Forex Weekly

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José-Manuel Luna Foreign Exchange Advisor
Pier-Luigi Bonelli Foreign Exchange Advisor
Ugo Biancaniello Foreign Exchange Advisor

The Spanish government has decided yesterday after an extraordinary meeting to ask to the President of the Generalitat Carles Puigdemont to clarify if yesterday he made a declaration of independence or not. Indeed, the government had no other option than reacting firmly to the legal challenge of the separatists. The only unknown was which legal tools it was going to activate. Finally, even though the use of the article 155 of the Constitution can be seen as disproportionate since it results in, at least, a partial suspension the autonomy, it also gives an opportunity to Carles Puigdemont to defend his aims within a legal framework.

In the USD, Headline PPI rose 0.4% (consensus 0.4%), and core prices also were up 0.4%, (consensus 0.3%). However, the strength in core prices reflected trade services (margins), which can be volatile. Core ex trade services came in up 0.2%, in line with expectations and the recent trend. According to the BLS, "Hurricanes Harvey and Irma had virtually no impact on data collection efforts or survey response rates, and no changes in estimation procedures were necessary."

Regarding US rates, the consensus is predicting that a shrinking Fed balance sheet will push yields higher - maybe even risking a new taper tantrum. But that same prediction was wrong when Fed's QE1 ended in 2010, when QE2 ended in 2011, and when the Fed started tapering its QE3 program in Dec-2013.

Headline CPI inflation remained stable at 3.3% YoY in September 2017 versus the previous month. This was below consensus expectations of 3.6%. Price pressure in rural areas (3.1% YoY in September) was lower than that in urban areas (3.4%YoY)

September Taiwan exports grew at the fastest pace since July 2010. The data is likely distorted by the timing of the Mid-Autumn festival. Notwithstanding these distortions, exports have been on a steady rise over recent months, helped by improving global trade volumes, the extended global tech cycle and recovering commodity prices.