Chart of the week

Spanish Prime Minister Pedro Sanchez (PSOE) has had to call fresh elections for 28 April after the parliament rejected his 2019 budget proposal. The PSOE is a single party minority ruling government that seized power in June 2018 following what was seen as a protest vote against Mariano Rajoy (People’s Party). The PSOE has been relying on support from the various pro-independence parties and the Podemos party. However, its failure to support the Catalan independentist call for a self-determination referendum has resulted in lost backing for the budget and the beginning of the end.

Bond markets were largely unmoved by the political upheaval, with Spanish spreads steady in recent days at their average levels for the past four years.

OUR ANALYSIS

The relative calm in the bond markets can be explained by the fact that none of the main Spanish political parties are particularly Eurosceptic. Polls currently indicate the PSOE party would secure approximately 26% of the votes, partido popular approximately 21%, and Ciudadanos approximately 17%. Support for the Podemos party has waned with polls suggesting it is likely to score just 14%, its lowest level since 2015. Notable is the rise in support for the far-right Vox party with 11% of voting intentions. Vox has adopted an ultra-nationalist approach, opposing both immigration and pro-independence groups, although to date its party rhetoric has not included any hard-line opposition to Europe.

Based on these polls, Spain’s next government could be even more fragmented than the outgoing configuration. Recent regional elections in Andalusia, where forty years of socialist rule have come to an end, may signpost the composition of the future national government. Andalusia is now governed by the People’s Party and Ciudadanos, with the confidence and supply support of Vox. This issue should not cause major market concerns.

The opinion expressed above is dated February 20th, 2019, and liable to change.

This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS.