Summary:

• SPA35 down by more than 1% on the day
• The market has maybe now made a false break higher
• Political crisis to cost Catalonia 0.7% GDP

It’s been a fairly quiet end to the week for global stock markets so far today, with the session seeing fairly subdued trade in the most widely followed indices. The SPA35 has had a big day though, with the market dropping sharply and in doing so handing back the majority of the gains made earlier this week.  

 The SPA35 has now handed back the majority of the gains seen earlier this week and there is now a fairly long and threatening wick overhead on W1. Source: xStation

A fundamental reason that could be seeing some selling back in the index is news that yesterday a high court judge has issued an arrest warrant for Catalonia’s deposed leader Carles Puigdemont. Alongside Puigdemont a further seven members of the sacked regional government also face charges. Yesterday we reported that Rajoy had seemingly handled the highly sensitive situation well and his standing had in fact rose in recent polls. However, the latest move appears rash and ill-thought out and may in fact turn out to galvanise support for independence. 

 The SPA35 has fallen back into its prior range after what looks like a false breakout earlier this week. Source: xStation

What is clear is that all this is a drag on the Catalan economy and the longer it carries on the more negative it will be. The Independent Authority for Fiscal Responsibility (AIReF) believe the region will lose 0.7% of its economic activity due to the crisis with the fall in GDP potentially reaching 2.7% if the present levels of instability extend throughout 2018.