International investors believe that 10N does not move the market much, despite the political blockade.

The market seems to be absolutely relaxed in the face of the general elections held by Spain on Sunday, November 10. The risk premium of the country (differential of the cost of the ten-year bonds with the Germans) is 63 basic points, far from the more than 100 points that it marked in the previous elections, in April, and one tenth of the 630 which marked during the euro crisis in 2012.

But scratching below the flat surface created in the market for debt purchases by the European Central Bank (ECB), there are some signs of nervousness. For example, the Portuguese Government is already financed cheaper than Spanish, thanks to its greater political stability.

Several London City business banks have begun to warn investors of the uncertainty of 10N, although they expect a limited impact on the markets. Barclays contemplates three potential scenarios: a PSOE coalition with United Podemos and other nationalist and leftist parties; a minority socialist government passively supported by PP and Citizens; or an alliance of the center-right parties.

The British bank believes that the first of these outcomes "although it will not be a big surprise for the market, probably leave short-term travel for Spanish assets to behave worse than the rest." In the medium term, everything will depend on the "macro environment, the extent of a possible relaxation of the management of public finances and whether previous structural reforms are undone. These risks will increase if the nationalist parties join the coalition, as it will raise the options that the new government does not end its mandate.In addition, the traditional attitude of confrontation between Podemos with the EU can be a rumor in sentiment[del mercado]".

In Barclays, no other scenario is ruled out: that of a new election in 2020. "The fragmented political scenario in Spain means that the risk that the country has to go back to the polls for the fifth time in so many years cannot be completely ruled out." .

According to Aditya Chordia, JPMorgan fixed income analyst, "it is difficult to see that the Spanish bond market can discount some kind of political uncertainty before the elections, since the main parties are pro-EU and there are no immediate budgetary problems." However, he admits that "a new blockade that leads to other elections will be the worst scenario and, in the margins, will be negative for Spanish markets. On the contrary, a quick government formation will be positive." As a central scenario, JPMorgan believes that the risk premium can continue to fall, to 55 basic points.

UBS foresees a "muted market reaction, as the BCA has just reactivated its asset purchase program, although it seems unlikely that Spanish bonds can beat their rivals in southern Europe until the blockade is resolved."

From Bank of America, it is considered that "the markets should not worry much about the elections in the short term, beyond some volatility depending on the headlines." The Wall Street entity believes that a conservative government "may be seen as more favorable to the market because of its economic policy. But tensions around Catalua could certainly intensify, given the less conciliatory position of these parties." In the medium term, the firm's economists warn that a political "shock" could reduce Spanish GDP by 0.4-0.6%, given the country's vulnerability in areas such as its level of public and external debt, and your high unemployment. "

Less pessimistic is Goldman Sachs. Its European economists consider that "it takes time to form a new government, but unlike the elections in April, it is likely that an agreement will arise between the political parties. This is because the pressure on political parties to avoid another voting has risen considerably. Therefore, it is hoped that the most voted party can form a minority government with the help of investor abstentions, if a coalition is not formed before. "

The American bank believes that, in any case, this does not resolve the political and economic blockade in Spain. "The uncertainty will remain high and spending new budgets will be difficult. Although we hope that both a right-wing coalition and a left-wing coalition will continue with fiscal consolidation, the speed and composition of the adjustment may be different."

For the British group HSBC, "although the parties send messages of their intention to avoid other elections, it is not clear how the impasse can be resolved." This entity highlights that, which a few weeks ago pointed to a clearer victory of the PSOE, now points to a tighter result, since the crisis in Catalua may have boosted the support of PP and Vox. In any case, HSBC economists admit that "until now, the impact of political uncertainty on the economy seems to have been limited, although it could have contributed to the recent increase in household savings and investment weakness. But the concern expressed by many economists is that a prolonged blockade can begin to damage the confidence of consumers and investors, leading to a more significant slowdown in growth, greater fiscal deviation, and a continuing lack of reforms. "

In Capital Economics, it is insisted that "the fourth general elections in Spain in four years can once again generate a political stagnation, although it should not have a negative effect on the economy. After previous elections and the Catalua referendum in October 2017 there was no significant erosion in trust. " But apart from the policy, "weaker investments and consumption can slow GDP growth over the next two years." The forecast of this firm is for the Spanish economy to grow 1.2% in 2020, compared to 2% in 2019.

Rabobank, on the other hand, warns that the political blockade can lead to other elections in 2020, and points out that this situation can damage Spain's future prosperity. "Fragmentation, the risk of other elections and the Catalan crisis will remain present. Therefore, it is highly unlikely that the next Parliament can deal with the key issues of the economy, in addition to the weak efficiency of the labor market, the abundant bureaucracy and the impact of rapid aging of the population, aspects necessary to safeguard satisfactory economic growth and the sustainability of public debt in the long term. "

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