The euro is unchanged in the Wednesday session, after two losing sessions. Currently, EUR/USD is trading at 1.1766, up 0.07% on the day. On the release front, German Ifo Business Climate continued to accelerate with a reading of 116.7, well above the forecast of 115.3 points. In the US, Core Durable Goods Orders is expected to improve to 0.5%, while the Core Durable Goods is forecast to slow to 1.0%. As well, US New Home Sales is expected to dip to 555 thousand. On Thursday, the ECB publishes its rate statement, and the US will release unemployment claims and Pending Home Sales.
The German economy continues to fire on all cylinders, with much of the credit going to a robust manufacturing sector. The global appetite for German exports remains strong and consumer spending has been steady. On Tuesday, German Manufacturing PMI posted a strong reading of 60.5, beating expectations. There was more positive news on Wednesday, as German Ifo Business Climate jumped to 116.7, an all-time high. This thumbs-up from the business confidence suggests that the German economy will enjoy a strong fourth quarter.
Spain’s constitutional crisis has been on simmer all week, but the temperature could rise dramatically on Friday, when the Spanish Senate steps into the fray. The Senate is expected to authorize the central government to invoke Article 155 of Spain’s constitution and apply direct rule over Catalonia. This would allow Madrid to dismiss the Catalan government and take control of the regional police and radio and television stations. This drastic clause has never been invoked, and it remains unclear what steps the central government will take under Article 155. Another question mark is how the Catalan parliament will respond. Catalan President Carles Puidgemont has so far avoided explicitly declaring independence from Spain, but could choose to pre-empt a move by the central government to remove him from office. The continuing uncertainty could lead to further unrest and instability. Still, Caixabank, the third largest bank in the country, does not expect the Catalonia issue to affect Spain’s GDP, which the bank projects will expand 2.7 percent in 2018.
