Good morning,

EUR: Catalan leader pulls back from the edge
Catalan President Carles Puidgemont blinked last night, announcing that while he would seek to enforce the decision of Catalan voters and move towards independence he will also seek dialogue with the Spanish government in the coming weeks. An immediate declaration of independence was not forthcoming and the euro finds itself a little stronger this morning as a result.

We have spent a lot of this week talking about political situations and balls in courts but the pelota is very much still in the Catalan court this morning as demands and negotiating positions are yet to be set out. Euro markets will continue to watch the situation intensely but for now are close to 2 week highs.

GBP: The song remains the same

UK economic news yesterday was not enough to drive the pound higher despite manufacturing output numbers beating expectations. There were the last concrete output numbers that will contribute to the Q3 GDP numbers and they are insufficient to change the narrative of the UK economy away from the ‘chronic crawl’ that we have suffered since the beginning of the year.
The construction sector is confirmed to be in recession and while manufacturing was a little higher than expected the sector remains far from the supercharged march of the makers that many had predicted given the weakness in sterling. Manufacturing seems to have been driven by car demand and sales and we are reticent to put too much belief in this impetus lasting given the pressures on consumer credit.
While we expect the Bank of England to raise interest rates in November, the UK’s economic data remains by no means supportive of that move.
In political news, an interview on LBC saw PM Theresa May refuse to say whether she would vote for Brexit if another referendum were held today, saying instead she would have to “weigh up the evidence” before deciding.

USD: Fed minutes due

Last month’s Fed meeting saw the Federal Open Markets Committee announce that balance sheet normalization will begin in October. Tonight is our opportunity to look for further details on the path of how the balance sheet will be normalised and what that means for interest rates in light of investor belief that an interest rate rise will come in December. Some reticence has been noted in recent communications from Fed Chair Yellen especially around the confidence that rate setters are putting in the inflation picture. Tonight is another chance to see just how assured they are.

The minutes are released at 7pm.

Have a great day

Jeremy Cook, Chief Economist