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Having remained an observer of foreign exchange movements for much of the fourth quarter so far, the Euro will claim back the headlines with some gusto this week as the Catalonian constitutional crisis comes to a head, while the European Central Bank is finally set to announce a major policy change.
Both the Catalonian and Spanish parliaments will meet on Thursday and Friday this week, with regional lawmakers meeting to discuss a response to the threat of direct rule from Madrid, while the latter will vote on whether to install controversial powers that would dismiss the former. The latest escalation in tensions has come as a result of the invoking of Article 155, a move that would force out the current Catalonian parliament and force election withing six months. While the EU has backed the move, the controversial powers could be the beginning of a new politically-charged period for Catalonia.
Also on Thursday, the ECB meet to update Eurozone monetary policy. The introduction of tapering – the process of reducing bond purchases through its quantitative easing programme – has been forecast for many months, however the latest communications from policymakers have pointed towards this Thursday’s meeting as the most likely timing of an announcement.
The consensus forecast of economists expects asset purchases to be halved to €30bn per month from the current €60bn and extend the program for a further nine months from January, although any increased cut to costs or a shortened timeline will boost the euro. On the other hand, a longer timeline or a lesser reduction may appeal to euro bears.
Whatever the outcome, however, a taper would mark a momentous hawkish change in the central bank’s rhetoric over the past 12 months, having confidently declared it has defeated deflation and, in the words of ECB President Draghi, given ‘whatever it takes’ in order to preserve the Euro since the financial crisis.
However, the Eurozone’s single currency has been under pressure in recent weeks, retreating from a 33-month highs against the US dollar while falling from its strongest level against Sterling since October’s ‘flash crash’. Can Thursday’s decision and subsequent press conference breathe a new lease of life into the Euro?
Despite the government cancelling a proposed parliamentary debate on the matter on Monday, Brexit talks are likely to continue to provide market-moving soundbites throughout the week. With suggested figures for the UK’s leaving bill seemingly being plucked out of the air in recent weeks, hopes for a firm bill in order to progress to the next round of talks with little animosity has seemed a far-fetched idea so far. With the clock on UK-EU talks ticking down, will the negotiating teams provide some leeway to get talks moving in the right direction? Or will both sets of team play hard ball?
In the midst of these important events, UK Q3 GDP (Thursday; 9:30am) is expected to retreat to its lowest level since the first quarter of 2012 and, while the race to be the next Fed Chair continues, a raft of top tier US data hits the wires before next week’s policy meeting, including what is likely to be a hurricane-impacted Q3 GDP figure (Friday; 1:30pm).
Other macro data releases of note this week include a range on global Manufacturing and Services PMIs (Tuesday; all day), US New Home Sales (Wednesday; 3pm), German GfK Consumer Confidence (7a; Thursday), the UK CBI Retail Survey (Thursday; 11am), Germany Retail Sales (Friday; 7am) and US Condumer Confidence (3pm).
Key data this week (Sign up here to receive our daily live macro-calendar)
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Intl Economic Announcements
01:30 PMI Manufacturing (Japan)
8-9am PMI Manufacturing & Services (Eurozone)
14:45 PMI Manufacturing & Services (US)
15:00 Richmond Fed (USA)
21:30 API Crude Oil Inventories (USA)
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UK Economic Announcements
09:30 GDP, Index of Services, BBA Home Loans
Intl Economic Announcements
09:00 IFO Surveys (Germany)
13:30 Durable Goods Orders (USA)
14:00 House Price Index (USA)
15:00 New Home Sales (USA)
15:30 Oil Inventories (USA)
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UK Economic Announcements
11:00 CBI Retail Survey
Intl Economic Announcements
07:00 GFK Consumer Confidence (Germany)
12:45 ECB Policy Decision (Eurozone)
13:30 Jobless Claims, Wholesale Inventories (USA)
15:00 Pending Home Sales (USA)
16:00 Kansas City Fed (USA)
Intl Economic Announcements
00:30 Inflation (Japan)
02:00 Industrial Profits (China)
07:00 Retail Sales (Germany)
13:30 GDP, Personal Consumption (USA)
15:00 Consumer Confidence (USA)
18:00 Baker Hughes Rig Count (USA)
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