Spanish Stocks, Bonds Under Pressure After Catalan Vote

12/22/17 03:38 AM EST
By Riva Gold and Lucy Craymer 
   -- Euro edges down after Catalan election 
 
   -- Spanish bond yields climb 
 
   -- IBEX 35 drops in early trading 

A victory for Catalonia's separatist parties sapped demand for Spanish assets and the euro on Friday, even as stocks in Asia and the U.S. were on track to end the week on an upbeat note.

Spain's benchmark IBEX 35 index fell 1.5% shortly after markets opened and the wider Stoxx Europe 600 index edged down 0.1%. Shares of Banco de Sabadell shed 3.7%, and Bankia shed 2%, among the day's biggest decliners.

Catalonia's separatist parties won a majority in a vote on Thursday for a new assembly, keeping alive the threat of secession from Spain.

Divisions within the secessionist movement over how to achieve independence mean they now face hurdles to form a pro-independence government, opening a period of uncertainty over relations between Catalonia and Madrid.

Spanish 10-year government bond yields rose to 1.515% on Friday from 1.467% at Thursday's settle, signaling a modest decline in prices, while German bond yields were little moved.

The euro was last down 0.2% at $1.1854, after falling to as low as $1.1817 shortly after the vote. Still, many analysts were skeptical the development would maintain pressure on the common currency or meaningfully weigh down European markets for long.

"While the results were a blow to Prime Minister Rajoy, no unilateral independence declaration is set to follow this time, which should also limit market worries," said strategists at Nordea.

European equity funds extended their longest outflow streak in over 13 months in the week leading up to the vote, according to fund-tracker EPFR Global, suggesting some of the risk is already reflected in the market.

Earlier, Asia-Pacific stocks were poised to end the week modestly higher in muted trading ahead of the holidays.

Equities in the region were helped by a rebound in European stocks and mild gains on Wall Street in the previous session. Shares of U.S. banks and energy firms rose Thursday to help major indexes snap two days of declines.

South Korea--one of Asia's worst performers Thursday--edged up 0.4% on Friday after four straight declines. Japan's Nikkei rose 0.2% and the Hang Seng added 0.5%.

Many investors expect gains in Asian stocks to carry on through the year-end holidays.

"It's hard to imagine equities not being held up going into December-end due to a bit of year-end portfolio fluffing," said Tim Kelleher, head of foreign exchange institutional sales at ASB Bank in New Zealand.

Later Friday, the U.S. releases the price index for personal-consumption expenditures--the Federal Reserve's preferred inflation gauge. Investors will be watching closely as many cite a rise in inflation as a key market risk for 2018.

Volatility returned to bitcoin as the cryptocurrency fell 15% before paring some of its losses.

Jeannette Neumann contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Lucy Craymer at Lucy.Craymer@wsj.com

 

(END) Dow Jones Newswires

December 22, 2017 03:38 ET (08:38 GMT)

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