The euro is unchanged in the Monday session. Currently, EUR/USD is trading at 1.1738, up 0.04% on the day. On the release front, German Industrial Production jumped 3.6%, crushing the estimate of 0.7%. Eurozone Sentix Investor Confidence improved to 29.7, above the estimate of 28.6 points. In the US, banks are closed for Columbus Day, and there are no US events on the schedule.
All eyes are on the Catalan parliament, which will meet on Tuesday. Will Catalonia unilaterally declare independence? Catalan leader Carles Puigdemont has said that it is up to the Catalan parliament to approve independence, but it’s unclear what will happen when the regional lawmakers meet. Puigdemont has not had any talks with Spanish Prime Minister Mariano Rajoy as the crisis goes down to the wire. On Sunday, a demonstration against the referendum attracted some 350,000 people, in a show of support for the Spanish government. Which side will blink first? Madrid could literally shut down the Catalan parliament under Spain’s constitution, but has hesitated to take such drastic action. However, if the Catalan parliament declares independence, Rajoy could respond forcefully. The euro was down only marginally last week, but the crisis could hurt the Spanish economy. Last week, two major banks, Caixabank and Sabadell, said they would relocate their corporate headquarters out of Catalonia, and other large companies could follow suit.
US employment numbers were a mix on Friday. Non Farm Employment change shocked with a decline of 33 thousand, compared to the estimate of a gain of 85 thousand. The weak reading didn’t cause any alarm in the markets, but rather underscored the severe impact of Hurricanes Harvey and Irma, which hit the US in late August and early September. The two storms caused $150-200 billion in damage and also took a toll on the employment market, although the labor market is expected to rebound as the recovery effort intensifies. On a brighter note, wage growth accelerated to 0.5%, above the estimate of 0.3%. This reading is pointing to stronger inflationary pressure, which is good news for proponents of a rate hike. The odds of a December hike have climbed to 91%, which is remarkable, considering that only a month ago, the odds of a December increase were just 31 percent. The markets were also pleased that the unemployment rate fell from to 4.2% in September, down from 4.4% a month earlier.
