Spanish Stocks, Bonds Under Pressure After Catalan Vote

12/22/17 05:11 AM EST
By Riva Gold and Lucy Craymer 
   -- Euro, Spanish stocks down after Catalan election 
 
   -- Bitcoin takes a tumble 
 
   -- U.S. inflation eyed 

A victory for Catalonia's separatist parties in a regional election sapped some 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% in morning trading while the wider Stoxx Europe 600 index edged down 0.1%. Shares of Banco de Sabadell shed and CaixaBank shed 2.5% and 1.8% respectively, with Spanish lenders among the day's biggest decliners.

Catalonia's separatist parties won a majority in a vote Thursday for a new regional 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.

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.

While the results are considered a blow to Spanish Prime Minister Mariano Rajoy, few expect another unilateral independence declaration soon, and there are few signs Spain's growth has been dented in recent months.

"These events are very uncertain and difficult to predict and investors are focused on economic growth and earnings growth," said Jon Adams, investment strategist with BMO Global Asset Management. Among political concerns in Europe, "We're more worried about Italian elections and German coalition talks," he added.

Spanish 10-year government bond yields rose to 1.529% on Friday before paring gains to 1.480%, up from 1.467% at Thursday's settle. German bond yields edged down to 0.408% from 0.416% previously. Yields move inversely to prices.

European equity funds extended their longest outflow streak in more than a year 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. Spain's IBEX 35 is down 1.5% so far this quarter, compared with a 0.6% gain for the Stoxx Europe 600.

Elsewhere, bitcoin slumped to $13,200 from $15,800 in barely three hours during Asian trading, and was last at $13,457, according to CoinDesk. Bitcoin has wiped out one-fourth of its market value in the past 24 hours and lost about $121 billion of its total market value in less than a week.

This year alone, it has posted five separate drawdowns of 20% or more from an all-time high, according to Bespoke Investment Group.

Many of the other big cryptocurrencies also fell significantly, with Bitcoin Cash prices slumping by one-quarter at one point over the past day.

Futures pointed to a 0.1% opening gain for the S&P 500, on track to end the week higher ahead of the Christmas holiday. Shares of U.S. banks and energy firms rose Thursday after several companies pledged to share the benefits of Republicans' tax cuts with their employees, snapping a two-day losing streak.

Congress also passed a stopgap spending bill to keep the government funded through mid-January, avoiding a looming shutdown.

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.

"We've seen some wage pressures building and the tax bill could come into effect next year at the same time we see temporary dampening pressures on inflation unwind," said Mr. Adams, pointing to factors such as telecom pricing and medical costs.

Earlier, Asia-Pacific stocks were mostly higher in muted trading ahead of the holidays.

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%, ending the week with gains.

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.

Jeannette Neumann and Steven Russolillo 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 05:11 ET (10:11 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.