European Stock Rally Stalls on Spanish Tensions -- 2nd Update
By Kenan Machado and Riva Gold -- Hang Seng, Nikkei end at 2-year highs -- Dollar, bond yields lower -- Spain weighs down European stocks
European stocks paused their longest winning streak in over two years Wednesday as tensions in Catalonia dragged down Spanish bank shares.
The Stoxx Europe 600 fell 0.3% midday after rising for nine straight sessions, the longest run since July 2015. Futures pointed to a 0.1% opening loss for the S&P 500 after it clinched a record high Tuesday, its 41st this year.
Spain's IBEX 35 index led global declines -- falling 2.6% and bringing this week's losses to 3.7% -- as investors continued to weigh the implications of escalating tensions around Catalonia. The king of Spain accused Catalan leaders of pushing the country toward a constitutional crisis Tuesday, with the region's officials pledging to declare independence within days.
Shares of Catalonia's largest banks, Banco de Sabadell and CaixaBank, fell 5.5% and 6.2%, respectively Wednesday, while Banco Santander fell 2.9%. The three banks have, however, significantly outpaced the average European stock in gains so far this year.
Moody's Investors Service this week warned the escalating conflict over independence could have negative credit implications for Spain because it complicates the legislative process. Yields on 10-year Spanish government bonds rose to 1.745% from 1.714% Tuesday, bucking a global trend of declines.
"Catalonia is such an integral part of the overall economy," said Patrick O'Donnell, senior investment manager at Aberdeen Standard Investments. Still, he doesn't see an immediate spillover to other assets across Europe because the situation doesn't pose an existential threat to the eurozone.
Companies making up the Stoxx Europe 600 index generate just 3.5% of their revenues from Spain, according to FactSet.
Yields on Italian debt have also climbed relative to Germany's ultrasafe debt this week and Italy's FTSE MIB Index fell 1.5% Wednesday, although many investors say that may have more to do with investor concerns about Italy's own political situation.