European Markets, US Futures & Euro Soar After Catalonian Independence Deferred

Posted by Naeem Aslam | 11/10/2017 09:23

Investors have shown a positive reaction to the Catalonian leaders’ action
Catalonian situation isn’t going away, it is only delayed
The bitcoin price broke the $4900 mark yesterday
oday's FOMC minutes would provide us more detail about the Fed's stance towards its monetary policy

European markets and US futures are higher after Catalonian leaders hesitated to implement independence. Looking at the Euro, you would say that investors have shown a positive reaction to the Catalonian leaders’ action, especially the IBEX index which is exploding today. Catalan President Carles Puigdement did declare the independence yesterday but shortly after, he postponed the implementation. Perhaps, hoping for some sort of dialogue with Spain before it gets really ugly. The risk appetite has found its place among investors and they are less worried about this political drama or perhaps completely naive.
 
If the Catalonian President thinks that the referendum and its outcome were all legal, despite the fact that the country's biggest court decorated it illegal,, then you should not underestimate the power of such a President. Some form of meditation is expected or let's just say hoped for before the situation catches fire. Who blinks first would keep investors on their toes. The European Union preferred to stay out of this situation because they do consider this as a personal choice and a personal matter for the country.
 
The important thing to keep in mind is that the Catalonian situation isn’t going away, it is only delayed. Therefore, we do think there is clearly a big disconnect between the markets and the political storm which is taking place in Catalonia. Taking a clue from the Dow index, after it smashed through the previous record high, would give you a very misleading signal. Investors are simply confused or naive to the Catalonian situation.
 
 
The bitcoin price broke the $4900 mark yesterday and traded very close to its previous record highs because of Catalonians declaring a deferred implementation of independence is not a small event. The price has retraced from that level and bitcoin is down by -1.77% as the risk appetite builds. We do believe that investors are surely underestimating the strength of this event. The reason is that the independence is declared and only implementation is postponed. We do believe that investors are surely underestimating the strength of this event. The reason is that the independence is declared and only implementation is postponed.
 
Remember, if the independence becomes the reality, not only Spain would have to suffer a major debt crisis but recovery in the Eurozone would also be under a major threat. You can simply forget that the ECB would be stepping off the gas, the bank would have a brand new unexpected crisis on its door front.
 
The Fed last month announced their plan of reducing the size of their balance sheet with the runoff rats of $6 billion per month for US Treasury and $4 billion per month for the mortgage-backed securities. Today's FOMC minutes would provide us more detail about the Fed's stance towards its monetary policy given that the inflation hasn't improved. The dollar index lost it’s mojo as President Trump’s tax plan became cloudier yesterday following his feud with Senator Mr. Corker. What this shows is that the President is so ineffective that he can’t even convince his own party leaders. Without the proposed tax plan, there is little that the Fed can do to push the GDP growth. The President has failed on so many of his key plans that another failure on the tax overhaul could be the final nail in the coffin.
 
 
 

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