Sterling and the yen are gaining against the dollar while the other major currencies are little changed, and emerging currencies are mixed. Sterling’s has gained about 0.35%, mostly in the European morning, and appears largely driven by demand on the crosses, especially the euro. It is still within the pre-weekend ranges against the US dollar and euro.  

The yen has been lifted by the decline in equities and US yields. The dollar had appeared to break higher before the weekend, but succumbed into the close, dragged down by the reversal in stocks. The bottom of the triangle pattern that the dollar has been carving out since last August is found near JPY119.30 today.  

There are four developments to note to start the week. First, China reported a sharp 8.8% decline in industrial profits.  This follows a 2.9% decline in July. It is the largest decline in at least four years. Profits in the resource sector have been particularly hard hit.  Profits from coal mining are off nearly 65%, and oil and gas by more than 67%. Falling prices, low return on investment (excess capacity) and exchange rates, are the main considerations. This report underscores the economic headwinds in China. It has fanned speculation of a stronger policy response, with talk of a new 10-point plan to be unveiled shortly. The PMIs are the main economic data points this week, and then China’s markets close for a few days in early October. 

Second, the Catalonian election results stopped short of an overwhelming victory from the secessionists. The main coalition for independence secured 62 of 135 seats in the regional parliament and garnered just shy of 40% of the vote. The left CUP took another 8.4% of the popular vote for 10 seats in parliament. The CUP had previously said it would not support Mas as regional president. It is not clear, though, is Spain’s Prime Minister Rajoy is the big winner. Voting in Catalonia shows the Popular Party lost about half of its representation, with the Ciudadanos rose sharply (three-fold) as the main beneficiary of the unionist vote. Spanish assets have responded well to the electoral outcome. The IBEX is off by 0.25% while most of the bourses in Europe are off around 1.5%. Ten year Spanish bond yields are off 9 bp, which is 5-6 bp more than other EMU sovereigns.