Take 5 and come back tomorrow (11/4/24) Markets Defence spending SAB GRF Savings

None of what follows is investment advice.

Market environment: Hot inflation - (Asia-Pacific markets fell with futures for Europe and the US flat) – Asia-Pacific markets declined, although off their lows, reflecting the impact on bond markets of the higher than expected US inflation figures. European and US futures are flat.

Response to the crisis: The Guns vs. butter debate - (The Sumar junior partner in the government coalition demands from PM Sanchez that defence spending not rise to 2% of GDP (Expansion p27) – Spain currently devotes 1.3% of GDP to defence spending, the third lowest level in Nato and well below the recommended 2%. Opposing increases in defence spending in order to favour social programmes is always popular, so statements such as the above are not surprising coming just ahead of a number of elections in Spain (Basque and Catalan regional and European Parliament elections).

Banco Sabadell: Optimistic view of lower rates - (The Chairman promises that in 2024 the bank will take a further step to have a sustained return above cost of capital and that of competitors (Expansion p18) – Note that Sabadell’s views are probably influenced by its optimistic forecasts regarding the trade-off between NII margin and volumes in a lower interest rate environment.

Grifols: Proof of life - (Plans to issue guaranteed bonds in order to cover, together with the proceeds of the sale of the stake of Shanghai Raas, the debt maturities of 2025 (Expansion p5) – Given the increased focus on Grifols’ leverage as a result of the Gotham City Research report, being able to place bond issues at a reasonable price in order to face the 2025 maturities would go some way to easing concerns.

Savings: A larger cushion - (Household net financial wealth rose 9.2% in 2023 to €2.1tn (Cinco Dias p19) – The gross financial assets of households rose 6% while the debt of households and corporates fell 2% (declining from 123.4% of GDP to 111,6% given strong nominal GDP growth). Market performance and the rise in disposable income were behind the rise in gross wealth, with corporates especially focusing on debt reduction. This is positive as it represents a cushion for households and corporates. The key is whether they will need it.