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Spain’s political crisis continued

Although European investors welcomed further evidence of a strengthening economy during October, sentiment was dampened by mounting political turmoil in Spain and wider concerns surrounding Brexit. The ECB confirmed that it would extend its programme of asset purchases until September 2018 at the earliest, but will halve the rate of its purchases from €60 billion per month to €30 billion.

  • Spain’s Government took control of Catalonia
  • The insurance sector counted the cost of hurricane damage in the US and Caribbean
  • The EU’s chief Brexit negotiator warned that insufficient progress had been made in Brexit discussions

“Political tensions intensified in Spain during the month”

Although European investors welcomed further evidence of a strengthening economy during October, sentiment was dampened by mounting political turmoil in Spain and wider concerns surrounding Brexit. Over October, the Dax Index rose by 3.1%, while the CAC 40 Index rose by 3.3%.

Political tensions intensified in Spain during the month. Following the Catalonian region’s declaration of independence, Spain’s Government removed the regional Government and took control, calling regional elections in Catalonia for 21 December. European Council (EC) President Donald Tusk tweeted: “For (the) EU nothing changes. Spain remains our only interlocutor”; meanwhile, European Central Bank (ECB) President Mario Draghi said, “The importance of what’s happening is significant (but) to conclude now there would be financial stability risks will be premature”. Despite the developing political crisis, the Ibex 35 Composite Index rose by 1.4% over October as a whole, although the benchmark index experienced some daily volatility. Elsewhere in the region, Austria’s centre-right People’s Party polled the largest proportion of votes in long-awaited General Elections.

Michel Barnier – the EU’s chief Brexit negotiator – warned that insufficient progress had been made in the latest round of Brexit discussions, preventing both parties from beginning talks on the future post-Brexit relationship. According to M. Barnier, the fifth round of talks ended in “deadlock”. The EC stated that it was ready to move forward with discussions in December, subject to the UK reaching a financial agreement with the EU. The Federation of German Industries (BDI) warned that German companies with a presence in the UK should “prepare for the worst-case scenario of a very hard exit… anything else would be naïve”.

The ECB confirmed that it would extend its programme of asset purchases until September 2018 at the earliest, but will halve the rate of its purchases from €60 billion per month to €30 billion. ECB President Mario Draghi described the move as “downsizing” rather than a “tapering” of QE, saying that the economic outlook and path of inflation remain dependent on “continued support from monetary policy”.

European insurers were counting the cost of hurricane damage in the US and Caribbean during the month. German insurer Munich Re warned that costs would lead to the company making a loss during the third quarter, and Swiss insurer Swiss Re calculated that the insurance industry’s total insured market losses resulting from the hurricanes to be around US$95 billion.

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