Barcelona and Madrid are on a Collision Course

European stock markets narrowly mixed, Spain, U.K. outperform. The DAX is taking a breather today after reaching record intraday highs on Wednesday, but at over 12900 the index remains in overbought territory. CAC 40 and Italian MIB are also slightly in the red, but the Spanish IBEX has managed to claw back some of its recent losses, as the central government in Madrid is taking a hardline stance against Catalonia and Economy Minister Guindos tries to reassure investors that independence won’t happen. Tentative requests for talks from Barcelona were slammed down. Nikkei and ASX 200 closed virtually flat on the day. The Hang Seng meanwhile outperformed again and was up 0.73% in the end, as China remains closed for a holiday and property developers remain sought.

There is no sign that Barcelona and Madrid will back down from their cBarcelonation course. A rare appearance by the Spanish King on TV did little to deescalate the situation, as he backed Madrid and PM Rajoy without commenting on the violence that surrounded the referendum. The central administration in Madrid, which already declared the referendum illegal, won’t accept that and in theory could take control of the autonomous region, but applying even more force is unlikely to bring a solution and would only play into the hands of Catalonia’s leaders as they try to get backing from the EU. So far EU officials refused to be drawn into the conflict, partly because they fear setting a precedent for separatist movements elsewhere in the Eurozone. They have also made clear that an independent Catalonia will no longer be part of the EU.

ECB’s Nowotny Said QE should slow down carefully from early 2018

The Austrian central bank head repeated that bond purchases should not end abruptly, thus backing expectations that the QE program will be extended, but with reduced monthly purchase volumes. Interestingly Nowotny speaks of slowing down, rather than phasing out, which leaves open the crucial issue whether the ECB will commit to a full tapering schedule, that is to a firm end date for QE just yet.

The SNB’s Jordan said that the Swiss Franc remains at highly valued level. The Swiss central bank head repeated that there is no need for the SNB to change the monetary policy stance as “the situation on foreign exchange markets remain fragile”, adding that negative rates and SNB intervention remain necessary tools as inflation remains very weak.