Key news

  • Pro-referendum parties win elections in Catalonia.

  • Bank of Japan minutes show that two new members voted for more dovish wording.

  • EU leaders urge deal on Greece but postpone EU budget deal to 2013.

Markets Overnight

Elections in Catalonia ended with pro-referendum parties winning the majority of votes. Catalan president Artur Mas’s Convergencia i Unio (CiU) party won 50 out of 135 seats, down from 62 seats previously but Mas is expected to remain president. Other parties supporting a referendum won enough votes (37 seats) to form a majority with CiU. Thus a referendum, which Mas had promised to hold within four years, may take place. Spain considers a referendum unconstitutional and Catalonia is highly indebted, so actually achieving independence will prove complicated.

Bank of Japan minutes reveal that the two new members voted for a more expansionary stance, favouring that aggressive easing continues until the 1% inflation target ‘has been steadily maintained’ rather than ‘until it judges the 1% goal is in sight’.

ECB executive board member Jörg Asmussen was quoted in German Bild, saying that a package to close Greece’s financing gap should include ‘a significant reduction of interest rates on the aid loans and a debt buyback by Greece’, while a debt write-off should not be included. During the weekend several politicians have emphasised the urgency of reaching an agreement on Greece at today’s Eurogroup meeting.

EU leaders were unable to reach a deal on the EU budget framework for 2014-20 and decided to postpone final negotiations to 2013. With many countries having ultimate demands and with national interest being important for domestic political reasons more than for real economic reasons, it was hardly a surprise that a deal could not be reached yet. Talks will probably be resumed in February 2013.

Equity markets gained in Friday’s shortened US session with S&P 500 rising 1.3% resulting in the biggest weekly gain (3.6% ) since June and the second best week this year. Dow Jones and Nasdaq both rose 1.4%. The positive sentiment continued in this morning’s Asian session with Nikkei up 0.7% and Hang Seng unchanged on news that sales in the US’s four-day Thanksgiving weekend jumped 13% and on hopes that a deal on Greece will be reached at the extraordinary Eurogroup meeting today.

US bond yields ended almost unchanged with a very slight steepening as two-year yields were unchanged and the 10-year treasury yields rose 1bp to 1.69%.

In the FX markets EUR/USD briefly strengthened to a peak level of 1.2991 on Friday evening on signs of a rebound in German confidence and expectations of a deal on Greece. EUR/USD has weakened to 1.296 this morning on political uncertainty in Spain.