Markets continued to strike an optimistic tone. US equities indices touched fresh new highs for yet another week. This was driven by robust Q3 2017 earnings releases and hopes of US tax reforms after the US Senate passed a budget plan that will now move to the House for resolution.

And the global economy still looks to be in fine shape: US economic indicators held up, with the Philadelphia Fed manufacturing survey up higher than expected and weekly jobless claims falling to the lowest level since 1973, underscoring the strength of the US labour market. In Asia, China’s September activity and Q3 GDP data were mostly in line with expectations. India’s September trade deficit narrowed sharply on further recovery in exports.

In politics, the Japanese elections had concluded with the ruling parties (LDP/Komeito) winning a landslide victory, holding on to more than two-third majority in the lower house elections. The LDP on its own won around 60% of the seats, implying a high likelihood that Prime Minister Shinzo Abe will be re-elected in the LDP Presidential election in September 2018. This also means continuity of current fiscal and monetary policies. A 2% inflation target is likely to remain in place, and so will the current strategy of supporting weak JPY and higher equities to pursue this target. Elsewhere in Asia, the 19th Communist Party Congress is ongoing and will be concluded tomorrow. Few new details on policy had been delivered thus far. Emphasis appeared to remain on implementing measures of supply side reforms, strengthening innovation, and SOE reforms.

The list of core figures in the upcoming Chinese government will be of interest this week, as the list of the Central Committee members and Politburo Standing Committee are to be released. On a more interesting note, political developments in New Zealand caught the market by surprise. The incumbent National Party was relegated into opposition after the NZ First Party announced that it will form a coalition government with the Labour and Green Party. Policy uncertainty is likely to put pressure on the NZD in the near term.

This week, a lot of attention is likely to be placed on Europe. The ECB will meet on Thursday, providing a conclusion to the ongoing debate of if and how the central bank will announce the start of QE tapering at this meeting. Europe’s flash PMI data will also let us know whether the positive momentum of the European economy is holding up. Finally, what happens in Spain will likely be on investors’ radar as well. Tensions were up after Spain’s prime minister, Mariano Rajoy, announced on Saturday that he was stripping Catalonia of its autonomy and imposing direct rule from Madrid. There is probably little that the Catalonian government can do except upping the war of words and stoking emotions. Risk will be civil unrest. Impact on the markets is likely to be localised and contained, but a possible drag to European equities and the currency nonetheless.