What does Spanish elections and political uncertainty mean for markets?

In Spain, the election results delivered neither an absolute majority for a single party nor any clear government alliance/coalition. On the economic side, there is no sign of economic activity slowdown in Q4 15. 

For Spanish markets, as there would likely continuation of political uncertainty at least in the first quarter of next year, the continuing and under performance of Spanish assets is expected in the sovereign, credit and equities as well.

Specifically the Spain-Italy sovereign spread could continue to support Italy over coming weeks. The political conditions in Italy are also having certain risks. There is good performance from the Five star movement, which will be held between March and May 2016.

"As for the next general elections in Italy, the reform of the senate will likely have to be completed before general elections are called. This means that early elections would take place no earlier than Q1 2017", says Barclays in a research note.