Take 5 and come back tomorrow

First of all, let’s be clear. The following is not investment research/advice.?And, as such, it involves no investment recommendations. These are my thoughts on Spanish equity issues, which I find relevant. I share them freely (and not just as regards price). As always, I am only trying to help. Please read the rest of the “discomplainer (*)” at the end of the article.

Market environment: Inverse Powell - (Asia-Pacific markets rose with European futures flat and those for the US mildly up) – Asia-Pacific markets rose as the market did not take on board the Fed chair’s comments and bet on a future pivot to lower rates. European futures are flat and those for the US mildly up.

Response to the crisis: Do the wrong thing - (According to the Fedea think tank payroll tax will rise 3-4 points in the next 5 years in order to plug the Social Security deficit (Expansion p27) – I already commented that the decision to automatically raise payroll tax rates to keep the Social Security deficit in check was a negative one for the jobs market and economy in general. A policy of raising direct taxes while trying to keep indirect taxes down is probably the opposite of what is currently required.

Monetary policy: No pain, no gain - (The Fed raises rates by 25bp to 5.25% and gives signs of a possible pause (Expansion p14)/The ECB likely to raise rates for the seventh consecutive time (25bp) (Expansion p16) – Given the slow pace of improvement of core inflation further rate rises might be required. The problem is that in order to control inflation, the central banks and their owners (the governments) would have to accept a high level of economic pain (we are now back at 2006 interest rate levels, and we know what followed). A pause would be nice, but it is the willingness to take the pain that counts (a pause would only be good to allow past increases to “work”), and it is not clear that the willingness is there.

Utilities: The race is not always to the swift, nor the battle to the strong, but that is the way to bet - (The World Bank arbitration unit decides against Spain and in favour of the Infracapital fund over a €24.9m dispute regarding the cut in renewables’ remuneration (Expansion p4) – Spain’s track record in lawsuits regarding the 2013 cut in renewables remuneration is not good, with accumulated decisions against it of some €1bn (and growing risk of Spanish assets abroad being seized). I would like to think that this will operate as an obstacle against further arbitrary decisions, but precedent (even in other sectors such as motorways) is not good.

Macro: It’s not only quantity but quality that counts - (The Minister for the Economy anticipates 400,000 new affiliations to Social Security through April (110,000 in the last month) and recover to pre-Covid GDP (Expansion p25) – The volume of job creation has been quite positive in recent months, although it has to be noted that this may not be for the best reasons (i.e. a fall in energy prices in anticipation of a recession and a significant increase in the volume of part time jobs). Additionally, job creation is being favoured by the decline in real wages as inflation has been significantly higher than wage rises. It’s not only quantity but quality that counts.

*The above information has been read/understood/summarised/evaluated/copied as well as I could to provide a guide to Spanish equities, given available timing/intellectual constraints, and I accept no liability for misreading and/or mistranslating the original copy as set out in my previous article (which I urge you to check, as I am only trying to point you in the right direction, I hope). As for what you may decide to do, after reading the above, please contact your legally approved provider of investment advice on Spanish equities.?