project. Although the pound has rebounded some 1,400 pips since the flash crash of last October, it’s nowhere near pre-Brexit levels.

With the Bank of England (BOE) signaling for higher interest rates, the probability of another crash in the pound is slim. Meanwhile, the prospect of a hard Brexit has sorely diminished following Prime Minister Theresa May’s election gaffe. As a matter of fact, EU talks are breaking down before our eyes, leaving the British pound safe from any other politically charged selloffs.

 

Pound sterling has also benefited this year from a whimpering U.S. dollar. The greenback is one of the world’s worst-performing currencies of 2017, having declined more than 8% year-to-date.

 

Although investors shouldn’t get ahead of themselves with respect to the pound, there doesn’t seem to be any impetus for a repeat of last October’s selloff anytime soon. Of course, the forex market is highly unpredictable, so it’s best to keep your wits about you.

 

Rob Davies (7 October 2016). “What caused the pound’s flash crash?” The Guardian.

Stefania Spezzati (13 January 2017). “Pound Flash Crash Had No Single Trigger, BIS Investigation Finds.” Bloomberg.

Tim Ross (16 October 2017). “U.S. Fears Collapse of Brexit Talk Within Weeks.” Bloomberg.

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Monday 16-10-2017 Outlook

Welcome to the weekly outlook starting this Monday 16 October. We’ll be looking at the week’s key economic events on the financial calendar covering Monday to Thursday. This is shaping up to be an action-packed week full of key economic indicator releases across the globe. We’ll be getting inflation data out of the UK and Europe, industrial production and housing from the US, jobs data from Australia and GDP figures for China.

 

Event: UK Consumer Price Index

Date: Tuesday 17 October 2017 at 08:30 GMT

Markets affected: GBP/USD, EUR/GBP

Trending hashtags: #gbp, #cpi, #inflation

 

With inflation in August hitting a five year high at 2.9% many will be closely following Monday’s report on key inflation data in the form of the consumer price index. A falling UK pound has left its mark with higher petrol and clothing prices. The CPI figure will be closely watched by the Bank of England as it considers its next move regarding interest rates.

 

Event: EU Consumer Price Index (September)

Date: Tuesday 17 October 2017 at 10:00 GMT

Markets affected: EUR/USD, EUR/GBP

Trending hashtags: #eur, #cpi, #inflation

 

August’s CPI for the Eurozone came in at a 0.3% month on month change and 1.5% on an annualized basis. Core CPI, which strips away volatile food and energy figures, was also 0.3% for last August and saw 1.1% year on year growth. Inflation is still a little below the 2% target for the European Central Bank’s liking but it is unlikely to stop the planned reduction of their asset buying programme.

 

Event: US Industrial Production (September)

Date: Tuesday 17 October 2017 at 13:15 GMT

Markets affected: EUR/USD, USD/JPY

Trending hashtags: #usd, #industry

 

Industrial production in August fell by -0.9% against the previous month due to activity being stalled by the hurricanes that ripped through the US. Expectation is for the industry to get back on track for September and increase by 0.3% as rebuilding will be needed due to the destruction caused by the extreme weather.

 

Event: EU Extraordinary Economic Summit

Date: Wednesday 18 October 2017 at 07:00 GMT

Markets affected: EUR/USD, EUR/GBP

Trending hashtags: #eur, #ecb

 

Eurozone leaders will gather on Wednesday to discuss concerns and issues facing the common region. Analysts are expecting that Brexit and Catalan’s drive for independence will be part of the discussions. The euro will be looking for mentions of further monetary tightening before it makes moves in any direction.

 

Event: US Housing Data (September)

Date: Wednesday 18 October 2017 at 12:30 GMT

Markets affected: EUR/USD, USD/JPY

Trending hashtags: #usd, #housing

 

Key housing data is due out of the US on Wednesday with Building Permits and Housing Starts reports. There were 1.300 million building permits last month and expectations are for 1.255 million for September. In August, housing starts saw a 1.180 million change and expectations for September are for 1.175 million. Housing data is important as it influences job growth and the overall GDP of the nation.

