Summary:
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Catalans vote in snap regional election on Thursday
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Polls remain unclear, CatComu could be a king-maker
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SPA35 (IBEX futures underlying) is close to a crucial support area
Regional parliament unilaterally declared an independence of Catalonia from Spain two months ago. In turn, the Spanish government triggered the Article 155 for the first time and called for a snap regional election in rebelled region. The vote is held on Thursday. In this analysis we discuss the potential result of the election and take a look at SPA35 (IBEX futures underlying).
What has happened since independence referendum?
Separatists have been always an important force in Catalonia, but the conflict burst at the beginning of October when the illegal independence referendum was held. According to the pro-independence activists, 90% of voters were in favour of breaking ties with Madrid but it’s worth noting that the turnout was less than 50%. After a few weeks of protests, threats from the Spanish Government and contradictory signals from leaders of separatist groups, the regional parliament unilaterally announced the declaration of independence. Madrid was quick to respond with triggering the Article 155 sacking the regional government, dissolving Catalan parliament and calling early election on 21 December. Moreover, former ministers were jailed as they were investigated on suspicion of rebellion and President of the region, Carles Puigdemont went into exile to Brussels. PM Rajoy put in charge of Catalonia its own minister until forming a new local government.
Who will win the election?
The polls ahead of the election look messy as no party can achieve the majority of 68 mandates in 135-seat Catalan parliament. The main pro-independence parties, ERC and Puigdemont’s JuntsXCat, could get together 40%. The radical anti-EU CUP backed these parties in 2015 but even with its support, the coalition could get around 47% of votes. However, the separatist camp is split this time. ERC doesn’t want Puigdemont to lead the coalition once again. In case of reaching the agreement between separatists, CatComu could be a king-maker in forming a new government. CatComu is a coalition of left-wing parties including Podemos, the Greens, and the United Alternative Left. This group was in favour of independence referendum. The polls close at 8:00 pm on Thursday.
Regardless of the outcome of the election, it should not break the deadlock in relations between Barcelona and Madrid. Separatists say their focus will be on “dialogue” with the Spanish government and there are no plans for new “symbolic declarations” of independence. Nevertheless, a democratic mandate from Catalans could be a sign for them to pursue dreams of independence.
CatComu could be a king-maker in the regional election in Catalonia. Source: FT
Why does Catalonia matter?
It’s crucial for Madrid to keep Catalonia in Spain. The Northeastern region accounts for nearly 20% of Spanish GDP. Moreover, the success of Catalan separatists could encourage pro-independence activist in other parts of the fourth biggest economy in the euro area.
SPA35 defends crucial support
SPA35 is close to a key level from a technical standpoint. The benchmark could re-test a support zone located in the vicinity of 10,000 pts. If bears prevail, then the index could move back into the descending channel aiming at 9,630 pts (a local resistance from the beginning of 2018). On the flipside, a rebound from the nearest support could initiate a larger rally as the benchmark lags behind its European peers. The first relevant resistance may lay around 10,300 pts (23.6% FIbo retracement of the latest large upward wave).
