Europe open: Spanish spanner in the works as Catalan election plan backfires
Regional election results in Spain cast a pall over European stocks on Friday, as the Madrid government's move to reduce political uncertainty backfired as secessionist parties won a majority.
At 0830 GMT, Spain's Ibex index was down 1.1% at 10,182, having opened around 1.5% lower, while the euro had earlier tumbled sharply lower, hitting 1.1815 against the dollar before rebounding slightly to 1.1845. Spanish 10-year yields popped up on Friday morning, albeit only marginally.
The benchmark Stoxx 600 was just below water at 390.56, down 0.03%, while Germany's DAX was down 0.2% to 13082.68 and France's CAC lost almost as much to 5376.18.
With almost all the votes counted, Catalan separatist parties looked to have won a majority of 70 out of the 135 seats in the regional parliament, though unionists Ciudadanos were the individual party with the most seats, at 37.
Analysts at Barclays were optimistic that a moderation of the approach of the pro-independence parties and a halving of the seats for the Popular Unity party (CUP), the only one of the three pro-independence parties that still insists on a unilateral path towards independence. As a results Barclays said it "expect the de-escalation of the Catalonian crisis to continue".
Barclays said the other two pro-independence parties, Junts per Catalunya led by deposed Catalan president Carles Puigdemont and the Republican Left (ERC), seem to have "abandoned the unilateral path" and, though independence remains their long-term goal, have returned to the constitutional framework, signalling their willingness to establish political dialogue with the government in Madrid.
From an immediate market perspective, analyst Neil Wilson at ETX Capital said: "This remains a bit of a slow burner and it’s hard to assess where the political machinations will take us, but investors are wisely taking a little risk off the table," said.
"However the risk of Catalan independence remains low for the moment."
The fall in the euro came as traders factor in further political turmoil in Spain, said Jasper Lawler at London Capital Group, with political risk also being eyed in Germany as coalition talks to fill the political vacuum have already produced little result after several weeks.
"The calling of regional elections in Catalonia, Spain, appears to have backfired for the Spanish Government as the pro-independence parties won enough seats to form a regional coalition government. However, it remains to be seen whether these three parties are able to create a government between them, especially given their different views to solving the same problem," he said.
"Even if these three parties manage to form a coalition, we are unlikely to see a repeat of Octobers’ violent clashes on the streets following the illegal independence referendum. The road to independence will be a struggle given that Madrid currently rules over Catalonia and that outside of Catalonia most sided with Madrid and refused to acknowledge Catalonia’s independence. However most parties appear to agree that dialogue is the way forward."
There was little else on the economic calendar to distract traders, apart from some Nordic numbers and Italian confidence data, all of which was adorned in festive green.
UK national accounts are due at 0930 GMT.