 

Event: Australia Employment Data (September)

Date: Thursday 19 October 2017 at 00:30 GMT

Markets affected: AUD/USD, AUD/NZD

Trending hashtags: #aud, #jobs

 

Last month’s employment data for Australia was much better than expected and gave a boost to the aussie. 54,200 new jobs were added in August far surpassing July’s 27,900 change and beating expectations. Expectations for September are for 23,800 jobs to be added. Unemployment for August remained pat with July’s figure of 5.6%, just as the markets were expecting. The Australian economy has been struggling on a number of levels but positive employment figures can only bode well for the future.

 

Event: China Gross Domestic Product (Q3)

Date: Thursday 12 October 2017 at 02:00 GMT

Markets affected: AUD/USD, CNH/USD

Trending hashtags: #cnh, #gdp

 

Last quarter the Chinese economy expanded by 1.7% on a quarterly basis and showed 6.9% growth on an annualised basis. The second quarter of the year showed the strongest growth for the economy for almost two years and surpassed the Government expectation of 6.5% growth for 2017. Analysts are expecting the third quarter of this year to see 1.4% growth quarterly and 6.7% improvement on this time last year.

 

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First Deadlock and then hope. Continuing story of the Brexit Negotiations.

Just like life, the currency market is like a roller-coaster. Take what happened yesterday with the Brexit talks.  First in the afternoon we had doom and gloom and then a few hours later we had hope.

 

Like with all divorces, one of the key areas that most lawyers will lock horns over is money.

And the Brexit negotiations is proving to be no different as Michel Barnier, EU ‘s chief negotiator said that there was a “deadlock” over the UK’s so called divorce settlement.

 

He also said that the lack of progress on this matter was “disturbing”.

 

The UK was hoping that they would make some headway and at least agree to start talks on a future trade deal before the crucial EU summit on the 19th and 20th October. But this has yet to happened.

In fact, Mr. Barnier has said that he felt he was not in the position to recommend to the European Council to start discussions on the “future relationship”.

With March 2019 fast approaching the lack of progress and the increased chances of the UK getting no deal sent shivers down the spines of sterling bulls with GBP crashing against both the USD and the Euro.  The the GBP/USD had fallen down to the 1.31310 levels and the EUR/GBP had risen to around 0.90184.

 

And then….

 

An internal draft document was leaked which hinted that the 27 European Union countries should prepare to discuss trade amongst themselves which will pave the way to start negotiating trade talks with the UK Government in December.  The paper also underlined Mr. Barnier’s earlier comments about a lack of progress but it also mentioned there had been developments on some key areas which would please many.

Though this draft can at any stage be revised, it does show a tiny a bit of hope that a deal could be made before the UK’s official exit.

 

How did the market react?

Sterling bulls rejoiced. GBP/USD skyrocketed back above 1.32 reversing its previous losses of the day and at the time of writing is currently trading around 1.3264.  The EUR/GBP did the opposite and crashed back down falling below 0.9000 levels and is currently trading around 0.8925.

What a difference a few hours make.

When Theresa May announced that Britain would indeed honour its financial commitments to the EU there was the belief that the fifth round of talks would finally bring some much needed clarity that a deal could indeed be made in time, but initially it looked like that the EU and UK were getting nowhere but this leak has showed there could be a bit of light at the end of the tunnel.

One thing for sure is we are still very much in unknown territory, but one thing that is mostly likely certain is that we will continue to get ups and downs with this roller-coaster called the Brexit.

 

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Friday 13-10-2017 Lookback

Welcome to the weekly review where we look back over the results of some of the previous week’s economic indicators. It gives us the chance to reflect on how much expectations were met or missed and to examine a successful trade you could have made this week.

 

Event: German Trade Balance

Date: Tuesday 10 October 2017 at 06:00 GMT

Markets affected: EUR/USD, EUR/GBP

Trending hashtags: #eur, #trade

 

The euro gained on the back of the positive Trade Balance data out of Germany on Monday. The German trade surplus in August increased to 21.6 billion euro, surpassing expectations by 0.8 billion. Exports grew by 3.1% with the annual rate of growth dropping 7.2%, which was 0.8% worse than the previous reading in July. Imports also increased by 1.2%. Trade figures from Europe’s largest economy have significant impact on the region’s overall economic health and on the euro itself.

