- Further clarity of US interest rates unlikely;
- Rajoy requests clarity on Catalan independence declaration.
US equity markets are expected to open relatively flat, a day after having made fresh record highs once again, as traders await the release of the FOMC minutes from the September meeting.
The dollar is also steady ahead of the release of the minutes later on in the day, with traders seeking further clarity on interest rates going forward. The Fed surprised traders last month when it projected one more rate hike this year and three next, despite the fact that inflation has not recovered as expected despite the apparent tightness in the labour market. Still, policy makers since the meeting haven’t given the impression that they are particularly confident when it comes to these interest rate projections which is creating doubt around them.
I’m not convinced the minutes will provide much additional detail on interest rates and will instead simply reiterate what we learned in the statement, economic projections and press conference with Chair Janet Yellen. Moreover, with vice Chair Stanley Fischer having now left the FOMC and Yellen’s tenure as Chair expiring in February, we have to question just how useful they could be in anticipating the Fed’s moves next year. A December rate hike now appears very likely – and is 98.6% priced in according to CME Group – but beyond that, a significant amount of uncertainty remains.
Relations between Catalonia and Madrid are showing no signs of improvement after Spanish Prime Minister Mariano Rajoy responded to Carles Puigdemont’s request for talks by releasing a statement formally asking whether independence had been declared or not. Clearly talks is not on the agenda for the Spanish government, with Rajoy claiming that a declaration of independence is needed before any other measure can be taken under article 155 of the constitution.
With a peaceful resolution clearly not on the table it seems Puigdemont’s options now are limited and these comments will only fuel the desire for independence to be officially declared, after which the situation will likely deteriorate rapidly. Still, the IBEX has given away very little of its early session gains and remains around 1.5% up on the day while the euro is behaving like nothing has happened, although this has broadly been the case throughout the entire process.
