EM (Strate)gist gets to the gist of Emerging Markets FX, Bonds, Economics, Politics and Global Macro.

  • LinkedIn Social Icon

An online resource dedicated to news, information and insight for EM and Global macro investors.

  • Intro

  • Calendar

  • Strategist's Notebook

  • Signals Project

  • Reference

  • Investment Principles

  • More

    Featured Posts

    Deep dive - Peru stocks: Neutral EPU ETF. Qualifies for World Cup, not (yet) for OW stance (vs MSCI LatAm)

    November 22, 2017

    ECB recalibration amounts to diluting the punch bowl, not removing it – Add to strategic short EUR

    October 27, 2017

    Trade idea - Strategic long cyber-security, ETF ticker = HACK

    November 23, 2017

    1/10
    Please reload

    Recent Posts

    Trade idea - Strategic long cyber-security, ETF ticker = HACK

    November 23, 2017

    Deep dive - Peru stocks: Neutral EPU ETF. Qualifies for World Cup, not (yet) for OW stance (vs MSCI LatAm)

    November 22, 2017

    Trade idea - Stay short AUD, -3% to 0.73 by end-Dec within reach

    November 21, 2017

    Design Thinking, meet Design Trading

    November 15, 2017

    Week Ahead – Risk Events & Opps: US CPI & Congress tax gap (long UST), UK CPI & May leadership gap (short GBP)

    November 13, 2017

    Con-Cor Model: Long EU equities esp. Poland, India/Vietnam vs short Mideast, Mexico/Brazil, Thailand/Shcomp, oil

    November 6, 2017

    Week Ahead – Risk Events & Opps: Trump in Asia (KRW hedge), Congress tax bills (UST curve), RBA/RBNZ (AUD-NZD), softer Mexico (Mexbol)

    November 6, 2017

    Snapshot of Weekly Allocation, Performance & Post-mortem (SWAPP): 4 Nov-17

    November 4, 2017

    Week Ahead - Risk Events & Opps: Russian ghosts, Treasury goblins, hawkish BOE ghoulishly underpx'd

    October 29, 2017

    Snapshot of Weekly Allocation, Performance & Post-mortem (SWAPP): 28 Oct-17

    October 28, 2017

    Please reload

    Search By Tags

    aapl

    allocation

    argentina

    ashare

    aud

    audnzd

    australia

    boe

    boj

    brexit

    cac

    catalonia

    chf

    china

    cnh

    concor

    cpi

    czech

    czk

    draghi

    ecb

    epu

    eur

    eurjpy

    eurozone

    faang

    fb

    fed

    gbp

    gold

    huf

    ibex

    india

    japan

    jpy

    kospi

    krw

    latam

    merval

    mexbol

    mexico

    nflx

    nok

    nzd

    oil

    performance

    peru

    pln

    post mortem

    principles

    rba

    rmb

    rub

    saudi

    sek

    sgd

    sgdcnh

    south africa

    spain

    swap

    swapp

    thailand

    this week

    toolkit

    trump

    try

    turkey

    twitter

    twtr

    uk

    ust

    vix

    weekahead

    zar

    Please reload

    Follow Us
    • Twitter Metallic

    Catalonia referendum: 'Worst case scenario' escalates Madrid-Barcelona showdown – Sell Bonos, Ibex

    Monday, October 2, 2017

    Spain: Worst case scenario from Catalonia referendum point to heightened Madrid-Barcelona showdown, likely independence call – Sell Bonos vs Bunds, Ibex (esp. Catalonia corps eg Caixa Bank)

     

     

    • Strategy implications: Results and press coverage from Sunday’s referendum are pointing towards the worst-case scenario (written about in our Week Ahead): Increased showdown between Madrid and Barcelona – with either govt unlikely to reverse course/change tact anytime soon. The two central and regional govts share key weaknesses – they’re both: 1/ Unstable (minority-led), 2/ Can’t be seen by their constituents/political partners to relent and 3/ Both believe they can unilaterally impose their will on the other (Madrid by royal constitution and Barcelona by popular democracy). And these commonalities help to explain the currently intractable situation as well as the developments over the last 1-2mths that led up to this showdown. Trade ideas:

      • Fixed Income: Spain Bono-Bund spreads are likely to continue its rise towards pre-French election wides (150bp vs Monday open: 120bp).

      • Equity: Shorting Ibex is likely to (finally) prove profitable after frustrating (and premature) shorts over the past month. Expect Catalonia-based corporates to underperform – including CABK. Although Caixa Bank has underperformed the Ibex over the past 1mth, it is still an outperformer ytd (+30% vs benchmark: +9%, vs 19% Santander).

      • EUR: Developments will add to a modest short-term bearish EUR bias already weighed by lack of a Germany coalition-building (until Lower Saxony elections next week) and USD upside from US tax reform reflation this week (see Week Ahead).

     

    Visuals: Spain Bono-Bund spreads and Ibex - 5yr and 2017 ytd (Bloomberg, 2 Oct-17)

     

     

    • What’s new?: The Sunday referendum was going to be a ‘numbers game’ and by two key metrics – turnout (2.3m out of 5m eligible) and victory margin (90% “Yes”) – it was a resounding victory for Catalan leaders who had expressed comfort with declaring independence on just 1.8m votes (‘gracias’ or ‘gràcies’ Madrid, whose interference may have inadvertently upped the symbolic "Yes" votes and probably kept Catalan 'remainers' away from polling stations).

      • Spain PM Rajoy seemed out of touch when on Sunday night, he praised police for their “calmness” in defending the constitution. As polling stations prepared to open at 9am, police in riot gear smashed doors and dragged protesters, beating some with batons and firing rubber bullets at others. Puigdemont described the crackdown as an “unjustified, excessive and irresponsible use of violence.”

    • What’s next?: The large victory margin coupled with a Catalan leadership promise to respect the vote suggests that Pres. Puigdemont is likely to move forward with an independence declaration by Friday, 6 Oct. This is a significant day to call for independence as it marks exactly 83 years since the same 1934 proclamation by Catalan martyr Lluis Companys (Wiki) during Francisco Franco’s dictatorship.

      • Madrid is likely to continue to attempt to delegitimize the process – though if the perceived heavy-handed approach (that we’ve seen thus far) continues, this would only risk: 1/ Emboldening Catalans further, 2/ More criticism/blame within PM Rajoy’s govt (watch reaction from Basque Nationalist partners) and 3/ Less sympathy from the international community. If the situation stays protracted, there may be increasing talk of a ‘no confidence’ motion, though opposition parties would need to rally around a rival candidate for that to succeed.

      • Don’t expect the EU to answer Catalan Pres. Puigdemont’s appeals for support – given sensitivities towards regional movements elsewhere (eg Wallonia).

      • Risk to the above baseline scenario is that Catalan leaders are arrested, but this would only delay/not resolve underlying forces. Situation likely to stay uneasy.

     

     

     

     

     

     

    Tags:

    spain

    catalonia

    ibex

    Please reload

    • Intro

    • Calendar

    • Strategist's Notebook

    • Signals Project

    • Reference

    • Investment Principles

    • More

      CONTACT US

      Email: strategist@emgist.com

      ​

      ​Disclaimer: All communication on EMgist.com is provided for information purposes only, it is general in nature and does not take into account the objectives, financial situation or needs of any person. You should consider whether it is appropriate for you and seek independent advice before acting on it. EMgist.com is not acting in an advisory or fiduciary capacity and all communication is not an offer or recommendation to buy or sell any product or enter into any transaction. EMgist.com does not guarantee the completeness or accuracy of any information presented on this site. You should do your own independent research before making any decisions.

      ​