 

Event: UK Manufacturing Production (August)

Date: Tuesday 10 October 2017 at 08:30 GMT

Markets affected: GBP/USD, EUR/GBP

Trending hashtags: #gbp

 

The Sterling got a boost following the release of UK manufacturing production figures for August. Manufacturing doubled expectations by growing 0.4% for the month and 2.8% on an annualised basis. Industrial production grew 1.6% and the trade balance was at -2.872 billion. Good news continued for the British pound as wages grew 2.4% in the second quarter of this year against the 1.6% growth in the previous reading. Confidence in the Bank of England tightening monetary policy increased and we may be in for more rate hikes going into 2018.

 

Event: UK Inflation Report

Date: Wednesday 11 October 2017

Markets affected: GBP/USD, EUR/GBP

Trending hashtags: #gbp, #inflation

 

Inflation in the UK continues to be of concern as it reached its highest point in five years in August. Petrol and clothing price rises are two of the main protagonists behind the rise in inflation which is measured by the consumer price index which hit 2.9% in August – up from 2.6% in July. Rising prices are due to the devaluation of the sterling following the Brexit referendum.

 

Event: FOMC Meeting Minutes

Date: Wednesday 11 October 2017 at 18:00 GMT

Markets affected: EUR/USD, USD/JPY

Trending hashtags: #usd, #fomc

 

The FOMC meeting minutes from their last September meeting showed that the Federal Reserve will begin to unwind its balance sheet this month and reduce its bond portfolio. The impact of hurricanes Harvey and Irma has been taken in stride and Fed Chair Janet Yellen confirmed that more rate hikes are due in the future. Though some members expressed concern over low inflation and suggested that QE should stay in focus as they monitor inflation figures.

 

Event: Westpac Consumer Confidence – Australia

Date: Wednesday 11 October 2017 at 23:30 GMT

Markets affected: AUD/USD, AUD/NZD

Trending hashtags: #aud

 

Consumers in Australia were a lot more optimistic in October than pessimistic for the first time in 11 months according to the Westpac Consumer Confidence survey. The Sentiment indicator increased by 3.6% to 101.4 for the month versus the September reading of 97.9. Trade workers were particularly confident as residential building increased. Business confidence in a separate survey also showed the highest levels in 10 years, but last month’s disastrous retail sales figures show concern over the local economy. Last year Australia experienced only 2% growth and the Reserve Bank of Australia is expecting 3% for 2018.

 

Event: ECB Industrial Production (August)

Date: Thursday 12 October 2017 at 10:00 GMT

Markets affected: EUR/USD, EUR/GBP

Trending hashtags: #eur

 

The euro fell on Thursday against the greenback despite positive news from the Industrial Production Index which grew by 1.4% in August. Expectations were for just 0.5% increase and July’s figure was revised up from 0.1% to 0.3% growth. Pulling back to a yearly view, industrial production increased 3.8% against the same time last year, again beating expectations of 2.5%. The previous report was also revised upwardly from 3.2% to 3.6%. The failure of the EUR/USD price to reflect the good news from the Eurozone was possibly due to a good reading of the PPI in the US on the same day and the increased expectation of another rate hike this year.

 

Trade of the Week

Time in: Wednesday 11 October 2017 at 19:00 GMT
Market : AUD/USD
Investment: $500 with 200:1 leverage
Time out: Thursday 12 October 2017 at 09:00 GMT

P&L: $707

 

If you had bought the AUD/USD with a $500 margin at the price of 0.7775 and closed the deal after the Australian Westpac Consumer Confidence report on Wednesday at 23:30 GMT which saw the currency pair rise 0.7%, you might have increased your investment with a tidy $707 profit. Note this example does not take into account spread.

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Market Shot – The Dollar Dips to 12 day Low

It has not been the best year of the dollar, political uncertainty and scandal, multiple Trump Administration resignations and dismals, more recently the friction between the U.S./N. Korea and the drop in Non-Farm Payroll have seen the dollar swing wildly on the markets. With the FOMC minutes release just hours away (scheduled at 18.00 GMT) it seems that markets are losing even more confidence in the all mighty green-back – bringing its price down to a 12-day low (at 1.1855 against the EUR at the time of writing this article).

Although the factors are multitudinous – the most significant factor fueling this effect is likely markets’ apprehension that the Trump administration will be able to push through their most recent tax reform. Markets will likely stay risk-off USD until the outcome of the FOMC minutes, especially considering that the NFP came in -33K under expectations, so it seems that investors are bracing for another surprise. This risk-off sentiment seems to be reinforced by a slight spike in the price of safe havens such as gold and JPY.

