“The Catalan Vote…..”

The Catalan Vote

Catalan election on 21^st December gave voters another chance to express their view as to whether the region will persist with its drive for independence or remain within Spain.  The vote was called in October when the Spanish Prime Minister Mariano Rajoy fired the Catalan government and dissolved the regional Parliament following a declaration of independence by separatist lawmakers.   Several members of the ousted Cabinet, including ex-Catalan president Carles Puigdemont, were campaigning from Brussels after taking refuge from Spanish justice.  Uncertainty over the future of the country’s biggest regional economy has derailed a rally where the IBEX 35 Index has lost 8 percent since a peak in May which had made the said index the top performer in Europe for 2017.  Pro-independence parties won back control of Catalonia in Thursday’s regional election as Prime Minister Mariano Rajoy earned a historic defeat.  With nearly all votes counted, separatist parties won a slim majority in Catalan parliament a result that promises to prolong political tensions which have damaged Spain’s economy and prompted a business exodus from the region.   Although the Catalan vote on independence in October has disturbed the markets, value investors are now eyeing the country’s economy, which has grown faster than the rest of Europe every quarter since 2014.  Yesterday’s result battered Spanish stocks with Spain’s IBEX falling as much as 1.1 percent as European Bourses opened.  Furthermore the premium investors demand to hold Spanish bonds over top-rated German peers widened 6 bps to around 111bps at one point.

Germany and Business Sentiment

After hitting an all time high in November, German business morale has unexpectedly deteriorated according to a survey arising from the political deadlock. Chancellor Angela Merkel is struggling to form a stable government after her conservatives lost voters to the far right in September’s election and her attempt with a three way alliance with two smaller parties failed last month.  The Munich based Ifo economic institute said that business climate index based on a monthly survey of some 7,000 firms edged down to 117.2 from an upwardly revised reading of 117.6 in November which was the highest on record.   The December reading came in lower than a Reuters consensus forecast for a value of 117.5.  The slight drop was driven by managers’ less optimistic business expectations while their assessment of the current situation was more positive.  The Ifo institute said last week it expected an expansion of 2.6 percent next year, as a broad upswing, is generating record-high employment and buoyant tax revenues.

Brexit

Michel Barnier the European Union Chief Negotiator, used an interview with the Guardian newspaper which was published late Monday to rule out a special deal for the UK financial services industry and warn that Britain will have to abide by any new rules drawn up by the EU during a transition period after leaving the bloc.  He said that the decision to leave the EU single market rules out passporting arrangements which allow British financial services companies to trade in the EU.  This will be a blow for banks that are already eyeing alternative cities such as Frankfurt to move some of their staff.  His comments underline the determination of the EU not to let the UK enjoy the benefits of membership after leaving.  Meanwhile, May’s core Brexit team met to discuss what kind of trade deal the UK will seek with the bloc when talks start early next year.

US – The Revised Tax Bill

The US Congress has appeared certain to pass sweeping tax legislation this week after two Senate Republicans agreed on Monday to support a tax overhaul backed by President Donald Trump.  The package of tax cuts for businesses and individuals would overhaul the US tax code for the first time in more than 30 years and give Republicans their first major legislative victory of Trump’s presidency.  Republicans insist that tax cuts will drive US economic growth higher and create jobs. On the other hand, Democrats who oppose it describe the legislation as a giveaway to corporations and wealthy Americans that will add $1.5 trillion to the federal deficit over the next decade while raising taxes on some middle class tax payers.  Both the Senate and the House must approve the measure before Trump can sign it into law.  The Senate voted 51-48 to pass the Republican tax overhaul plan. Following a very last minute revision to comply with the Senate chamber rules, the bill will go back to the House for another vote before it is sent to President Donald Trump to sign.  GOP lawmakers will turn their attention to preventing a government shutdown before the cut off on Friday.

Saudi Arabia

Saudi Arabia said that air defences intercepted a ballistic missile fired by Yemen rebels at the royal palace in the capital, Riyadh.  The Iranian-backed Houthi militants said they targeted a meeting of top Saudi officials at the al-Yamamah palace, which is the official residence of King Salman and headquarters of the royal court.  Saudi Arabia is leading a military campaign against the Houthis in Yemen, and shortly after the missile launch, alliance aircraft struck Houthi positions south of the Yemeni capital, Sana’a.  Saudi Arabia and Iran already support opposing sides in conflicts across the Middle East and after the rebels fired a missile at the international airport in Riyadh last month, the coalition warned that the failed attack could be considered “an act of war against the kingdom of Saudi Arabia”.

Oil

Oil has climbed to $64 a barrel on Tuesday supported by the Forties pipeline outage in the North Sea, by the OPEC supply cuts and expectations that US crude inventories fell for a fifth week.  Shale production will rise to a record in January according to a government forecast published on Monday, as higher prices will encourage companies to pump more.  Brent crude, the global benchmark, was up 16 cents to $ 63.57 a barrel, while US crude gained 31 cents to $57.47.   The unplanned closer of Forties, since last week, has supported Brent in particular.  The deal reached by the OPEC countries and non-member producers including Russia, to cut supplies since 2014, has also boosted prices.  The agreement and its allies has been extended until the end of 2018.  As a result oil inventories are falling globally.

Amtrak Crash

An Amtrak Crash train making the first ever run along a faster new route hurtled off an overpass south of Seattle on Monday and spilled some of its cars onto the highway below, killing at least three people, injuring dozens and crushing two vehicles.  Federal investigator says that the train was travelling at 80 mph in a 30 mph zone.  There were 80 passengers and five on-duty crew on board when the train derailed and pulled 13 cars off the tracks.  Authorities said there were three confirmed deaths and more than 70 people were taken for medical care including 10 with serious injuries.

Bitcoin – Stricter rules for Prevention of Money Laundering and Terrorism

The European Union Member States and legislators agreed on Friday on stricter rules to prevent money laundering and terrorism financing on exchange platforms for bitcoin and other virtual currencies according to a statement by the EU.  This move is part of a broader set of measures to tackle financial crimes and tax evasion.  EU legislators also backed stricter controls on pre-paid cards, and raised transparency requirements for the owners of trusts and companies.    The agreed measures will end anonymous transactions on virtual currency platforms and with prepaid payment cards, which investigators said could have been used to fund attacks by militants.  Under the new rules, Bitcoin exchange platforms and “wallet” providers that hold the cyber currency for clients, will be required to identify their users, which now must be formally adopted by EU states and European legislators and then turned into national laws within 18 months.   The decision by the EU has come from the rise in bitcoin prices of more than 1700 percent which has triggered worries that the market is a bubble that could burst.  Bitcoin was trading on Wednesday at $16,626.42 in Hong Kong, down about 15 percent from a record high on Monday.

EU to Tighten Rules for Investment Firms

The European commission has proposed under a bill on Wednesday for the ECB which is the EU’s executive arm, to assume oversight of companies classified as “systemic”, while smaller firms would become subject to a new regime that is more tailored to their activities.  The larger firms are mostly units of major investment banks.   The proposals will need to be approved by the European Parliament and the EU’s member states to become law.

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