Catalonia digs in; Bitcoin crashes; Schmidt departs & Ladbrokes/GVC

European shares drop as Catalonia digs in

Investors in Spain lost their Christmas cheer, selling shares after another victory for separatists in Catalonia. Spanish bank stocks were the biggest losers. Moving headquarters outside of Catalonia didn’t help shares of Banco Sabadell and CaixaBank, they remain very exposed to the region. It’s a frustrating result for shareholders invested in Spain to capture the country’s rising economic fortunes. Political disruption looks like it will be an ongoing feature of investing in Spain. We suspect the sell-off in the IBEX will be short-lived since the chances of another referendum look slim. The broader impact on Europe may end up bigger than after Catalonia’s referendum. Contagion risk looks small but the impasse in Catalonia may dissuade international fund flows into Europe ahead of Italian elections in 2018.

FTSE records do not have to end with Santa

An advantage of Brexit is that UK investors can afford to be more relaxed about Catalonia. The final figures for UK third quarter growth surprising to the upside buoyed optimism in UK markets. The better growth outlook and jump in business investment helped the UK 100-share index outperform European indices in the final half-day of trading before Christmas. The more domestically focused FTSE 250 index looks well placed for a new record high before year-end. The backdrop to the record highs for UK equities is a year underperforming other parts of the world. Brexit negotiations maybe fraught but they are progressing, so with UK growth picking up again, UK shares are due some catchup in 2018.

Bitcoin loses 25% in 24 hours

Bitcoin investors were introduced to the law of gravity over the last twenty-four hours. Litecoin founder Charlie Lee divesting his entire Litecoin holdings is probably the root-cause of the insecurity that’s been felt across the crypto currency space. Long term holders will be used to this level of volatility but newer crypto traders could be permanently put off. The exponential price rise seen recently needs new investors to sustain it. In a bubble market it’s known as the “bigger fool” theory; you can buy high as long as there is a fool willing to buy it off you even higher. Previous price pullbacks have only strengthened the conviction of Bitcoin traders when the price rebounded. If Bitcoin does reach $20k after this slump, we suspect it will make short work of $50k

Ladbrokes-Coral agrees to GVC merger

The GVC merger was already priced into Ladbrokes Coral shares after the announcement of ‘advanced talks’ two weeks ago. The news the deal will be done had minimal impact. The full price of the deal rests with the UK government and its decision over FOBTs. Our sense is that the bigger the crackdown on FOBTs, the more the merger makes sense and ultimately shares of the combined entity would have greater upside potential. Having the online-offline diversification would be worth the extra cost upfront for the merger.

Eric Schmidt departs as Google Chairman

Schmidt stepping aside as Chairman is no surprise; it is a natural progression after ending his time as CEO. We do not see Schmidt’s departure as any reflection of his belief in Google or Alphabet as a company, rather a personal decision to refocus on philanthropy. The prospect of some huge regulatory hurdles facing the company may have hastened his decision to depart. The risk to Alphabet profitability by competition authorities is twofold, fines and the additional cost of acquiring customers if forced to split up its services.

Ryanair pilots’ strike in Germany

Ryanair shares lost altitude after German pilots announced a four-hour strike on Friday. Clearly, unions have more sway in negotiations heading into the busy holiday period. It is probably not far off the mark to say Ryanair was “buying time” by delaying meetings with unions until the New Year. As a budget carrier, Ryanair has to tread carefully in its engagement with unions if it wants to keep costs down.