Market News & Insights
12 October 2017

The Trump Dump

Global confidence levels have been on the rise this week, with geopolitical tensions and the situation in Spain taking the back foot. The euro found some buyers yesterday after tensions cooled in Spain after Catalonia suspended its independence declaration. This cool down however may not last for long with the Spanish PM Mariano Rajoy, telling Spanish parliament that the Catalan government had eight days to drop its independence bid. Global stocks were also on the rise yesterday, with traders using last nights Fed minutes and an overnight poll in Japan showing PM Shinzo Abe heading for a two-third majority in the up and coming election. The Fed’s guarded view towards inflation combined with Japan’s potential for continuation of Abenomics meant traders continued to lap up the cheap money supply.

Asian stocks reached 10 year highs overnight with the Japanese Nikkei 225 hitting its highest close since 1996. While US markets once again posted record highs with both the Dow and S&P closing Wednesday’s session at record highs. US Treasuries acted in a more mature manner to the Fed minutes, as they were little changed with nothing of note really coming from the transcript.

The September minutes didn’t really add anything that markets weren’t already aware of. Policy makers debated about the prospects of a pickup in inflation and how this would impact future rate rises if this fundamental continued to lag. Consumer data going forward to the year-end will now become heavily scrutinized, starting with this week’s consumer price data which is due on Friday. The dollar’s reaction to the minutes was relatively flat, seemingly more interested in Trump’s tax reform outcome. Trump, who needs all the allies he can get in the house to pass his tax reform appears to be doing his utmost to upset his fellow Republican colleagues, this time taking aim at Senate Republican Bob Corker. More stories of this nature spread across broadsheets will certainly weigh on dollar sentiment here.

Over in the UK where the fifth round of Brexit negotiations ends today with both David Davis and Michel Barnier scheduled to hold a conference after. The previous meetings have been unsuccessful in terms of progression, as we are still no closer to an agreement on the ‘divorce’ payment and the rights of each other’s citizens.

The euro will continue to keep a close eye on the situation in Spain, but it’ll likely be next week before we see any further news of note on the matter. For now the euro edges higher against its major peers trading at 1.1870 this morning, well up from its low of 1.17 seen last week. While against the pound it continues to trade sub .90. ECB President Mario Draghi speaks later this afternoon with the countdown firmly on for the ECB’s next monetary meeting which is scheduled for the 26th of Oct.