LONDON (Reuters) - Catalonian leader Carles Puigdemont last night came up with a fudge on the independence question that pleased virtually no one but financial markets - which are at least relieved that tensions have eased for now.
His move to claim the right to independence while at the same time suspending any practical steps towards it bitterly disappointed his many supporters in the streets and was given short shrift by the Spanish government, which still argues he is flouting the law.
Prime Minister Mariano Rajoy’s cabinet has called an emergency session this morning to consider next steps in a stand-off which is still set to drag on for weeks.
Britain's Theresa May holds her regular question time in parliament today amid local headlines about how she repeatedly refused in a radio interview yesterday to say how she would vote on Brexit if given a second chance. Allies have leapt to her defence, saying it is perfectly reasonable for her not to answer a hypothetical question. But others are asking why May, who very quietly backed Remain in last year's vote, did not simply give full-throated support to the Brexit goal now that it has become official government policy.
The Italian cabinet on Wednesday will hold two votes of confidence to try to force a contested electoral law through the lower house Chamber of Deputies. The new system would allow the formation of broad coalitions before the ballot - a factor that would likely hurt the anti-establishment 5-Star party, which refuses to join alliances.
The party, which tops many opinion polls, says the reform could cost it up to 50 parliament seats in an election due by next May: it has called on it supporters to stage a mass demonstration.
Spanish equity futures, government bonds and the euro have all rallied after Catalan leader Puigdemont stopped short of an outright declaration of independence. While the Spanish government insists they do not recognise this month’s referendum or Catalonia’s right to breakaway, Foreign Minister Alfonso Dastis said early on Wednesday that there was room for talks within the framework of the Spain’s existing constitution.
A protracted standoff over the issue is now widely expected, but local markets have reversed some recent losses as an instant fracture has been avoided.
IBEX futures are up 1.6 percent, more than regaining Tuesday’s 1 percent drop, and Spanish bank shares were marked as much as 4 percent higher The gap between Spanish and German 10-year government bond yields narrowed 7 basis points to 118bp, meantime, while euro/dollar climbed to its highest in two weeks at $1.1834.
More broadly, euro stocks indices were effectively flat despite Wall Street clocking up new records overnight and the MSCI world index following suit this morning.
Asia stock indices hit their highest in a decade on Wednesday, with Japan’s Nikkei closing at it highest since 1996 and Seoul’s Kospi hitting record highs.
A fresh wave of optimism this week has been hit by strong incoming economic, the International Monetary Fund’s second successive upgrade of its global economic outlook and the approach of the Q3 corporate earnings season.
BlackRock kicks off the U.S. reporting later on Wednesday. The dollar’s retreat this week has also helped world markets, with Federal Reserve policy minutes the key macro event later today. Brent crude oil is firmer, just shy of $57.
Editing by Jeremy Gaunt