European Stocks Rally to Fresh Highs but are Capped by Spanish Shares

European stock markets moved higher after a largely positive session in Asia, with U.S. tax hopes underpinning sentiment after the U.S. Senate adopted a fiscal budget resolution for 2018 Thursday evening which has buoyed sentiment. However, after reaching record highs during the week global markets seem reluctant to push things much further for now and in Europe markets are down from early highs, although both FTSE 100 and DAX are up around 0.30% on the day. In Japan, all eyes were on the election this weekend, and the Nikkei closed little changed with a marginal gain of 0.04% despite a weaker Yen. Hong Kong outperformed, as stocks bounced back from yesterday’s slump closed 1.2% on the day, leaving the index little changed on the week.

Spanish stock market feels pressure from Catalan conflict. As Madrid prepares to take direct control in Catalonia with legal steps to be taken at a special cabinet meeting tomorrow, Barcelona, in turn, is working on its response, with officials saying “the decision could be obviously the declaration of independence maybe one week or in two weeks”. Separatist groups today called on supporters to pull cash from lenders, including CaixaBank and Banco Sabadell, to protest the banks’ move of their legal domiciles out of the region.

German PPI Surged Higher in September

German PPI inflation jumped to 3.1% year over year in September, with higher energy prices the main driving factor for the acceleration from 2.6% year over year in August. Prices for oil products rose 7.5% year over year in September, after just 3.0% year over year in the previous month, and electricity prices jumped 8.9% year over year versus 1.6% year over year in August. More signs that at least in Germany inflation is heating up and wage demands suggest that the tight labor market will leave its mark and this week’s wage round.

The UK budget deficit narrowed in September to its lowest level in 10 years for this stage of the fiscal year. The public sector net borrowing requirement, ex lending to financial institutions, came in at GBP 5.9 billion, below the median forecast for GBP 6.5 billion. The caps what has been an encouraging trend in declining deficits, which should give Chancellor Hammond some leeway at its mid-fiscal year budget update next month.