An unconstitutional independence referendum in Catalonia yesterday has sent shockwaves around the globe, as Spanish police used brute force in an attempt to prevent voters casting their ballots. The euro and Spanish stocks are both under pressure following this as Spain plunges into arguably its greatest constitutional crisis in four decades.
Vast majority vote for secession
Carles Puigdemont, the president of Catalonia appears on course to declare independence from Spain after Sunday’s vote returned an overwhelming victory for the “yes” campaign. Despite the concerted brutal efforts of Spanish police to prevent the vote taking place, more than two million people voted for secession from Spain and even though the turnout was understandably low (projected somewhere around 40%) the result was a resounding victory for those hoping for independence. The Spanish government have repeatedly stated that the vote was unconstitutional and therefore held no power, but the events yesterday have gained a global audience and pressure is mounting on officials in Madrid.
Spanish stocks open lower; euro sold
The leading stock market in Spain, the IBEX 35, has dropped by more than a percent this morning as the turmoil in Catalonia weighs on investor sentiment. Bond yields have also spiked higher in what is quite a clear sign that the perceived risks surrounding the Spanish economy have risen markedly over the weekend. Catalonia is the most prosperous region in all of Spain and with a GDP approximately equal to Portugal, independence would leave a sizable hole in the Spanish economy. Having said that though, the selling so far is fairly well contained and is a far cry from the pandemonium that ensued following the Brexit vote last summer. This is clearly due to the vote being non-binding and not recognised by Spain, and therefore despite 90% of votes being in favour for independence, a secession remains far from a sure thing.
Within half an hour of the market opening in Madrid, the index had dropped by 200 points but since then the low has held and we currently sit more than 100 points off the lows. The euro has been steadily declining since reopening last night, with the EURUSD falling below the 1.18 handle.
UK manufacturing misses
The most recent data on the UK manufacturing sector has come in worse than expected, with the PMI reading for September falling to 55.9 from 56.7 previously. The pound has seen some immediate selling since the release, dropping to its lowest level in almost three weeks against the US dollar. The data point itself is still fairly strong and even though it missed consensus forecasts it shouldn’t be enough of a reason on its own to cause a sustained drop in the pound. The service sector equivalent, released this Wednesday, is more widely viewed and the flow in sterling of late remains of the feel of a pullback following the surge higher in mid-September rather than a major reversal.
EasyJet shares take-off as Monarch folds
The stock of easyJet (LON:EZJ) is rising higher this morning, building on last week’s gains after rival airline Monarch ceased trading. In the early hours of this morning news broke that Monarch had fallen into administration, cancelling all flights and leaving an estimated 100,000+ customers stranded abroad. The decision to fold for the 5th biggest airline in Britain could affect upwards of 700,000 passengers. The news comes on the back of a pleasing recent performance for easyJet shares whilst investors in Ryanair (LON:RYA) will be feeling similarly positive at the development, as it has offered something of a reprieve to the Irish firm after a terrible couple of weeks. EasyJet had been reported to be one of a number of parties in talks to save Monarch, but this seems for now to have fallen through, and the failure comes as a fairly significant boost to rivals who have seen the budget airline market grow increasingly competitive in recent years and bordering on saturation.