December 22, 2017 / 8:26 AM / 10 months ago

Daily Briefing: Beware the voter - Rajoy suffers Catalonia blow

BERLIN/LONDON (Reuters) - Time and again, European leaders have turned to voters in recent years to resolve their thorny domestic dilemmas.

People react to results in Catalonia's regional elections at a gathering of the Catalan National Assembly (ANC) in Barcelona, Spain December 21, 2017. REUTERS/Albert Gea

And time and again, it has backfired. Greece’s Alexis Tsipras tried it in 2015. Britain’s David Cameron and Italy’s Matteo Renzi tried it in 2016. And now Spain’s Mariano Rajoy has done it by triggering a vote in Catalonia that produced the result he didn’t want.

Rajoy's "silent majority" of unionists failed to materialise in an election in the wealthy Spanish region on Thursday despite a record high turnout of over 83 percent.

Instead Catalan separatists, their leaders in prison or exiled, defied the polls to win a narrow majority in the regional parliament. Rajoy could dismiss their hastily called independence referendum in October as illegal. It will be much more difficult for him to ignore the results of an election he called himself. The poor performance of Rajoy's own party, which won just three seats, only deepens the pain.

The result has pushed down the euro, pushed up Spanish bond yields and seems likely to weigh on European stocks.

It is another unwelcome blow for Europe after a year which began so auspiciously, with the feel-good victory of France’s Emmanuel Macron, but has hit roadblocks ever since. As 2017 ends, Germany is struggling to form a government, the EU is mired in a nasty rule-of-law dispute with Poland and Austria has just formed a government that includes the far-right.

An Italian election due in March could be very messy. And now, the Catalan secession conflict is sure to rumble on.

Also on Friday, Boris Johnson makes the first visit to Russia by a British foreign minister in five years.

And we’ll be on the lookout for further fallout from the Jerusalem resolution vote in the United Nations, in which Britain, France and Germany joined 125 other nations in defying Trump.

MARKETS AT 0800 GMT

Twas the night before Christmas and all through markets ... actually things are stirring.

The Catalan vote has resulted in a slim majority for separatist groups, deepening the political crisis in Spain. Spanish stock futures are around 1.2 percent lower as are futures for other European bourses, the euro has been dented and Spanish bond yields are up  around 5 basis points.

World stocks are on track for a fifth straight week of gains, as Asia followed through from a firmer Wall Street, which in turn took cheer from robust 3Q growth data. The news on the economic front is heartening from the euro zone too, with consumer confidence up in December and German consumers apparently feeling optimistic, as per surveys.

Bitcoin meanwhile plunges below $14,000 and is on track for a  30 percent drop off last Sunday’s record $20,000, with some attributing the fall to people moving into other cryptos.

The dollar index edges higher, though it’s down 0.6 percent on the week, while commodity currencies benefit from stronger metals prices – the Aussie is at a 1-1/2 month high to the dollar while the Canadian dollar is at two week highs, helped also by strong GDP data that indicates further policy tightening next month.

The rand likewise is up a quarter percent.

European shares: Spanish stock futures were sharply down on Friday after Catalan separatists won a slim majority in a regional election, deepening a political crisis which has caused a business exodus from the region and damaged the economy. IBEX futures were last down 1.8 percent, with European stock futures also pointing to losses of 0.3 to 0.5 percent across the board in early deals.

Banco Sabadell and Caixabank, the most heavily exposed to Catalonia, which moved headquarters after the independence referendum, will likely drop in early deals with euro zone financial stocks beyond Spain also likely to be shaken as political risk in the bloc rears its head again.

The euro’s merely modest overnight dip suggests much of the damage may be confined to Spain, though.

Editing by Alison Williams

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