The Catalan crisis deepened in Spain over the month, however, with official regional elections set for December 21, continued uncertainty and a small deceleration in fourth-quarter gross domestic product (GDP) are likely to be the only outcomes. We agree with our Morgan Stanley economists and see eventual independence as unlikely.1 The dispute over the independence of Catalonia had little impact on the Spanish market, with MSCI Spain slipping -1.7% during October.2
The European Central Bank (ECB) announced it will scale back net asset purchases from €60billion to €30billion per month from the start of 2018, for nine months – with no explicit deadline for the end of the quantitative easing (QE) program. Morgan Stanley economists still see the first depo rate hike of just 15 basis points (bps) to -0.25% happening in March 2019.3
The trade-weighted U.S. dollar (USD) appreciated against all the major currencies (+1.4% versus Euro) and oil prices rose by 8% over the month. Sterling was affected by ongoing political uncertainty surrounding the Tory party conference and Brexit negotiations.
All the major economic data in the U.K. show an economy that is still expanding. The Office for National Statistics (ONS) reported that the unemployment rate had slipped to 4.3%, or the lowest level since 1975. At the beginning of November, the Bank of England raised interest rates for the first time in a decade, signalling that more clarity over Brexit is needed before seeing further hikes.
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