The Euro remains a cause for concern for investors at present, following the current political unrest in Northeast Spain. Recent developments have meant that Catalonia is expected to declare its independence in the coming week.
The reason why this is such a headache for the Euro is that Spain is the Eurozone’s fourth largest economy and the Catalan region contributes 19% to Spain’s economic growth. Any separation is likely to cause Euro weakness, it’s a question of whether the Spanish government will allow this to happen. Not only this but a Catalan break up from Spain could cause longer term weakness and uncertainty for the Euro. Pandora’s box may well be opened as there are many other smaller states wanting independence. Namely, would this open the door for Scotland leaving the UK in the future?
Economic performance highlights potential Euro strength further down the line
I personally think that the current situation in Spain is masking any economic performance. September’s range of Eurozone PMI data pointed to a robust performance last month.
Reports have highlighted that Eurozone firms struggled to keep up with factory orders last month, positive signs for October too. This is the strongest growth for the region in 6 and half years, and positive news as the European Central Bank (ECB) now look to start unwinding the Quantitative Easing (QE) program in the coming months.
When will the ECB adjust Eurozone Quantitative Easing?
Some analysts are predicting a change to Eurozone monetary stimulus to be announced as early as this month’s policy meeting on the October 26th. Other analysts are predicting the ECB will announce a 6 month extension to its program, with a definite date to start winding down QE to €40bn worth of government bonds being bought each month in January. Later today Mario Draghi, President of the ECB is expected to deliver a speech, any clues on what will be announced at the meeting on the 26th will likely cause volatility on the Euro.