Spanish stocks and the euro fell, while Spanish government bond yields hit their highest levels in over a month after Catalan secessionists delivered an unexpected blow to the government of Spanish PM Rajoy by winning the Catalan regional election. Meanwhile across the Atlantic, U.S. equity futures and the dollar rose on the last trading session before the Christmas holiday. The MSCI index of world stocks was flat.
Europe’s Stoxx 600 Index traded sideways as Spain’s Ibex 35 underperformed, dropping as much as 1.6%. Spanish stocks dominated Europe’s biggest fallers, confirming analyst expectations that any shake-out from the Catalonia vote would be mostly confined to Spain. Spain’s bonds also fell along with peripheral European government debt, though bunds were little changed after a selloff this week drove yields to five-week highs. For those who missed it, Catalan separatist parties triumphed in regional elections, outperforming some polls and reigniting Spain’s political trauma. While the Euro has stabilized since, it suffered a mini flash crash in the illiquid aftermath of the Catalan election news, momentarily dipping to $1.1817 before trimming losses to last stand at $1.1853, down 0.2 percent.
“This is Groundhog Day, we have been here,” said Christopher Peel, chief investment officer at Tavistock Wealth. “I just don’t think the Spanish government can do anything other than come to the table now.” He added that thin liquidity due to the holidays could be accentuating what he called a kneejerk reaction on the IBEX. “Likely there’s some hedge funds leaning on it, but in terms of long-only money I don’t think there will be much movement now.”
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