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Video / 11 October 2017 at 7:33 GMT

From the Floor: Barcelona blinks, Spanish bonds tumble — #SaxoStrats

#SaxoStrats
   • Catalan leader calls for 'period of dialogue' with Spain
   • Move sees investors return to Spanish bonds
   • Asian stocks extend rally, Wal-Mart surges on buyback
   • Oil market recovering, funds remain long Brent crude

SaxoStrats
By Michael McKenna

Last night's address by Catalan regional president Carles Puigdemont had viewers wondering whether the breakaway region had or hadn't actually declared independence from Spain, but in the end the Catalonians blinked, calling for Madrid to respect the vote for secession but offering a "period of dialogue"in favour of an actual declaration.

"The market is not taking the prospect of Catalan independence particularly seriously," notes Saxo sales trader Althea Spinozzi, who adds that Spanish 10-year yields fell 10 basis points in the wake of Puigdemont's speech.

"This was the Catalans showing a weak hand," says Saxo Bank head of equity strategy Peter Garnry; "I think this ultimately increases uncertainty and we could see more large companies plotting their departure from Catalonia over the coming weeks."

Beyond Spain, Garnry reports that Asian shares continued to rally Wednesday, as have shares of US retail giant Wal-Mart on news of a $20 billion share buyback and projections of 40% growth next year in its online sales division (currently responsible for $11.5bn annually).

"I think Wal-Mart is doing all the right things to compete with Amazon," says Garnry. 

Wal-Mart shares rose 4% Tuesday:
Wal-Mart
Source: Saxo Bank 

Also on the recovery track is crude oil where Saxo Bank head of commodity strategy Ole Hansen sees the rebalancing process continuing apace ahead of Thursday's inventories report (delayed one day due to Monday's Columbus Day holiday).

Among the supportive factors for crude are Opec's continued confidence in its production cut deal with Hansen reporting that the cartel has even suggested that US shale producers may join in the cap agreement, an extremely unlikely development but one whose mention signals the group's bullish forecast for crude.

Finally, we have Federal Open Market Committee minutes out at 1800 GMT, with Saxo FX strategy head John Hardy saying that expectations are muted; the USD's present softness, likely driven by fading tax reform hopes and a stronger CNY, is boosting gold prices along with geo-risks.

For more on the dollar, as well as Greek bonds, the earnings season, and EURUSD, listen to the Morning Call in its entirety via the video link above.

Madrid
Madrid appears to have the upper hand in the Catalonian independence crisis. 
Photo: Shutterstock

Michael McKenna is senior editor at Saxo Bank

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