Informe_Anual_Cecabank_2016_ENG

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ECONOMIC AND REGULATORY ENVIRONMENT
Economic framework
and the state of the markets
Political risks
There have been political risks which will continue to be present in 2017.
In the United States, Donald Trump’s unexpected victory in the elections
held on 8 November, did not have the impact that was expected. The soft-
ening of the new President’s discourse was applauded by markets even
though his first speeches created volatility on a day-to-day basis.
In spite of the uncertainty, there are some certainties, such as the changes
in immigration, trade, fiscal, and defence policies. Europe, which could see
itself being harmed by all these changes, needs to strengthen the foreign
role of the EU in the context of this new situation.
On 23 June in Europe we learned, after the referendum called by the
United Kingdom, that a majority of citizens who took part were in support
of leaving the European Union. This opened up a long process leading up
to its successful exit that could last for years. This time, markets fell dra-
matically after hearing the ‘yes’ to Brexit: the Ibex suffered its worst ses-
sion in history with a fall of 12% and pounds Sterling plummeted, falling
by 30% compared to the euro. Prime Minister Teresa May announced
the triggering of Article 50 of the Lisbon Treaty before the end of March
2017 and it remained to be seen whether she will be following a hard line
of negotiations (so-called “Hard Brexit”).
In Spain, political instability has persisted throughout 2016 with more
than 300 days of caretaker government and two general elections, on 20
December 2015 and 26 June 2016. Eventually on 29 October Mariano
Rajoy was elected president in the second round of voting. The Ibex was
extremely volatile throughout the period: in total it fell by around 12.5
per cent (going from 9,700 points to 8,600 points). Risk premiums have
also been affected by these major political events. The contagion effect of
Trump’s victory hit European debt: a victim (as in America) of investors
making a run for it. Sales increased interest on Spanish ten-year bonds to
almost 1.7 per cent, the highest rate since June. The risk premium, with
these latest rises, went above 130 basis points.
“There are two factors
that stand out above
all others when we
sum up the causes of
market movements in
2016. Firstly, political
events, happening
across all continents,
and secondly, monetary
policy brought in by
the central banks.”
Teresa Herrero
Studies
Cecabank 2016 Annual Report Page 56
05 OUR BUSINESS MODEL
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