Investors will be on the lookout not only for some potential dollar-positive news from the FOMC but also anything hinting towards a December rate hike.

 

http://www.reuters.com/article/us-global-forex/dollar-dips-on-tax-reform-uncertainty-euro-strength-idUSKBN1CG03E

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Brexit Watch: Deadlock Continues as Attention Shifts to Theresa May

With European Union (EU) ministers struggling to make headway over Brexit, British Prime Minister Theresa May will attempt to put negotiations back on track Monday as talks resume in Brussels.

The British leader is expected to tell other EU countries that the “ball is in their court” in the ongoing debate over the U.K.’s departure from the bloc. Britain and its EU counterparts have already met four times to discuss an exit deal, but have failed to make any progress. Royal Bank of Scotland Chair Sir Howard Davis has warned that Downing Street has only six months to secure a transition deal. A failure to do so will lead RBS and other companies to start relocating jobs out of London.

The 27 remaining EU members will decide on 19-20 October whether enough progress has been made to continue talks on a future trade relationship.

In the meantime, Prime Minister May is under pressure to disclose secret legal advice she received that would allow government to halt Brexit before the March 2019 deadline. While pro-remain MPs have criticized the government’s “kamikaze” approach to Brexit, ministers insist that halting Brexit is not on option given that the Article 50 process is under way. Prime Minister May triggered the exit clause on 29 March, giving the U.K. two years to formulate a new trade agreement with Brussels.

May is expected to tell the House on Monday that the U.K. wants a “new, deep and special partnership” with the EU.

 

She will also add: “Achieving that partnership will require leadership and flexibility, not just from us but from our friends, the 27 nations of the EU. And as we look forward to the next stage, the ball is in their court. But I am optimistic we will receive a positive response.”

 

However, the EU may demand that Britain put more money on the table to cover its obligations for the last two years of Brussels’ budget cycle. This means that the €20 billion pledged already won’t be enough to satisfy demands of the EU27.

The outlook on Brexit is more uncertain than ever, as the Conservative party struggles to implement a clear strategy following the election gaffe this past June. Instead of building on their majority as May intended, the Conservatives lost seats in the snap election, forcing them to unite with the Democratic Unionist Party in Northern Ireland.

 

George Parker and Robert Wright (8 October 2017). “Brexit ball is in the EU’s court, May to tell MPs.” Financial Times.Toby Helm (7 October 2017). “Theresa May under pressure over ‘secret advice’ on halting Brexit.” The Guardian.

George Parker and Robert Wright (8 October 2017). “Brexit ball is in the EU’s court, May to tell MPs.” Financial Times.

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Markets End on Softer Note Following Dismal NFP Numbers

Wall Street and European stocks finished mostly lower on Friday after U.S. employers shed jobs in September for the first time in seven years, as weather-related disturbances weighed on hiring.

Nonfarm payrolls fell by 33,000 in September, confounding expectations of a 90,000 gain, data from the Labor Department revealed Friday. The August figures were revised up to reflect an increase of 169,000 versus initial estimates of 156,000.

Dismal NFP numbers were largely due to Hurricanes Harvey and Irma, which ripped through Texas and Florida in late August and early September. The storms combined for $200 billion worth of damage.

However, the monthly report wasn’t all negative. The unemployment rate dropped to 4.2%, a level not seen since 2001, as workforce participation increased. Labour force participation jumped to 63.1% last month from 62.9% in August.

On the earnings front, wages accelerated 0.5% on month and 2.9% annually, official data showed. That was much higher than the 2.5% year-over-year increase forecast by economists.

The bulk of the job losses occurred in the restaurant industry. Employed in food services and drinking places declined by 105,000 due to bad weather. The industry recorded average growth of 24,000 jobs over the past 12 months.

The Dow Jones Industrial Average and S&P 500 Index snapped their record streak following the jobs report, but still headed for a fourth consecutive weekly advance. The large-cap S&P 500 Index closed down 0.1%. The Dow ended virtually flat.

European markets were mostly lower, with the Euro Stoxx 50 Pr declining 0.3%. Individual bourses in Germany, France and Spain also finished in negative territory. The United Kingdom’s FTSE 100 Index bucked the downtrend, closing up 0.2%.

