What's going on?

Spain�s political crisis deepened on Friday, with Catalonia declaring independence and the Spanish government imposing direct rule on the region. The uncertainty is holding Spain back from joining a European upswing in stocks and bonds…

What does this mean?

A few weeks ago, Catalonia held a contested independence referendum that came out in favor of secession. The standoff between Catalonia and the Spanish government has since escalated, and the Spanish government has dissolved the Catalan parliament following the Catalan independence declaration.

Catalonia is important to the Spanish economy, so its disruption is taking quite a toll on Spanish investments. Catalonia hosts over 7,000 foreign companies and is the most productive region in Spain. But the political instability is creating uncertainty (which isn�t good for business!) � since the referendum, 700 companies have moved their headquarters out of Catalonia and tourism has dropped by 15%.

Why should I care?

For markets: Investors sold Spanish stocks and bonds, with Catalan banks hit the hardest.


Spanish stocks fell 1.5% on Friday, and Spanish government bonds fell too. Catalan banks were the among those that dropped the most, with Sabadell down 5% and CaixaBank down 3%, despite these banks having already relocated their headquarters out of Catalonia since the referendum.

The bigger picture: Spain is missing out on a European rally.


European stocks and bonds had a strong day on Friday, keeping up their momentum from the previous day when the European Central Bank announced it would withdraw its support more slowly than investors had been anticipating (more info here). French stocks hit their highest level in nine years and German stocks reached a new record high. Despite investors� positive sentiments in the rest of Europe, concerns of political uncertainty further disrupting the Spanish economy (the eurozone�s fourth largest) are prompting caution from investors in Spanish markets.