The euro has started the week with slight losses. In the Monday session, EUR/USD is trading at 1.1791, down 0.22% on the day. On the release front, eurozone data was positive. German Wholesale Price Index gained 0.6%, above the forecast of 0.4%. The eurozone trade surplus jumped to EUR 21.6 billion, above the estimate of EUR 20.3 billion. The US will release the Empire State Manufacturing Index, which is expected to slow to 20.3 points. On Tuesday, Germany releases ZEW Economic Sentiment and the eurozone will publish Final CPI.
The game of brinkmanship between the leaders of Spain and Catalonia continues this week, with no resolution in sight. The Spanish government set a Monday deadline for Catalan President Carles Puigdemont to expressly state whether he had declared independence, and if so, Puigemont was given three more days to retract his proclamation. However, the Catalan President shirked away from a clear answer and let the first deadline pass, calling for more dialogue with Madrid. Prime Minister Mariano Rajoy has threatened to suspend the Catalan parliament and impose direct rule from Madrid, which could trigger a violent response. The crisis has led 500 companies to start leaving Catalonia, and the Standard and Poor’s rating agency has said that the region could face a recession if the crisis continues.
ECB President Mario Draghi said on Thursday that he plans to maintain ultra-low rates “well past” the end of its bond-buying program in December. The ECB has been under pressure to tighten monetary policy, primarily from Germany, where the central bank has called for tighter policy, given the stronger eurozone economy. The ECB is expected to taper its monthly bond purchases of 60 billion euros at its policy meeting on October 26, but Draghi has sent out a clear message that rate hikes will have to wait until 2018. With inflation levels will below the ECB target of around 2 percent, Draghi has been reluctant to raise interest rates until inflation shows clear signs of moving upwards.
A strong US economy hasn’t led to higher inflation, and there was some disappointment in the markets as CPI and Core CPI narrowly missed their estimates. On the release front, CPI gained 0.5%, short of the estimate of 0.6%. Core CPI posted a small gain of 0.1%, shy of the forecast of 0.2%. With inflation an important consideration in future rate decisions by the Federal Reserve, investors will be anxiously monitoring how Fed policymakers respond to September’s soft inflation numbers. Retail sales data was a mix, as Core Retail Sales gained 1.0%, above the estimate of 0.9%. However, retail sales were up 1.6%, short of the forecast of 1.7%.
