HomeContributorsFundamental AnalysisSpain Could See Government Without Catalan Separatists

Spain Could See Government Without Catalan Separatists

Market movers today

Markets will continue to digest yesterday’s Spanish election result (see below).

In the euro area the economic confidence indicator for April is due out and it shall be interesting to see if it also points to a lacklustre start to Q2, in line with the latest PMIs. Loan growth data for March will also be released, which markets will keep an eye on to gauge how favourable the ECB will design its new liquidity operation (TLTRO3) when details are announced in June.

In the US, focus today reverts to the inflation front with the PCE figures for March. The Fed’s communication recently has put more weight on the inflation dynamics and therefore it will be interesting to see whether the PCE core rate shows a further decline from 1.8% in February.

In Sweden, we get trade balance figures for March and in Denmark focus is on business confidence data.

Later this week, Q1 GDP data out of the euro area, Chinese PMIs as well as the Fed meeting and US job report will be in focus.

Selected market news

In the Spanish general election yesterday the Socialist Workers’ Party (PSOE) emerged, as expected, as the election’s winners by gaining 29 per cent of the popular vote, and thus obtaining some 123 seats (out of a total of 350). The result sees the number of PSOE seats increase by 38 on the 2016 elections and most importantly gives the PSOE options to form a government possibly without the need of Catalan separatist parties, whose place in a Spanish government would be highly problematic given the still unresolved Catalan question, and result in a higher probability of a hung parliament. Instead the PSOE’s leader and sitting Prime Minister, Pedro Sánchez, could be able to form a majority government together with either left-wing party Unidas Podemos, whose election result at 14.3% (42 seats) was less bad than expected (2016 result: 21.1%, expected: 13%), the Basque nationalists and more moderate regional parties, or look across the centre towards Ciudadanos (low probability) or even govern a minority government. The far-right nationalist Vox, who is taking a hard stance against Catalan independence, gained 10% (24 seats) although mostly at the cost of the centre-right PP (16.7%, 2016 result: 33%) losing more than half its seats, leaving the Spanish right wing more fragmented than ever. Given the options of the PSOE the election outcome should be marginally positive for markets. In any case Spain has shown some resilience towards political uncertainty as of late and we remain positive on the Spanish economy.

Oil prices plunged on Friday after US president Trump was out saying he had called on OPEC to reduce crude prices. On Thursday, current waivers on Iran sanctions expire and the oil market could suffer a supply shortage if OPEC does not follow Trump’s call. This comes on top of last week’s increased uncertainty regarding Libyan oil exports following attacks on Tripoli by Libyan opposition, with fighting continuing this weekend.

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