Euro stays calm after snap general elections in Spain

Summary:

• Socialist Party (PSOE) won the snap general elections in Spain but failed to reach enough seats to form a government on its own
• A Spanish political scene is likely to be slightly changed after the elections
• Euro trades well below 1.12, producing a negligible response to the elections’ outcome

Spaniards went to ballot boxes

The snap general elections in Spain took place on Sunday. After counting as many as 99% of votes one may conclude that the event brought no surprises. The Socialist Party (PSOE) of the incumbent Prime Minister Pedro Sanchez won the elections reaching 28.7% of votes (123 seats). This result is a substantial improvement compared to the last elections in June 2016 where the PSOE got 85 seats in the Congress of Deputies.

The PSOE won the snap general elections in Span but failed to reach a sufficient number of seats to forge a government on its own. Source: elpais.com

In turn, the PSOE’s coalition party - Unidas Podemos - garnered 14.3% of votes (42 seats). Summing the seats of both parties it turns out that they are short of the 176 seats needed for an absolute majority (there is no enough seats even if the Basque Nationalists' six seats are added). That means PM Sanches will needs the support of other parties. On the other hand, the conservative People’s Party (the former PM Mariano Rajouy belonged to this group) suffered a huge defeat getting only 66 seats compared to 137 seats in the prior elections. In turn, the Ciudadanos party managed to improve markedly improve its last elections’ fallout (32 seats) reaching as many as 57 seats. It is also worth underlining high turnout of around 75%, meaning a 8.5 pp increase compared to the 2016 elections. Let us remind that the Spanish 12th Congress of Deputies was dissolved on March 5 by PM Pedro Sanchez after his party failed to get a 2019 budget passed. Looking ahead, a lot of negotiations could take place before a new government is known but it is unlikely to have a material impact on the shared currency. On the flip side, the Spanish stock market and bonds may be affected to a larger extent.

After breaking below 1.12 the EURUSD is subtly recovering this morning. Nevertheless, the Spanish elections’ outcome had a negligible impact on the common currency. Technically the pair could be in a position to experience some rises as it is trading close to the lower bound of the bearish channel. Source: xStation5

In the other news:

• The profits of Chinese industrial firms rebounded 13.9% YoY in March after making a 14% YoY decline in the first two months of the year, such the outcome had been anticipated given stable PPI there

• S&P affirmed the Italian BBB credit rating with a negative outlook on Friday

• Fitch confirmed the UK credit rating with a negative outlook

• Donald Trump sees a possibility of a US-Japan trade deal by May, Reuters reported