Given the nervy knee-jerk reaction of ‘if in doubt, sell’, it was hardly surprising that events in Catalonia prompted investors to unload some of their euros. Catalonian secessionism is a minefield, so investors struggling to understand the implications can be excused, at least short term.
The longer perspective is to recall the number of perceived threats this year to the euro and European Union stability — the Dutch, French and German elections, Brexit talks, Five Star in Italy and now Catalonia. And relax. Since the start of the year, the euro has risen 11.5 per cent against the dollar and by more than 6 per cent on a trade-weighted basis as investors warmed to Eurozone recovery and tapering talk at the European Central Bank.
A year ago, scenes such as Sunday’s confrontation might have shaken market confidence and triggered a more earnest debate about the trade-off between Catalonia’s contribution to the Spanish economy and its reliance on central government support. Instead, the eurozone’s economic strength means Catalonia is relegated to an event that for many investors is worth no more than noting. “Europe’s recovery and economic solidity is unaffected, and remains on track,” says Tristan Perrier of asset manager Amundi. “We don’t see the events of recent days changing that.”
The more bearish investor might wonder how the euro would be looking if the eurozone economy was in a different place. Goldman Sachs still believes that perceptions about the European political landscape have been “arguably too rosy” since the French election and so investors should set their euro-dollar sights lower. It may be that Germany’s election still comes back to haunt investors. “Germany, not Catalonia, will dictate the evolution of the ‘European Project’,” says Stephen Jen, of investment group Eurizon SLJ Capital.
But most have little interest in what might have been, or in speculating too much on politics. The here and now is that many of the obstacles in the path of ECB tapering have been cleared, sometimes in an ungainly fashion, and market attention is fixed squarely on its meeting in three weeks’ time. Investors have this year circled a host of events, a lot of them political, on their calendars — but the biggest ring has been drawn around October 26.
roger.blitz@ft.com
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