Traders are mindful of Catalonian Independence news could hit the newswire anytime
The US ADP data is always parsed for hints about the upcoming US NFP number

European markets and US futures are trading lower as investors are caught on Catalan independence situation. Even though Catalan President Carlos Puigdemont didn’t announce independence last night, which was widely expected of him, traders are mindful of the fact that the announcement could hit the newswire anytime. This datum is triggering the sell-off in the market. As long as the guessing game carries on, we expect the Spanish equity market to remain under pressure.

Over in the US, the US ADP data is always parsed for hints about the upcoming US NFP number (due tomorrow). There is a correlation between the ADP and NFP but not a strong one. Traders usually take their clues from the ADP number. The impact of the hurricanes was prominent. Companies employed the least number of workers (135K) in a year. Back in 2005, Hurricane Katrina had an even worse influence on the ADP number as it was pushed into the negative territory. Similarly, Hurricane Sandy wasn’t pleasing either as the ADP printed 130K in November 2012, which was below from the three month average of 189K.

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We expect the US non-farm to yield a number which could be below the consensus forecast of 60K. Small businesses have felt the most influence of destruction caused by Irma which hit Florida in September. However, past experience explains that this negative impact does fade away fairly quickly and the evidence of this can be seen in the auto sales number which has experienced a sharp rise. We expect developers to hire more workers to construct and rebuild the impacted areas.

The dollar rally is dependent on two things; the economic data and Trump’s pick for the next Fed chair. Despite the blowout ISM non-manufacturing number yesterday, the dollar index hasn’t exploded and this tells us that the economic data isn’t providing the kind of tail which helped the dollar rally. So, it must be Trump’s pick for the next Fed chair. It is almost given that how the market could perceive each candidate depends on who becomes the next Fed chairperson. Kevin Warsh is perceived as the most hawkish person amid other candidates which would trigger flattening treasury yield and aggressive rate hikes. Yellen coming back would keep the volatility suppressed.


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