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Spain: Period of political uncertainty – Rabobank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 21, 2015.

  1. FXStreet_Team

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    FXStreet (Delhi) – Jane Foley, Senior FX Strategist at Rabobank, suggests that a period of political uncertainty has kicked off in Spain following inconclusive elections at the weekend.

    Key Quotes

    “PM Rajoy’s People’s Party lost one third of its seats and, although it remains the largest party in parliament, the disappointing performance of the centrist Cuidadonos party means that a coalition between these two parties would still fall short of a majority.”

    “Spain’s election appears to mark the end of the two party political system that has dominated for 33 years with Rajoy’s PP party (now with 123 seats) and the Socialists (now with 90 seats) having alternated in power during that period. These two rival parties have ruled out a coalition. The upstart Ciudadonas party, the more natural partner for the PP, now has 40 seats while left wing Podenos, a potential partner for the Socialists, won 69 seats at the weekend election. 176 are needed to form an election. If a workable coalition cannot be formed, Spain could go to the polls again next year.”

    “This is not the first time that Spanish elections have produced a hung parliament as Spain have been led by a minority government before. However, in Sunday’s election the dominant party has fallen short of a majority in a far more extreme manner. Spanish bond yields have pushed higher this morning on the back of political uncertainty. Dependent on how long political uncertainty lasts and what is the eventually outcome, Spanish politics have the potential to remain a source of unease for the Eurozone. That said, we expect that for now Spanish yields spreads vs. the core should remain contained.”

    “The Spanish stock market opened lower this morning but most European bourse have pushed higher on the heels of a better tone in Asian stock markets overnight. Chinese shares climbed to their highest level in four weeks on speculation that the government will hasten reform of state owned enterprises and the better tone led other regional bourses higher. Japanese stock market indices lagged behind on the back of the relatively buoyant tone of the yen.”
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