The outcome of the recent general elections in Spain was such a patchwork that the job of forming a cabinet has become a nightmare. The Socialist leader taking on this awesome task finds himself trapped. Both the middle-of-the-road Ciudadanos party and the extremist Podemos movement flatly refuse any joint agreement to secure enough support in Parliament.
The FOMC statement after yesterday’s meeting failed to boost investors’ spirits. While acknowledging the US economy had faltered in the last quarter, the Fed showed no intention of switching from its current stance for the time being.
The political parties in Spain seemed unwilling to break the deadlock one month after the general elections had taken place. Then there was a dramatic emergence from the doldrums last Friday, when Podemos made a surprise call for a left-wing coalition headed by the Socialists.
Key economic data disclosed Tuesday by Beijing seems tailored to the official mantra that matters are firmly under control. So GDP supposedly showing a 6.9% increase in 2015 only marginally trims the 7% forecast given in January last year. Quite an amazing result which is in open contradiction to the rather stern measures introduced to stave off a slowdown.
The Popular Bank of China is trying hard to protect its currency from the current sell-off. Ever since it broke away from the dollar peg switching to a trading basket reference, the currency’s depreciation has gained momentum as its off-shore value continues to deteriorate. With the aim of bridging that gap, the PBoC raised the rates in the off-shore market beyond 60% last week. On Monday it imposed a 17.5% mandatory set aside for off-shore money holdings.
A last-ditch attempt on the part of separatist parties has brokered a deal for a new government in Catalonia. It came just in time, as the clock was ticking on new regional elections. The agreement forced incumbent President Mr Mas to step down, meeting the stone wall prerequisite imposed by the far-left CUP movement for providing its support. However he secured the job for a second-ranking member of his own party, thus keeping a firm grip on the political agenda.
Hopes for a soft landing in the Chinese economy are fading away. Focus sharpens on renminbi as it dips to increasingly low levels, challenging Central Bank’s massive interventions. China still commands sweeping foreign reserves but, over the latest months, they have shrunk by nearly one trillion dollars. Markets fear they could meltdown forcing a massive depreciation.
The Spanish Socialist Party is under heavy pressure in the aftermath of the general elections. The extremist Podemos movement nearly ousted it as the leader of left-wing sentiment. But neither can it support the ruling Partido Popular right away, nor risk blocking the forming of a new government and provoking another round of elections. It would pay a high price if it embarked on such a course of action.
Last Sunday’s electoral results in Spain have cast a gloomy outlook on prospects for securing a stable government. Markets were deeply disappointed as their bet for a centre-right coalition melted down. Ciudadanos performed worse than expected while Partido Popular scored a win but failed to secure enough support.
Janet Yellen’s delivery of a moderate rise in the Fed’s funds was bang in line with the market’s bets. She also conveyed a message of dovish commitment to thinking twice before engaging in any further monetary tightening. But despite her efforts to convince the markets that monetary policy will be back to business as usual, the cumbersome heritage of the liquidity glut will severely limit Yellen’s room for manoeuvre.