Weekly Analysis
Typography

In Catalonia, the autonomist agenda is still being held hostage by the radicals, preventing the reopening of talks with the central government......

The latter is the only reasonable option to overcome the crisis, but experience teaches that processes of this kind are not always guided by reason. However, the economic cost of a potential secession should soon become more evident even in the eyes of the separatists.

United States. The hurricanes will influence monthly data, but not the main underlying trends of the economy: growth above potential and core inflation below the 2% target.

- The confrontation between the Spanish government and the Catalonian secessionists is harshening further. The separatists had called an extraordinary session of the Catalan Parliament to ratify the result of the controversial referendum held on 1st October and to set the stage for a unilateral declaration of independence, but the move was blocked by the Spanish Constitutional Court. Furthermore, several Catalan officials have been indicted for insurrection. The suspension of the parliamentary session could have the effect of winning some time to reflect less heatedly on what the next moves should be. However, the suspension may be bypassed by the calling of a new session, therefore tensions could surge back on Monday. The negative economic consequences of the secessionist drift are becoming more evident, as the first signals of a capital flight from Catalonia materialise, and with the announcement of the two major Catalan banks, Caixa and Sabadell, of their intention to move their legal headquarters outside the province, in order to reassure depositors about the continuity of safeguards provided by national public bodies. The European Union has again warned that a unilateral secession would mean an exit of Catalonia from the European Union, contrary to the reassurances offered by the secessionists to their electors until as recently as yesterday. Some Catalan nationalists are calling for an end to unilateral acts and the reopening of a dialogue on autonomy with Madrid, which we still consider to be the likeliest outcome of the crisis. On the other hand, it is unthinkable that the Madrid government will accept talks to begin unless the Catalans stop prospecting unilateral declarations of independence. The PSOE, albeit with some internal dissent, has also conditioned the opening of negotiations to the scrapping of plans aimed at a declaration of independence. However, despite the doubts which are starting to stir within the separatist front, the agenda still seems to be in the hands of the radicals, who keep fanning the flames. Therefore, we cannot as yet entirely rule out the risk of the crisis spiralling, forcing Madrid to revoke Catalonia’s status as an autonomous province and placing the provincial government under administration.

- US macroeconomic data for September are impacted by the effects of hurricanes Harvey and Irma, creating volatility in the near term, but without changing the largely positive overall picture. The September Employment Report is a case in point: non-farm payrolls decreased by 33k, versus a 12-month average of +152k. The decline of employment in September is the other side of the coin of the sharp (temporary) increase in jobless claims, and reflects the effects of hurricanes Harvey, at the end of August, and Irma, in the Employment Report survey week. Based on the past experience with Katrina (August 2005), employment is likely to remain weak in October as well, and subsequently rebound towards normal levels in the following months. The ISM surveys, on the other hand, were positive across the board, and signalled a further acceleration in growth tied to a recovery in activity and to the post-hurricane reconstruction process. Auto sales surprised strongly on the upside, scoring an extraordinarily fast reversal after the August correction: as a result, expectations for retail sales, due out on 13 Oct., point to a sharp rise, pointing to consumption growth close to 3% q/q ann. in both 3Q and 4Q. As for prices, the headline CPI should be up strongly again in September (due out on 13 Oct., forecast: +0,5% m/m), whereas the core index is estimated to rise by 0.2% m/m. Given the composition of the indices, however, the core PCE deflator should increase at a more modest pace, by 0.1% m/m, in line with the previous four months. As the quarter progresses, demand indicators should stay upbeat, driven also by post-hurricane reconstruction, whereas employment and prices should return in line with their previous trends. The Fed and the markets are not expected to react to the temporary volatility in monthly data.   


Appendix
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