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Escalating political tension in Catalonia worries Wall Street

Analyst reports, Stock Exchange publications and specialized press explain the pulse that is lived in Spain to investors

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Escalating political tension in Catalonia worries Wall Street

"Chaos in Spain". Chaos in Spain. That was headline of news bulletin on markets that published on Thursday morning CNN Money, shortly before opening of Wall Street, after decision of Government of Mariano Rajoy to bring to its last consequences article 155 of Constitution Spanish. "It is last in a series of confrontations as a result of controversial referendum," he explained. The following topics quoted as key to day were Brexit and slowdown of China.

The references to Catalan political crisis have been constant for three weeks. The American media have placed issue even among alerts y launch to mobiles. The CNBC financial chain highlighted Thursday how Spanish government tries to control derivative sovereignty. The passage given by Madrid, he said, "was expected." But he warned that he can lead to formal rupture of Catalonia if he refuses to dialogue.

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Article 155

"It is difficult to predict intensity with which central government will respond when applying article 155," he explained from JPMorgan in a note to his clients, "we expect m to do so in a gradual way." Among measures, he pointed out, leaders of Catalan government by revolt and rebellion could be prosecuted in Constitutional Court, and suspended from ir functions. The key to measuring eventual impact that crisis can have on markets, coincide in New York parquet, will refore be in "intensity and duration" of this situation of disorder.

The political crisis, explains Canadian credit analysis firm DBRS, coincides at a time when Spanish economy grows stronger, with a higher yield than its peers in Europe. "It's more competitive, flexible and resilient," he values. It is a trend, he adds, that he should follow next few years. But y are cautious and point out that financial volatility has increased as a result of referendum.

The rating agency Moody's has issued several English-language analyses focused on Catalonia in recent weeks. He still thinks that option of rupture is "unlikely" despite tug of war that Madrid and Barcelona are waging. Independence, in any case, would have unknown implications. "The process creates significant risks as well as potential consequences for economy and finances," firm warns. Moody's keeps Spanish solvency note intact, such as Standard Poor's. However, y have under surveillance that of Catalonia because of implications of such an extreme. The main fear is that it triggers similar disputes in or regions. ING economists fear that combined effect of Catalonia and lack of reforms "stick a bite to recovery."

Volatility by uncertainty

Neuberber Berman's global investment managers believe that time has come to "take a deep breath" and step back to avoid extreme measures that raise tension. "A negotiated solution must be reached." This situation does not benefit anyone, y say in ir analysis. "I do not think y are interested in corporations leaving, nor will y be members of institutions such as World Trade Organization and will be a country with 7.5 million inhabitants, which is currently economically dependent on Spain and rest of European Union", The firm is advancing.

The firms also underline that political uncertainty in Spain creates volatility in currency market. The euro is at this time best indicator to measure future implications of process. At moment an appreciation of 12% is maintained this year against dollar. But Catalonia, analysts explain, contributes to a fifth of Spanish economy. The dispute over separation, refore, will present challenges for both parties.

"It would not dismiss a fall of euro as a reaction," tell its clients strategists of Global ACLS, although y need to be limited. Anor story would be, y added, that "let's see people marching through Belgium or norrn Italy with flags of Catalonia saying we are next." The hope, refore, is that crisis is in place, so that its effect remains in something only psychological.


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