Morning Report: 19 October 2017

19th October 2017 By: Ranko Berich

GBP Sterling weakened yesterday after the labour market figures showed that real salaries in the UK contracted for the sixth month in a row. The gloom remains this morning for sterling after an awful Retail Sales report triggered a fresh wave of sterling selling. Aside from macro data, Theresa May will meet the EU leaders today aiming to finally move ahead with the Brexit negotiations to discuss the transition agreement. However, the EU leaders will tell May that not enough progress has been done as a tough Franco-German line of negotiations is set to demand an increase in the contribution to the EU budget from 2021 to 2023. The retail sales figures will be released at 09.30 BST.

EUR The Catalonian crisis appears to precipitate towards the most disruptive end. Catalonian President Carles Puigdemont had to answer the Spanish central government before 9.00 BST today to confirm whether he had declared independence or not. Prime Minister’s Rajoy cabinet said earlier this week that Article 155—which allows the central government to suppress the autonomy of the region—would not be triggered if Puigdemont called snap elections. The Catalan President’s answer indicates that the referendum’s result gives him the authority to declare the independence unilaterally, and that he would do so if the government invokes Article 155. Spanish media informs that Rajoy’s government is going to proceed with the suspension of the Catalan autonomy.

USD The dollar remains out of the spotlight somehow but maintains its upward trend supported by the likelihood of John Taylor been nominated as the Fed’s Chair before the month end. It appears that the decision will be divided between Jerome Powell, perceived as a more “dovish” figure among the Fed’s officials, and Taylor, who is a hawkish candidate. Therefore, investors will be watching closely any headline related to the final decision, as the implications for USD crosses in the future is extremely significant.

CAD The loonie strengthened yesterday supported by the sharp increase in crude oil prices which rose above $58/barrel for a short period of time. No data will be released today, but all eyes will be focused on tomorrow’s inflation and retail sales figures. The relevance of tomorrow’s data increases since the Bank of Canada meets next week to decide on interest rates.

UK news

  • FT. Spain ready to impose direct rule on Catalonia Process to begin unless region’s president Carles Puigdemont renounces secession plans. The Spanish government appeared set to begin the process of taking direct control over Catalonia on Thursday as Catalan president Carles Puigdemont declined to renounce the region’s claims to independence. Mr Puigdemont on Thursday sent a letter to Spanish prime minister Mariano Rajoy refusing to back down and threatening a formal declaration of independence by the regional parliament if the Spanish government suspends Catalonia’s autonomy. The letter was made public shortly before a 10am deadline set by Madrid. Deputy prime minister Soraya Sáenz de Santamaria had on Wednesday reiterated that the government would begin triggering Article 155 of the Spanish constitution, which allows them to take power over the regional administration unless Mr Puigdemont backed down.
  • Reuters. Trying to unlock Brexit, May to make offer on EU citizens. British Prime Minister Theresa May will promise on Thursday to make it as easy as possible for European Union citizens living in Britain to stay after Brexit, trying to unlock stalled talks that have spurred calls for her to walk away. Weakened by losing her Conservative Party’s majority in a June election and failing to rally support at an ill-fated party conference, May had initially hoped she would regain some ground by persuading EU leaders at a two-day summit starting on Thursday to let Brexit talks move beyond matters of the divorce. But EU leaders have ruled that out, saying London must agree to pay more as part of an exit settlement than May has said is acceptable. So she will instead try to change the focus, by offering more concessions for those EU citizens increasingly anxious about their rights in Britain after it leaves the bloc. This is unlikely to alter the outcome of the Brussels summit. Continental leaders have been assuming for weeks that a deal can be struck on this issue. But it indicates British officials are pursuing a new course – adopting a softer approach to try to win over the bloc’s negotiators, if not all its governments.
  • BBC. Spain to suspend Catalonia’s autonomy. Spain is to start suspending Catalonia’s autonomy on Saturday, after its leader threatened to declare independence. The prime minister’s office said the cabinet would meet to activate Article 155 of the constitution, allowing it to take over running of the region. Catalan leader Carles Puigdemont said earlier the region’s parliament would vote on independence if Spain “continues repression”. Some fear the moves could spark unrest.