Abe Wins in Japan with Tax Reforms and Referendums Driving the Dollar and the EUR

Earlier in the Day:

Some snap election gambles pay off and Prime Minister Abe demonstrated how to take advantage of an opposition party in disarray on Sunday by not only winning, but by a supermajority that will now enable the ruling Liberal Democratic Party and Komeito coalition to revise the constitution and deliver sweeping constitutional reforms, whilst also supporting Abenomics’ continued fiscal policy that has brought the Japanese economy out of the dark ages and raise the prospects of another term for current Bank of Japan governor Kuroda.

Both Prime Minister Abe and BoJ Governor Kuroda had been largely written off by the critics, with the Prime Minister’s popularity not only having been in free fall, but in the red at the onset of the election campaign.

In response to the election result, the Nikkei rally continued through this morning’s session, up 1.18% at the time of writing, with the Yen down 0.13% at ¥113.67 against the Dollar. Expectations are now for both monetary and fiscal policy to continue to support the Japanese economy.

There were no material stats out of Asia for the markets to focus on, with the markets now expected to return focus to the U.S and trade, coupled with the U.S President’s continued desire for a weaker U.S Dollar.

The Day Ahead:

With key stats out of Europe limited to the UK’s October CBI Industrial Trend Orders, focus will remain on Spain through the European session as the markets look to see how the Catalan government responds to the Spanish government’s threats of removing their powers.

Spanish Prime Minister Rajoy will need to be careful as the numbers of those in support of Catalan independence seemed to rise over the weekend, with previously non-pro-independence voters shifting allegiances, which could provide even more support for populist parties across Europe ahead of Italy’s General Election.

A possible political shockwave remains plausible despite the Netherlands, France and Germany’s mainstream managing to get through this year’s elections.

At the time of the report, the EUR was down 0.12%% at$1.1770, with noise from Spain the key driver through the day.

With stats out of the UK on the lighter side and unlikely to be of material influence, the Pound will be licking its wounds after last week’s data and some particularly dovish BoE Monetary Policy Committee member commentary that suggests a November rate hike may not be as assured as the markets suggest.

Despite a possible shift in sentiment towards monetary policy however, the Pound managed to stay steady ahead of the European open, up 0.06% at $1.3198, supported by the relatively positive news from last week’s EU Brexit Summit on progress and negotiators entering into phase 2 of Brexit talks.

Progress will continue to be a focal point for the markets, with the talk of a ‘no deal’ outcome certainly not in the best interest of businesses that are now looking to push for some form of a transitional agreement for when Britain’s 2-years are up.

Across the Pond, the direction of the Dollar will likely be dictated by updates on how leads the race to become the FED Chair on 4^th February, with current Chair Yellen, voting member of the FOMC Jerome Powell and Stanford economist John Taylor seemingly in a three horse race, with the implications on policy certainly quite contrasting between Stanford and the more dovish front runners Yellen and Powell.

At the time of writing, the Dollar Spot Index was up 0.05% at 93.751, with no material stats scheduled for release out of the U.S this afternoon to distract the markets from the talk of tax reforms and on who has edged out in front to become the next FED Chair, an announcement on the new FED Chair now expected at any time.