From Marc to Market:
The markets are mixed, mostly responding to idiosyncratic developments, as the week's large events loom ahead. These BOJ, BOE, and FOMC meetings, eurozone flash CPI and US jobs reports. In addition, US President Trump is expected to announce his nomination of the next Fed chair, and the initial House tax bill will be unveiled.
Technically, the dollar was overextended and the mostly heavier tone today ought not be surprising. The New Zealand dollar remains under pressure. Although it bounced into the end of last week, comments by Finance Minister Roberson that the changes in the central bank's mandate would potentially lead to lower rates, are weighing today. Of course, this was the implication that the market responded to on news that the RBNZ's mandate was going to be changed to include a full employment charge, like the Federal Reserve. Before the weekend, the Kiwi had approached the year's low set in May near $0.6820. It has not made a new low, and it is beginning to look as if the selling has been exhausted. A move above $0.6915 would help confirm a low is in place.
The euro is correcting higher. It was oversold at the end of last week when it hit $1.1575. After a slow start in Asia, it rose through initial resistance in Europe near $1.1625 and looks poised to challenge the $1.1660 area. The news stream is light, but the economic reports will help shade views ahead of this week's first estimate of Q3 GDP and October flash CPI.
Spain was the first EMU country to report Q3 GDP. It was an impressive 0.8% quarter-over-quarter, in line with expectations and slightly slower than the 0.9% pace reported for Q2. The year-over-year pace was steady at 3.1%. For its part, Germany reported a 0.5% rise in September retail sales, while the August series was revised to a 0.2% contraction rather than a 0.4% fall. The 4.1% year-over-year increase compares with a 1.1% last September. The market expects that the eurozone economy expanded at around 0.5% in Q3, down from 0.6% in Q2. It is above trend, which means the output gap continues to close.
Separately, Spain reported EU harmonized CPI rose 0.6% in October, the same as September, but a bit faster than expected. Still, the year-over-year rate eased to 1.7% from 1.8%. Meanwhile, German states are showing softer inflation figures. A slightly lower EU harmonized measure from the 1.8% it reported in September would not be surprising. Draghi warned that due to energy prices, the pace of inflation might temporarily slow in the period ahead. There seems to be downside risk to the Bloomberg median forecast that October eurozone CPI was unchanged at 1.5% and 1.1% core rate. Both the GDP and CPI for the region will be reported tomorrow.
There is no sign that Catalonia's secessionist movement and the attempt by Madrid to invoke Article 155 to suspend the local autonomy is scaring investors. From the market's point of view, the crisis is over except for the precise details. Spain's 10-year is off six basis points, and at 1.50%, it is the lowest since a couple of weeks before the Catalan referendum was held. At 115 bp, Spain's premium is two basis points above the eve of the referendum. Spanish stocks are leading the European bourses higher today with a 1.4% rally near midday compared with a flat performance by the Dow Jones Stoxx 600. In Spain, financials, real estate, and telecommunications are the leading sectors....MORE