“Catalonia …..”

Catalonia

Ex-Catalan leader Carles Puigdemont was detained in Germany after entering self-imposed exile from Spain.  He faces up to 25 years in prison for organising an illegal secession referendum last year.  Spain’s Supreme Court ruled on Friday that 25 Catalan leaders would be tried for rebellion, embezzlement or disobedience and reactivated international arrest warrants for Mr Puigdemont and four other politicians who went into exile last year.  German police arrested Mr Puigdemont in the northern state of Schleswig-Holstein on a European arrest warrant issued by Spain.  He had arrived in Finland on Thursday to meet lawmakers and attend a conference as part of a campaign to raise the profile of the Catalan independence movement in Europe.  The European arrest warrant system in place since 2004 makes it easier for EU countries to demand extradition from other states in the EU.  The Higher Regional Court in Schleswig-Holstein will be responsible for deciding whether to grant Spain’s extradition request. Meanwhile, protests were held across Catalonia in which dozens of people were hurt in clashes with police.

Italy

A national election on March 4 ended up in a hung parliament.  The 5-Star Movement was the largest party and a rightist alliance, including the League and former Prime Minister Silvio Berlusconi’s Forza Italia party, emerging as the biggest bloc.  The 5-Star Movement and the right have enough seats in Parliament to govern Italy, but there are many impediments to such a deal in terms of policy mismatches and personality clashes.  On Saturday, the 5-Star Movement and the rightist alliance joined forces to elect 5-Star Roberto Fico as Speaker of the Lower House and Forza Italia veteran Elisabetta Casellati president of the Senate.  The 5-Star Movement leader Luigi Di Maio said that the 5-Star was keen on tax cuts, tackling youth unemployment, undoing recent cuts to pensions and increasing welfare measures for families.  Consultation to form a new government which will be led by President Sergio Mattarella, are expected to start early next month.

Brexit

UK financial regulators sought to reassure banks and insurers that they can rely on a transition period to ease their adjustment to Brexit.  The statements from the Bank of England and the Financial Conduct Authority are a good sign for the industry on the proceedings of the Brexit talks.  The EU is taking a more cautious road where regulators stress that firms need to prepare for a so called hard Brexit where talks could end up without a deal.  A transition period was agreed on in principle at an EU summit this month, in response to the calls from the industry for more time to implement their contingency plans.  The FCA reminded firms that the transition arrangements will not be set in stone until they are ratified as part of the withdrawal agreement.

China

In November, the central bank of China has issued draft rules on the country’s asset management in its efforts to close loopholes that have allowed regulatory arbitrage and increased leverage.  Chinese President Xi Jinping and other top officials have approved new regulations for the country’s $15 trillion asset management sector, the establishment of a financial court in Shanghai and plans to deepen reform. The reason of the approval come amid a widening crackdown on risk in China’s financial system.   Authorities are seeking to have more control in the sector as it has grown more complex and was driven by shadow banking products and off-balance sheet lending.  Furthermore China has also launched a campaign to remove officials engaged in corrupt practices in the financial sector.

Denuclearisation?

Kim Jong Un, the North Korean leader, pledged his commitment to denuclearise and to meet US officials, China said on Wednesday after the meeting with President Xi Jinping.  After two days of speculation, China and North Korea both confirmed that Kim had travelled to Beijing and met President Xi Jinping during what China called an unofficial visit which lasted from Sunday to Wednesday.  China has traditionally been North Korea’s closest ally but ties have been frayed by its pursuit of nuclear weapons and the backing by China of tough UN Sanctions in response.   Meanwhile, China briefed Trump on Kim’s visit and the communication included a personal message from Xi to Trump, according to a statement by the White House.

The US Expulsion Of Russian Diplomats

The United States expelled 60 Russian diplomats joining governments across Europe, punishing Kremlin for a nerve agent attack on a former Russian spy in Britain that have blamed Moscow for it.  This was the strongest action being taken by President Donald Trump since he became president.  Besides the United States, 14 European countries also expelled Russian diplomats,  European Council President Donald Tusk said.  There were over 100 Russian Diplomats affected which is the biggest Western expulsion of them since the height of the Cold War.  The people concerned and their families were given a week to leave the United States.  Russia’s Foreign Ministry called the actions a “provocative gesture” and promised to respond.  The Kremlin spokesman said the response of the West was a “mistake” and Russian President Vladimir Putin would make a final decision about Russia’s response.  Moscow has denied being behind the attack on Sergei Skripal and his daughter on the 4 March.  EU leaders last week said that the evidence of Russian involvement in the Salisbury attack presented by Theresa May was a solid basis for further action.

