Catalonia's referendum, Madrid's heavy-handed response and the region's subsequent declaration of independence from Spain have all caused jitters in markets in the past four weeks. But the standoff with Madrid looks unlikely to cause a major correction. Indeed, European stocks have risen to a ten-year high and Spain's Ibex-35 index eclipsed its pre-referendum level early this week.
There is also no sign of the political fracas denting the eurozone economy, which is "partying like it's 1999", or almost, as Bert Colijn of ING told FXStreet.com. The euro-area-wide Economic Sentiment Indicator (ESI), which covers both business and consumer confidence, hit its highest level since January 2001. Spain's ESI is at a 22-month high; Germany's reached a six-year peak. As Europe relies far more on exports than Britain or America in Germany, for instance, exports comprise around half of GDP the increasingly healthy global economy is also buoying sentiment. Note too that the European Central Bank, while halving its monthly bond purchases, is extending quantitative easing until September 2018 at the earliest. Europe's rally should continue.
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