We saw more records tumble at the end of September as US markets once again closed the month and the end of the third quarter at or near new record highs, as investors once again turned their attention to the prospect that we could see some sort of US tax reform by the end of the year.
European markets also posted good gains last month, though if events in Spain over the weekend are any guide the Spanish stock market could well start the month on a rocky note.
The sight of armed police beating and firing rubber bullets at unarmed civilians is shocking in any scenario, but when it happens in Spain, on the streets of Catalonia it is doubly shocking, and could have wider consequences for the political cohesion of Spain itself. In a clear challenge to Madrid’s authority the Catalan government announced this morning that 90% of the votes so far counted had been in favour of independence.
Events over the weekend could present a problem for EU leaders who may come under pressure in some quarters to start procedures to invoke article 7 of the EU treaties, on one of its largest members. The article guarantees the EU’s fundamental values which are defined as “liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law”
The article has never been invoked but there has been talk of using this nuclear option over the years against Hungary in 2014, and latterly Poland for transgressions less serious than what appears to have happened in Spain. If the EU does nothing in response to the violent events of the weekend they run the risk of being accused of double standards.
On the data front it’s the start of a busy week with the latest Chinese manufacturing and non-manufacturing numbers for September coming in well ahead of expectations at the weekend, reinforcing confidence that the Chinese economy remains well on course to exceed its growth forecasts of 6.5% for this year. The latest Japanese Tankan survey also suggested that business confidence is improving reinforcing an upbeat outlook for the Japanese economy ahead of elections later this month.
The economy in Europe has continued to do well throughout the year and today’s manufacturing PMI numbers for September are expected to continue that theme. The latest PMI’s for Spain, Italy, France and Germany are expected to come in at 53.2, 56.9, 56 and 60.6, all improvements on August.
In the UK the Conservative Party conference got underway at the weekend and this may introduce an element of risk for sterling traders, though we probably won’t see another flash crash, like we did last year, as long as ministers stick to their Brexit scripts. On the data front the latest manufacturing PMI for September is expected to come in at 56.3, a slight decline from August’s surprisingly robust 56.9.
It’s also a busy week for US data culminating on Friday with the latest September jobs report, though once again the focus is likely to be less on the headline number and more on wages and inflation.
Last week’s surprisingly good Chicago manufacturing PMI has raised expectations that despite disruption from the hurricane season that the latest ISM reports are likely to be similarly positive this week.
In light of the disruptions caused by recent storms it is possible that the data could suffer from a significant skew over the next few weeks, which could make it much more difficult in assessing the wider impact on the US economy, as well as whether any economic effect is likely to be transitory in nature.
EURUSD – appears to have found a minor base near the 1.1715 area which is delaying the prospect of a move towards the 1.1600 level. The current rebound needs to get back through the 1.1830 level breakout level to delay this and prompt a move back to the 1.1920 area.
GBPUSD – finding some support just above the 1.3340 area, but needs to push back through the 1.3470 level to argue for further gains back towards the 1.3660 area. A move through this level could see a move towards 1.3755, on the way to a move towards the 1.4000 area.
EURGBP – continues to find support above the 200 day MA above the 0.8720 area which remains a key support. It would be a surprise to see a move below this level. Pullbacks need to stay below the 0.8830/40 area, while we have broader resistance at last week’s high at 0.8900.
USDJPY – last week’s failure at the 113.20 level has seen the US dollar drift back, which given stretched momentum isn’t surprising, and for now has found support at the 112.20 area. A move through here retargets a return towards 111.30. Only a break below the 111.30 area, argues for a return towards the 110.20 level.
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