US-China Trade Talks 

Reports of behind the scene talks between Washington and Beijing spread optimism that US President Donald Trump’s protectionist actions are more about gaining leverage in trade talks rather than that of isolating the world’s biggest economy with tariff barriers that could have an impact on global growth.  White House officials are asking China to cut tariffs on imported cars, allow foreign majority ownership of financial services firms and buy more US-made semiconductors. Chinese Premier Li Keqiang pledged on Monday to maintain trade negotiations and ease access to American businesses.  On Tuesday stocks surged and also dragged on the Treasury market which faces a record $294 billion of new supply this week.  Yields on 10 year Treasury notes increased up to 2.848 percent but lower than the 2.9 percent of last week.  In the currency markets the early reaction was to offload the yen and the dollar, helping the euro to an early gain.  However, the euro later took a reverse stance after data showed that lending to Eurozone companies slowed last month and European Central Bank Governing Council member Erkki Liikanen said underlying euro zone inflation may remain lower than expected even if growth is robust.

Markets Wrap

On Tuesday US equities surged back from the biggest weekly rout in two years with major benchmarks climbing more than 2.7 percent on signs that trade tensions were beginning to ease.  The S&P 500 Index posted its biggest one-day jump since August 2015 with chipmakers and banks leading the gains.  Facebook Inc. was a noticeable underperformer ending just slightly higher after the Federal Trade Commission said it has an open, non-public probe into the company’s privacy practices.  Yesterday’s US trading session was once again dominated by techs, however there was no repeat of the global equity weakness of the recent sessions.

Yields

Germany’s benchmark 10-year government bond yield fell below 0.5 percent on Wednesday for the first time since early January arising from investors flocking to safer assets as concerns over US-China trade war mount.  Chinese state media reported on Wednesday that Beijing plans to announce retaliatory tariffs against the plans by Donald Trump for tariffs on up to $60 billion worth of Chinese goods.  Investors have also moved out of tech stocks which had long outperformed the market, spiralling down shares worldwide.  On Tuesday, Wall Street shares dropped by a 2 to 3 percent, whilst tech heavy Asian bourses fell more than 1 percent on Wednesday and European bourses opened sharply lower.  Italy’s 10 year bond yield fell to its lowest level in more than three months at 1.851 percent.  The gap over its better rated German peers was at 137 bps.  Italy sold 5.5 billion euros in an auction of bonds maturing in 2023 and 2028 fulfilling its target of 4.5-5.5 billion euros.  According to analysts the auction showed there was still strong appetite for Italian debt, despite the country’s political uncertainty. British bond yields dropped by 4 to 5 basis points and the yield on the 10-year gilt fell to as low as 1.362 percent, its lowest since late January.

M & A Activity

GlaxoSmithKline Plc agreed to pay $13 billion for Novartis’s stake in a joint venture that includes Panadol pain relievers and Theraflu cold remedies.  The deal came only days after Glaxo a UK company abandoned its pursuit of Pfizer Inc.’s consumer unit.   Glaxo’s CEO Emma Walmsley expects the transaction to boost earnings and cashflow, giving company flexibility to invest in the pharmaceutical business.  Walmsley also told reporters that while the company is expanding in consumer health, it expects its pipeline of new drugs to serve as the main driver of growth.  Meanwhile, the sale of the 36.5 percent stake in the venture which was formed in 2015 will strengthen Novartis ‘s ability to drive shareholder returns and make acquisitions, said Vasant Narasimhan in a statement on Tuesday.  The deal should close in the second quarter said Novartis.  Narasimhan is focusing on the pharma business and R&D.  Glaxo is starting a review of its Horlicks unit and other consumer-health nutrition products to help fund the transaction and increase focus on the over-the counter and oral-health categories.  The process is expected to be completed by the end of 2018.

Oil

West Texas Intermediate crude for May delivery fell 33 cents to settle at $65.55 a barrel on the New York Mercantile Exchange. On Wednesday oil fell as investors took profit on a rally the day before after a report showed a surprisingly large increase in US crude inventories.  Oil price has risen in seven out of the last nine months and has increased by more than 4 percent this year, making this the third consecutive quarter of gains.  This is the longest stretch since late 2010.  Furthermore, US oil production has risen by nearly 25 percent in the last two years to over 10 million barrels per day.    Meanwhile, Saudi Arabia and Russia are considering a deal to greatly extend a short-term alliance on oil curbs that started in January 2017 after a crash in crude prices to a 10 to 20 year agreement.

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