LONDON (Reuters) - The Catalonia story took yet another turn with the move by Spain's Constitutional Court yesterday to suspend Monday’s session of the regional Catalan parliament – the one in which they are set to declare independence.
The twist here, underlining just how split Spaniards are on this matter, is that local media are reporting that the ruling followed a legal challenge by Catalan Socialists who oppose secession. The decision immediately sent Spanish bond yields higher – only for them to be pushed back down again by reports of some separatists getting cold feet.
The question is now whether the Catalan parliament will up the ante by trying to go ahead with the session.
With another round of Brexit talks looming next week, British Prime Minister Theresa May's position looks increasingly fragile as members of her Conservative party begin openly discussing whether she should step down after her disastrous conference speech.
Already deeply divided about whether to pursue a "hard" or "soft" Brexit, the party now appears split along different lines - about whether May should stay or go.
It all seems unlikely to energise the so far halting talks over the terms of Britain’s departure from the EU.
German industrial orders bounced back in August, rising more than expected on strong foreign demand, suggesting that factories will contribute to overall growth in Europe’s largest economy in coming months.
MSCI’s index of world stocks hit a new record, Hong Kong shares are close to their highest in 10 years and Tokyo shares hit their highest in two years, among other milestones.
At the same time, the VIX “fear gauge” of expected volatility on the S&P hit a record low on Thursday. European shares are expected to open very slightly higher and a nudge would take Germany’s DAX to a record high.
Investors were cheered by a procedural step forward in the U.S. Congress towards approval of President Donald Trump’s proposed tax reforms and some strong data from the world’s biggest economy. On Friday, the focus turns to the September U.S. jobs report. Economists polled by Reuters expect 90,000 jobs were added last month, after 156,000 in August. This closely-watched figure tends to keep investors cautious and limit market activity.
All this is happening as Federal Reserve officials are indicating a third rise in U.S. interest rates of 2017 is very much on the cards. CME’s FedWatch tool shows markets pricing in an almost 87 percent chance of a December hike.
This has helped push the dollar higher. It hit a seven-week high against a basket of currencies and is up against the euro, yen and British pound.
The euro is down for a second consecutive week and was last at $1.1690. Reuters latest FX poll sees the single currency at $1.18 in a month and $1.20 in a year.
In Europe, a strong rally on Thursday helped Spain’s IBEX recoup most of its previous losses, making its weekly fall not dramatic in recent context. Reuters’ sources-based report that Madrid is set to ease the way for companies to move their bases out of Catalonia could provide further support.
Caixabank and Banco Sabadell on Thursday confirmed they were looking to move their headquarters out of Barcelona, sending their share prices soaring. Despite the Catalan crisis, both stocks remain among the best-performing among euro zone banks, boosted this year by investors’ growing optimism over the Spanish economy.
A stronger open could boost Germany’s DAX to a fresh record high, while euro zone stocks are set to climb to their highest in nearly five months.
In other company news and potential stock movers: Ryanair promises pilots significant improvements in pay and conditions; Renault targets 44 pct sales increase by 2022; German industrial orders jump on vibrant demand from abroad; Ash Grove Cement gets up to $3.8 bln bid, beating CRH offer.
In commodity markets, oil is down very slightly at about $56.90 as investors weigh up the approach of another tropical storm in the Gulf of Mexico and the prospect of output cuts by OPEC and others.
Copper is down just 0.1 percent at $6,692 a tonne.
Emerging stocks, edging higher on the day ahead of U.S. payrolls, are on track for a 2 percent weekly rise, the best gain since August. Solid advances across some Asian markets help the index, with Hong Kong adding 0.2 percent, edging closer to a 10-year high thanks to Chinese automakers and financials.
As the dollar U-turn continues and the greenback hits a seven week peak on tax reform hopes, many emerging currencies are trading a shade lower with the Turkish lira weakening 0.3 percent to touch a fresh 12-week low.
Most currencies are in line for weekly falls: South Africa’s rand and Turkey’s lira both on track to end the week about 1 percent weaker in their fourth week of losses.
Russia’s rouble on track for a 0.3 percent loss in the second week in the red. South Africa also just released forex reserves, which edged higher but fell short of expectations in September.
Brazil inflation is due later and expected to come in below target.
In combination with stocks hitting record highs on Thursday as the economy seems to recover faster than expected, the number will be scrutinised to gauge the likelihood of more rate cuts to come.
S&P reviews Russia, Saudi Arabia, Romania, Morocco, Belarus, Ghana, Montenegro.
Editing by Robin Pomeroy