1. The election in Spain did not lift the uncertainty but re-redoubled it. Given the outcome, it is difficult envision a majority government. Purely looking at the numbers, a coalition between the Popular Party and the Socialists is simplest solution. It is like Pasok and the New Democracy in Greece and the Christian and Social Democrats in Germany. While such grand coalitions maybe political expedient, it sends a powerful signal that there is not a significant difference between the two “brands”. Ultimately this is fodder for populists and demagogues.  

Spanish assets had been underperforming in Europe in recent weeks, and this intensified in the immediate response to the election result. The key comparison is Italy. Spain’s 10-year yield rose seven bp (to 1.76%) while Italy’s rose 1.5 bp (to 1.59%). Italy’s two-year yield was off 1.5 bp to dip below four bp. Spain’s two-year yield was unchanged at eight bp.  

Spain’s shares fell 3.6% on Monday, bringing the year-to-date loss to 8.8%.  Despite one of the strongest economies in the EU in 2015, Spain’s equity performance is among the worst. Italian shares were 0.65% on Monday and are up 10.6% for the year.  

It will take several weeks to sort things out in Spain. Until it is, Spanish asset can be expected to underperform. This may create new opportunities for value investors.  

2. Kuroda’s explanation of BOJ’s new initiatives contained a warning. We suggested that the BOJ’s moves were largely operations tweaks to minimize the disruption of the BOJ’s continued large-scale asset purchases. Going over Kuroda’s comments, something more was evident (from Bloomberg): “This will make it possible to proceed with asset purchases even more smoothly and it will make us firmly continue qualitative and quantitative easing. Also, I want you to understand that today’s adjustment were to enable us to quickly respond when we judge we need more action for  attaining the price target at the earliest time possible.”