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The optimistic close for equities witnessed last Friday looks like it will be difficult to replicate as the new trading week begins, with stocks under pressure as investors seek to rotate out of growth-correlated assets.   A double-whammy of geopolitical event risk over the weekend is one of the main culprits for the slide lower in equity futures, with escalating pro-democracy protests in Hong Kong resulting in police using tear gas and pepper spray to control the crowds.   The protests are in response to Beijing’s decision to allow fully democratic elections in 2017, with the pro-democracy camp now calling for the resignation of top officials before ending the demonstrations.   While the Chinese government has left it up to the Hong Kong police to deal with the protestors, there is growing concern that Beijing could step in with a greater amount of force is the situation doesn’t cool and they get the feeling they are starting to lose their grip on Hong Kong.   Bank branch closures and overall nervousness saw the Shanghai Comp crater by 1.9%, though the Nikkei managed to squeeze out a 0.5% gain during its session.

Less immediately relevant but still important to the weekend events was the action of the President of the Spanish region of Catalan authorizing the independence referendum for November the 9th.   While the vote is not a surprise given the close outcome of the recent Scottish election, the weeks leading up to the polls will dictate how European assets perform given how much concern there will be over the potential for an independent Catalan.   The Euro has managed to find some buying interest midway through the European session on better than expected inflation figures out of Spain and Germany, with Spain seeing a modest easing of the recent deflationary pressures.   While Catalan independence fears could keep the common-currency from witnessing a sharp rebound, the potential for inflation to be at, or near a cyclical low, will help the Euro from slipping too much further, with EURUSD pivoting around the 1.27 handle ahead of the inflation measure for the overall zone set to drop tomorrow morning.

The commodity currency bloc is having trouble finding willing bidders this morning, dragged lower by softer commodity prices and the beleaguered Kiwi after the Reserve Bank of New Zealand confirmed the central bank sold $521M NZD over the month of August in order to put downward pressure on its currency.   Not stopping there, New Zealand’s prime minister was quoted saying that 0.65 level against the USD would be the “Goldilocks” level for the pair, putting further pressure on the Kiwi which is down over 1% on the day and through the 0.78 mark against the greenback.   The Australian dollar has caught an offer tone in sympathy to the developments in New Zealand, though the Loonie has managed to pare its earlier losses and is heading into the North American open essentially unchanged from where trading ended last Friday.

As we head into the North American open, assets associated with risk appetite are taking a beating, with yields on US debt lower across the curve as investors search out safety.   The early round of economic data wasn’t enough to buck the overall environment, though encouraging signs showed that personal consumption spending in the US increased by 0.5% in August, while personal income was in-line with estimates at a 0.3% increase.   The FOMC’s preferred measure of inflation in the PCE index slid from 1.6% to 1.5% on an annualized basis, giving Yellen and the doves on the board a further sense of comfort inflation is still under control for the time being.  The DXY is slightly lower before the opening bell and not seeing too much reaction to the economic numbers, though Pending Home Sales are on the docket for 10:00 EST.

Further reading:

The Fed’s most important inflation figure is unable to rise

German inflation remains at 0.8% y/y in September