“Catalonia’s Independence…..”

Spain – Catalonia’s Independence

The Catalonia secessionist leader Carles Puigdemont on Monday faced increased pressure to abandon plans to declare the region’s independence from Spain.  France and Germany have expressed their support for the country’s unity.  Signs were emerging a week after the referendum on independence that the situation was taking its toll on the business climate effecting the wealthiest in the region.   Catalonia has its own language and culture and losing it would deprive Spain of a fifth of its economic output and more than a quarter of its exports.  Spanish Prime Minister Mariano Rajoy has not ruled out the so called “nuclear option” of removing the Catalonia government and calling new regional elections if it claims independence.  Spanish Prime Minister Mariano Rajoy stepped up pressure on Catalonia to halt its drive for independence.  The cabinet had agreed to issue a formal request to the Catalan government in Barcelona to confirm if it has declared independence in view of the confusion caused.  This request according to Rajoy is to offer citizens the clarity and security that this issue of such importance requires.   Under Article 155 the Prime Minister can suspend Catalonia’s government and take control of its affairs from Madrid.  It would represent an ultimate defeat of the Catalan leadership. According to Angel Talavera, an analyst at Oxford Economics in London, “If Puigdemont does clarify its independence, then Rajoy applies Article 155, and if he doesn’t his coalition may break up and that could lead to elections.”

Turkey

Tensions between the United States and Turkey has increased when both countries have suspended visa services for citizens looking into visiting either country.  Last week a Turkish employee of the US consulate in Istanbul was arrested.  Turkey said that the employee had links to US based Muslim cleric Fethullah Gulen, who is blamed by Ankara for a failed military coup in July 2016 in which more than 240 people were killed.  Gulen denies any involvement.  Turkey minister summoned a US diplomat to urge the United States to lift the visa suspension stating that it was causing “unnecessary tensions”. The lira dropped 2.4 percent and stood at 3.7030 against the dollar after being quoted overnight as touching a level of 3.9223.  Airline shares were hard hit with the Turkish Airlines dropping 8 percent.  The central bank said it was following developments closely.

United Kingdom

Industrial production rose 0.2 percent in August boosted by a better-than expected manufacturing performance.  Furthermore according to the Office for National Statistics construction recovered some of the losses sustained in July.  However, the trade deficit has unexpectedly increased to the most in almost a year as imports jumped.  Since the Brexit vote the UK economy has dropped to the bottom in the Group of Seven growth league as inflation and political uncertainty had an impact on spending.  Whilst the ONS calls the situation a “mixed picture” it will unlikely deter Bank of England policy makers from preparing to raise interest rates as early as November to combat inflationary pressures.

 Brexit Talks at a Deadlock

There was no improvement over the important bill that the UK owes the EU before trade talks start.  After chief EU negotiator Michael Barnier spoke about the matter the pound fell as much as 0.6 percent against the Euro to its weakest in a month.  Barnier noted that the speech made by Prime Minister Theresa May in Florence last month had pledged that the UK would continue to pay into the EU budget for two years after the split.  He showed his disappointment that this was not followed up in the negotiations this week.  In return for those payments, May wants a two-year transition period to ease the uncertainty for businesses.  Barnier is hoping for progress in the summit coming up in December for what Theresa May has alluded in her speech in Florence.  If talks are to start in December, it will leave less than a year to get a deal on trade and the transition.

US – Trump and the adjustment to the tax plans

The tax framework released by Trump and GOP congressional leaders last month has been criticized for adding to the budget deficit and independent analysts suggest that it would raise taxes for 30 percent of people making between $50,000 and $150,000 per year.  President Donald Trump said that he will adjust his tax plan to make it stronger.  He did not specify what kind of changes he expects to make to the plan.  The tax plan released last month would cut the corporate tax rate to 20 percent from 35 percent.  Furthermore, pass-through business income, such as that earned by partnerships and limited liability companies, would be taxed at a top rate of 25 percent down from 39.6 percent.  The plan will also put down the existing seven individual income tax brackets to three and cut the top individual rate to 35 percent from 39.6 percent.  Congress however will have the option to create a fourth tax bracket at a higher rate for top earners.  The framework also calls for companies with accumulated offshore profits to a one-time tax on those earnings at unspecified rates.   Under current law, companies can defer paying the US tax on their offshore earnings until they bring the latter to the US.  This has resulted in a stockpile of $2.6 trillion profit offshore.   Many details are unclear such as where the income thresholds for the new brackets would be set.

US – September’s Fed Minutes

The minutes of the FED 19^th – 20^th September meeting which were released on Wednesday show that many participants said that their decision as to whether rates should be increased “would depend importantly on whether the economic data in the coming months increased their confidence” on inflation rising towards the 2 percent target.  At the meeting the federal funds rate was left unchanged while another rate increase is projected before year end and announced the beginning of unwinding the $4.5 Trillian balance sheet in October.  The minutes suggest that the forecast for another rate increase in 2017 will depend on economic data showing that the inflation target is within reach over the next couple of years. The minutes show that some participants expressed concern that the persistence of highly accommodative financial conditions could over time pose risks to financial stability.   The next meetings are scheduled for October 31 to November 1, and December 12 to December 13.

Oil production

After Hurricane Nate passed through the Mexican region oil companies are working to restore operations.  Although the effect of the storm will pass quickly, the challenges facing crude producers globally will remain severe with OPEC Secretary-General Mohammed Barkindo saying that extraordinary measures may have to be taken in 2018 to keep the market stable.  Although an estimated 93 percent of US oil production in the Gulf was still shut no damage was reported, suggesting crude and natural gas supplies will quickly rebound this week.

Bitcoin above the $5,000 level

On Thursday the bitcoin touched the $5,000 level.  Reports about the Chinese government easing recent regulations and Goldman Sachs exploring how it could help its client trade cryptocurrencies are helping this rally.

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