October 9, 2017 / 7:30 AM / a year ago

Daily Briefing: Catalan crunch nears

LONDON (Reuters) - At the weekend it was the turn of the self-styled "silent majority" of Catalans against independence to make their voice heard with a mass rally in Barcelona that drew hundreds of thousands onto the streets.

Women wear masks during a pro-union demonstration organised by the Catalan Civil Society organisation in Barcelona, Spain, October 8, 2017. REUTERS/Enrique Calvo

That and moves by local companies to re-locate their headquarters elsewhere are putting pressure on Catalan leader Carles Puigdemont to hold back from declaring independence in a much-awaited local parliament session set for Tuesday.

Prime Minister Mariano Rajoy is out this morning telling a German newspaper interview there was no question of Spain being divided, insisting he will do "everything that legislation allows" to ensure that. More companies will hold board meetings later today to decide on possible relocations.

Angela Merkel at the weekend managed to avoid a split with her long-time Bavarian CSU allies which would have made forming a coalition all but impossible. To do that she had to agree to put a number - a net 200,000 - on the amount of people Germany would accept per year on humanitarian grounds, something she has always rejected in the past.

Normally that would go down badly with her other potential coalition partners, the Greens. But in reality reaching the target should be something of a formality - the number of people arriving in Germany fell to about 280,000 last year from 890,000 in 2015 and is seen falling further this year. More details of her pact with the CSU are to be revealed at a news conference today.

"Norway or nothing" - that is the buzzword doing the rounds in Brussels ahead of this week's round of Brexit negotiations. That is a reference to the growing belief that time is running out even to negotiate a bespoke transition arrangement with the UK before it leaves the EU, meaning it either goes out with no deal on March 31, 2019 or adopts the current arrangement which the bloc has with Norway - essentially full access to the single market with all the payments and obligations that entails. Not something most Brexiteers would go for.

On the current state of play in negotiations, the EU position at present is that it would take a miracle for a summit later this month to say they start to explore the future EU-UK relationship as London would like. With Theresa May today expected to tell parliament the ball is in the court of the EU, the two sides look as far apart as ever.

Meanwhile, May hinted at the weekend that she may be considering a cabinet reshuffle, raising the inevitable questions over whether foreign minister Boris Johnson will stay in post after a couple of high-profile sallies outside the official line on Brexit.


World markets continue on broadly buoyant settings, even if holidays are disturbing trading flows and local political tensions create some movement at the margins. With Tokyo and Seoul closed overnight and the U.S. markets also partially closed on Monday, global equity indices remained close to record highs. The lack of a clear signal from Friday’s hurricane-distorted employment report stateside has muddied the picture somewhat, with upbeat earnings growth seen as the big takeaway for Fed watchers.

Shanghai markets returned from a week’s holidays with gains of about 0.5 percent – absorbing last week’s September manufacturing reports and targeted monetary easing from the People’s Bank of China. HK shares were lower, however, with Chinese service sector readings out Monday more disappointing.

Spanish/German 10-year government debt premia narrowed to their lowest in a week after much bigger-than-expected demonstrations in Barcelona on Sunday called for Catalonia to remain Spanish and upped pressure on the regional government to back away from an expected unilateral declaration of independence as soon as Tuesday.

European stocks are expected to open higher. Sterling recovered some ground on Monday after steep losses last week as weekend press reports said British Prime Minister Theresa May could sack her foreign minister Boris Johnson, widely seen the leading cabinet advocate of a ‘hard Brexit’ and more confrontational approach in negotiations with the European Union.  

Brent crude oil prices were higher in early trading but remained below $56 after Friday’s sharp retreat.

The Turkish lira slid more than 2 percent against the dollar at one point on Monday after the United States and Turkey mutually scaled back visa services in a fresh sign of deteriorating relations between the NATO allies.

Stock specific moves in Europe revolve around Credit Agricole joining the queue of potential suitors for Commerzbank, in what could be the most significant M&A development of the year for pan-European cross border deals and the post-crisis banking industry.

Elsewhere, the Airbus CEO told employees to brace themselves as a corruption probe could lead to large corporate penalties. Talking about turbulence, Ryanair said its chief operations officer would resign from the end of the month, becoming the first executive to leave since the mess-up of flights cancellations in the thousands. Still in the airline industry, Germany's B.Z. newspaper reported that talks between the insolvent carrier Air Berlin and easyJet over the sale of up to 30 planes are at risk of falling apart.

Editing by Toby Chopra

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