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Daily Briefing: Spain's Catalonia - stand-off deepens
September 19, 2017 / 7:22 AM / in a month

Daily Briefing: Spain's Catalonia - stand-off deepens

Catalan pro-independence supporters attend a meeting for the referendum on October 1 in Girona, Spain, September 18, 2017. REUTERS/Albert Gea

LONDON (Reuters) - The often surreal stand-off between Spanish national authorities and leaders of the region of Catalonia enters new territory today as the first of hundreds of local mayors appears before the prosecutor for backing an illegal Oct. 1 independence referendum.

Marc Solsona, mayor of the town of Mollerussa, is among 740 municipal leaders facing charges that could run from civil disobedience and abuse of office to misuse of public funds. Spanish police have also raided print shops and newspaper offices in a hunt for voting papers, ballot boxes and leaflets, while Catalonia’s top court has warned newspapers not to publish campaign notices for the referendum. Years of separatist feeling are set to come to an unpredictable head in less than two weeks.

As Theresa May seeks to get a grip on divisions within her own party and government over Brexit, the only major UK party still unabashedly calling for Britain to remain in the EU has its day in the sun at the seaside resort of Bournemouth today.

The teaser of Liberal Democrat leader Vince Cable's speech to the autumn party conference, released overnight, suggests he will call Brexit a looming disaster and demand a new referendum on quitting. Although Cable’s message may struggle to be heard for now, the LibDems' aim is to become a lightning rod for anti-Brexit feeling they believe will rise as the economy weakens.

Turkey today hosts naval exercise with NATO allies off its southwest coast that will be seen as a test of its commitment to the alliance amid worsening relations with European members, notably Germany, over human rights concerns. Ankara’s plans to buy a Russian air defence system that is incompatible with the NATO system has also raised eyebrows. Today’s exercises focus on a specific task - training on how to rescue stricken submarines.

MARKETS

There’s been some pullback from new highs in Asia overnight after another record-breaking session on Wall St, even though Japan’s return from Monday’s holiday saw the Nikkei surge almost 2 percent and MSCI’s world stock market index has already eked out another all-time high today.

The latest hurricane to make landfall in the Caribbean has done little to deflect market sentiment although the dollar index is lower and euro/dollar popped briefly back above $1.20 in early trading.

Sterling steadied after Monday’s recoil as Bank of England chief Carney insisted any UK interest rate rises over the coming months will be gradual and limited.

The instinctive caution in major central banks even when tightening monetary policy has been one of the significant boons to this long-running bull market, and Carney’s latest tilt speaks to that yet again as eyes switch to Washington on Wednesday for the Federal Reserve’s latest policy decision and press conference. With UK fixed income markets rushing last week to price in up to three interest rate rises over the next 2-3 years, the chances of a rowback are high.

The other big story on Monday was the near-40 basis point slide in Portuguese government bond yields after Standard & Poor's restored the country’s investment grade late last week. The 10-year yield kept declining on Tuesday, losing another 6bp to 2.43 percent in early trading. Elsewhere, U.S. Treasury yields slipped back after Monday’s sharp gains. Brent crude held steady about $55.50.

European stocks are expected to open flat, with the big data point of the European morning likely to be the release of the German ZEW September sentiment index. Hungarian forint trades just off two month lows against the euro before a central bank meeting which is likely to loosen monetary conditions further by either boosting liquidity or cutting overnight deposit rates further into negative territory from the current 0.05 percent. Budapest stocks hit a fresh record high on Monday in anticipation.

Editing by Hugh Lawson

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