Good morning,

EUR: Cata-loner finally

One of the most interesting non-Brexit political weekends kicked off in Spain on Friday as Catalonia, finally, declared independence from the Spanish state triggering waves of celebrations and counter protest on Saturday and Sunday. The central Spanish government has wasted no time in starting provisions under Article 155 that counter this independence claim, including the deposition of Carles Puidgemont, the Catalan leader, his parliament and the head of the Catalan police force. Elections have also been called and must take place before December 21st.

Initial polls suggest that the pro-independence lobby would lose their majority although there is a lot of road to travel and hurdles to jump until Catalan voters go to the polls. An early election would prove to be positive for the EUR as it has been marked down heavily since the ECB meeting on Thursday.

NZD: New mandate, same direction

Kiwi dollar has continued to crunch lower following the new administration’s calls for the mandate of the RBNZ to change in a way that may mean lower interest rates. Finance Minister Robertson told reporters that “what it means is that when the Reserve Bank is making its decisions about the official cash rate, when it’s thinking about monetary policy, of course it thinks about managing and controlling inflation, and that’s vital. But also it thinks about other goals in the economy such as making sure that we maximise employment.”

A change in the mandate would undermine the main reason for holding the NZD; the amount of ‘carry’ that investors receive from holding the kiwi dollar would likely fall as monetary policy loosened. Unemployment is only 4.8% in New Zealand and that is close to what is considered to be a Natural Rate of Unemployment (NRU) in an economy. The issue in New Zealand is much like the issue here; higher employment, stagnant wages and poor productivity. This is more an issue for government than a central bank.

NZDUSD is at its lowest level since June 2016.

USD: Russian probe indictments to be announced

The dollar’s star is in ascent this morning and was on Friday afternoon following preliminary Q3 GDP figures leaping ahead of expectations. The US economy’s now growing at a 3.0% clip on an annualised basis, well ahead of expectations. While the next few iterations of the Q3 numbers will be revised due to hurricane impacts, data inaccuracies and a wider sample, the initial signs are strong. Exports, investment and personal consumption all made material contributions to Friday’s growth number, but hangovers from real estate and government spending could hold back further growth in the final months of 2017.

The first indictments of the Russian interference probe led by former FBI Director Mueller will be handed out today according to US media. Suggestions are that the investigation now has enough to start bringing charges against members of the Trump campaign committee.

Dollar could easily retreat as a result should members of the administration find themselves on the indictment sheet already.

GBP: All about Thursday

Brexit rumours are not the rumours that Westminster is focusing on today and sterling will likely stay quiet until Thursday’s Bank of England meeting. Our webinar to preview the Bank’s decision takes place on Thursday morning and you can register here.

Have a great day

Jeremy Cook, Chief Economist