Spain has been in the news lately and the news is not good. Violence and protests have beset the country in recent weeks with Catalonia rising against Spain in a bid for independence. This results that European Stock Market under pressure because of Spanish turmoil.
Markets across Europe were down thanks to the twofold effect of the political turmoil in Spain as well as the not so good data readings from the US job market.
European Stock Market
The Stoxx Europe 600 Index saw a drop of 0.4% on Friday, bringing the weekly gain down to 0.3%, to reach 389.47 basis points. The entire week saw the Stoxx see-sawing up and down due to the tumult in Catalonia.
This is worst political crisis to hit Spain in more than 4 decades with Catalonian separatists demanding independence from Spain. A week ago on Sunday, the regional government of Catalonia had attempted to hold elections to vote for independence, which led the Spanish central government to arrest numerous Catalonian officials as well as capture polling stations to try and stop the voting process. This move led to clashes between central police and local law enforcement.
The turmoil has been further exacerbated by a large groups of people, including a majority of Catalonians, protesting against this bid for independence. However, one report states that of the 2.26 million votes cast on Sunday, 90% were in favor of a separation from Spain.
The northeastern region of Spain, Catalonia, is one of the wealthiest regions of the country. Barcelona, Girona and Tarragona, some of Spain’s largest cities are in Catalan. This region contributes to 20% of the country’s economy. Locals feel that the country has been siphoning their resources without taking care of them. Resentment amongst separatists against the central government is high because of this. The King of Spain unfortunately sided with the Madrid, causing further bitterness.
Things have been made worse with a decree from the central government which gives corporates permission to remove their operations from Catalonia. Amongst the companies that have threatened to leave the region are Banco de Sabadell and Gas Natural. The reasons they are citing are that they wish to ease investor worry about investing in a region that may no longer be a part of Spain.
Pressure from other parts of the country, the business sector as well as other countries such as France is bearing down on Catalonia not to split from Spain. France has stated that it will not recognize Catalonia as an independent state. Businesses have threatened to pull out of the region and there have been mass demonstrations from across the country, especially in Madrid and Barcelona, to keep Spain united.
Thanks to all this chaos, the Spanish stock market saw its worst day in 15 months. The IBEX 35, Spain’s stock market index, dropped by 2.9% to close trading at 9,964.90. The last time the index dropped so low was on June 24, 2016, when Brexit was announced. This is the first time since March that the IBEX has dropped below the 10,000 mark.
Thanks to investor unease, the 10-year government bonds also saw a rise of 1.1771% or 6 basis points.
All banks closed lower last week, with CaixaBank SA down by 5%, Banco de Sabadell down by 5.7%, Bankia SA down by 3.7%, BBVA dropped by 3.6% and Banco Santandar SA dropped by 3.8%. Overall European stock market seriously facing the big pressure because of Spanish turmoil.
Overall, the markets went up and down the whole of last week while Spain struggled with its political crisis. The rest of the European markets were not too affected at the beginning of the week. However, the latter half of the week saw the Spanish drama finally impacting the Stoxx 600.