In currencies, the U.S. dollar index edged down 0.1% to 93.73. The greenback continues to trade near three-month highs.

Investors can expect a steady stream of high-profile data this week, including reports on retail sales and consumer inflation on Friday.

 

Steve Liesman (11 September 2017). “Harvey and Irma economic hit could total $200 billion: Moody’s.” CNBC. Bureau of Labor Statistics (6 October 2017). Employment Situation Summary: September.

Anora M. Gaudiano and Ryan Vlastelica (6 October 2017). “Dow, S&P 500 end streak of records after jobs report; indexes post weekly gains.” Market Watch.

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Monday 09-10-2017 Outlook

Welcome to the weekly outlook starting this Monday 02 October. We’ll be looking at the week’s key economic events on the financial calendar covering Monday to Thursday. It’s a heavy data week ahead with plenty of action across all global markets. Keep an eye also on Friday as key inflation figures are due for the US with Retail Sales and Consumer Price Index.

 

Event: German Trade Balance

Date: Tuesday 10 October 2017 at 06:00 GMT

Markets affected: EUR/USD, EUR/GBP

Trending hashtags: #eur, #trade

 

With a soaring manufacturing sector, Germany’s trade surplus is way above even China or Japan. Last month the figure increased by €19.5 billion and foreign sales are expected to grow 5% over the year against an original estimate of just 1.2%. The Ifo Institute for Economic Research is forecasting that the nation will have the largest trade surplus than any other country around the world. This had led to criticism from the White House and the IMF who would like to see Germany importing more. While local businesses and employees are benefiting from this, Southern European countries, still struggling out of the financial crisis may put Germany at loggerheads with the European Commission.

 

Event: UK Manufacturing Production (August)

Date: Tuesday 10 October 2017 at 08:30 GMT

Markets affected: GBP/USD, EUR/GBP

Trending hashtags: #gbp

 

A number of key trade and industry indicators are out for the UK at the same time on Tuesday. Manufacturing Production at the previous reading came in at 1.9% year on year change and Industrial Production was at 0.4%. The Trade Balance (non-EU) was at GBP -3.84 billion while the Total Trade Balance was -2.872 billion. The UK economy has started feeling the Brexit pinch and the sterling has been taking a beating as a result.

 

Event: UK Inflation Report

Date: Wednesday 11 October 2017

Markets affected: GBP/USD, EUR/GBP

Trending hashtags: #gbp, #inflation

 

The UK has the highest inflation rate amongst the largest, G7, world economies. Inflation increased to 2.9% in August against 2.6% in July making it a four year high for the consumer price index. The UK’s reliance on imports is behind the rise in inflation as consumers have less buying power due to a weaker sterling following the Brexit referendum. GBP is still 10% below its pre-referendum value. As most central banks aim for 2% inflation for sustainable growth, the Bank of England may look to increase interest rates in an effort to support the pound.

  

Event: FOMC Meeting Minutes

Date: Wednesday 11 October 2017 at 18:00 GMT

Markets affected: EUR/USD, USD/JPY

Trending hashtags: #usd, #fomc

 

While no one is expecting any major surprises from the release of the minutes from the FOMC meeting, traders will be on the lookout for further confirmation of an interest rate hike that is expected to come in December.

 

Event: Westpac Consumer Confidence – Australia

Date: Wednesday 11 October 2017 at 23:30 GMT

Markets affected: AUD/USD, AUD/NZD

Trending hashtags: #aud

 

With falling retail sales, economic recovery for Australia still seems further out than some were hoping for. Retail sales in August fell 0.6% where the expectations were for a 0.3% rise. Consumer Confidence last month was at 2.5%, making September the 10th month in a row where the pessimists outweighed the optimists. Even a better employment sector doesn’t seem to be balancing out consumer concerns.

 

Event: ECB Industrial Production (August)

Date: Thursday 12 October 2017 at 10:00 GMT

Markets affected: EUR/USD, EUR/GBP

Trending hashtags: #eur

 

Eurostat will be releasing Industrial Production figures for August in the Eurozone. Last month the annualised change was 3.2% with a monthly change of 0.1%. An increase in industrial production points to higher inflation which may mean more confirmation for the ECB’s plans to ease Quantitative Easing measures and this may be good news for euro bulls.

 

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