“The weakest link in a chain is the strongest because it can break it.”
– Stanislaw Jerzy Lec
Events in Catalonia took centre stage this week after the Catalan Government chose to press ahead with an independence Referendum on Sunday, despite the Spanish constitutional court ruling that the vote would be illegal. According to Catalan authorities, more than 700 civilians were injured in the violent clashes; images of Spanish national police and civil guard officers firing rubber bullets and using truncheons against voters and protesters were splashed across international media. This handed a great deal of exposure and sympathy over to the separatist cause whilst potentially damaging the Spanish Government’s own legitimacy. Over two million votes were cast – although 58 per cent of the electorate did not take part in the vote – with 90 percent of those who voted choosing independence.
The Market had feared an immediate unilateral declaration of independence; however, the Catalan Government sensibly called for negotiations to begin, acknowledging that changes cannot be made overnight. Spanish Prime Minister Mariano Rajoy has taken a pause for thought on the issue, aware that the integrity of his minority government could be damaged in the aftermath of the violence if opposition parties seek to take political advantage. Rajoy has indicated only that he is open to debate, not negotiation, within the framework of the law. The coming weeks also represent an interesting challenge for Catalan President Carles Puigdemont, who has the unenviable task of balancing the wishes of a very polarized society – those demanding immediate independence, those calling for a cautious approach, and those who did not vote and had indicated that they did not want to leave Spain at all – at the same time as easing political tensions between his regional government and that of the Spanish state.
Meanwhile, the US Stock Market continued to benefit from optimism after the unveiling of President Donald Trump’s tax reforms last week, as well as a set of strong data releases in the manufacturing and services sectors. Jobless claims also fell by 12,000 over the week, suggesting that the labour-market impact from the recent spate of hurricanes has been more limited than anticipated. The positivity was only hampered by some uncertainty over who will succeed Janet Yellen as chair of the Federal Reserve (Fed) when she retires – set to happen in 2018. Reports suggest that President Donald Trump is close to making a decision. Fed governors Jerome Powell, viewed by the market to represent policy continuity, and the more hawkish Kevin Warsh are front runners in the race.