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Spanish Politics: Negative for Madrid Stocks, Positive for Government Bonds

Spanish Politics: Negative for Madrid Stocks, Positive for Government Bonds

2019-02-13 12:00:00
Martin Essex, MSTA, Analyst and Editor
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Spanish stock and bond prices, news and analysis:

  • A snap general election in April looks likely in Spain, with the uncertainty generated likely to weaken the Madrid stock market and bolster Spanish government bond prices.
  • That follows the decision by both Catalan independence parties to vote against the Socialist government’s budget draft, which has therefore been rejected by the Spanish Parliament.

Funds likely to flow from Spanish stocks to bonds

The prospect of snap Parliamentary elections in Spain, perhaps in April, will likely drive money from the Madrid stock market into Spanish government bonds (Bonos) as political uncertainty rises.

On Wednesday, two Catalan independence parties voted against the Socialist government’s 2019 budget draft and as a result the proposal was rejected by Parliament. This has increased the chances of elections and will likely keep the main IBEX 35 stock market index under downward pressure.

Madrid Stock Market Price Chart, Daily Timeframe (January 9, 2018 – February 13, 2019)

Latest Madrid stock market price chart.

Chart by IG (You can click on it for a larger image)

By contrast, the political uncertainty will likely push money into the relative safety of Bonos, raising prices and lowering yields.

Spanish 10-Year Government Bond Yield Chart, Daily Timeframe (October 9, 2018 – February 13, 2019)

Latest Spanish government bond yield chart.

Source: Investing.com (You can click on it for a larger image)

For the Euro too, these developments are arguably negative. However, the impact could be offset if polls suggest a victory for the two center-right parties – the People’s Party and Citizens – as these would likely be seen as more market-friendly than the left-wing PSOE and Podemos parties.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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