I’d like to wish all of our clients and colleagues in China a very happy moon day festival. Hope that the night’s skies shine brightly on you and all your loved ones. Would also like to wish a warm farewell to Tom Petty who passed away yesterday. Here’s to never backing down. Due to local holidays, there will be no daily market update tomorrow and we will resume on Friday.
Market Overview
Stock markets continue their bullish run with gains on Wall Street yesterday leading the Dow Jones and SPX500 further into their record highest levels.
Asian and European markets are also performing today as well as can be expected. Except for the Spanish index ESP35, which is close to 1% down in the first few moments of trading.
Here we can see the gap down from the bloody weekend (blue circle) and the plunge at the start of today (yellow).
It seems that at least locally, the matter of Catalonia’s independence is having an effect on market prices. Spanish Bonds are also under pressure with yields hitting the highest level in 3 months.
For the moment, the damage seems to be contained and other bonds in the EU are only slightly higher. However, all markets are connected. Should things in Spain deteriorate it could start affecting other European markets, which would in turn affect the rest of the world.
The King of Spain weighed in on the debate yesterday backing the Spanish government as he spoke about unity but the local government of Catalonia is not backing down and are expected to declare their independence shortly.
Double Trouble
Today we’ll be graced with speeches from the two biggest market moving people on the planet.
As we’ve discussed many times, it is the central banks who have been responsible for most market movements over the past decade due to monetary policy that has been largely experimental.
Both Mario Draghi of the European Central Bank and Janet Yellen of the Federal Reserve Bank of the United States will be speaking at rudimentary events. Neither are expected to say anything drastic but it does pay to pay attention.
Janet Yellen has the financial markets exactly where she wants them at the moment with traders assigning a 70% chance of a rate hike in December. Not too hot, not too cold. Over the next two months, she can take her time and make a decision whether or not to pull the trigger.
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Draghi on the other hand is in a bit of a tight spot. Currently, the ECB has their printing presses running on full steam and is injecting about 60 Billion Euro into the economy every month. The markets have been responding and the effects of the stimulus seem to be going well. However, the more time they drag on the program the less positive effect it has. So lately they’ve been considering to wind down the stimulus or stop it completely.
The Euro strength over the past few months only adds to Draghi’s troubles as it hurts the export markets. The situation in Catalonia is actually playing in Draghi’s favor as it provides a good narrative for the Euro to cool off.
This way, Draghi can feel more comfortable talking about less stimulous without worrying about sending the Euro through the roof.
As always, please feel free to contact me directly with any comments or questions. Have a wonderful day ahead.
