Take 5 and come back tomorrow (12/4/24) Markets Politics Banks Wages Incorporations

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: Asian holidays - (Asia-Pacific markets fell modestly with large markets closed for the Lunar New year holidays with European futures up and US ones flat) – Asia-Pacific markets fell moderately with most large markets closed for the Lunar New Year holidays, amid strong US market performance and hopes of Fed cuts. Futures for Europe are up and those for the US flat.

Response to the crisis: Flexible flexibility - (The EU closes the reform of the fiscal rules, maintaining the previous targets but with individual paths for each country (Expansion p20) – The plan in theory maintains the old targets of budget deficit not over 3% of GDP and government debt not over 60%, but will set the path for reduction of actual levels to the target via individualised plans (4 or 7 years depending on commitments) for each country. The current system was more demanding but was not being applied in practice (even before the moratorium caused by Covid). However, the only thing worse that a rigid plan that is not applied is a flexible plan that is not applied.

Banks: Let the wooing begin - (Sabadell has been preparing a potential merger with Unicaja via contacts with regulators and politicians although no direct negotiations are currently taking place between the parties (El Confidencial) – A merger of Sabadell and Unicaja could make sense as mostly domestic banks. A way to entice Unicaja is the fact that the Unicaja foundation would likely be the largest shareholder of the merged bank and that Sabadell is said to be willing to have the domicile in Malaga. The Unicaja merger with Liberbank was somewhat traumatic, but the issues now seem resolved with the appointment of a new non-executive Unicaja Chairman. Perhaps this might allow Unicaja to contemplate a merger in a different light.

Wages: Below average and slowing - (Spanish wages (+4.1%) show the lowest rise in the Eurozone (+5.4%) in 2023 (Expansion Sat p25)/Wages agreed in wage agreements moderate their rise to 2.83% in January (El Economista Sat p41) – The below average rise in wages in Spain could partly correspond to the lower-than-average inflation but also to a slowdown in the labour market and pressure on corporate margins. Lower wage growth could have a negative effect on consumption growth, as has been evident in recent months.

Macro – Company incoporations/liquidations: Less in but even more less out - (The number of companies incorporated in December fell 3.7% YoY while that of those liquidated declined by 17.8% (National Statistics Institute) – The 3.7% YoY decline in companies incorporated in December is not positive, but the negative message is partly offset by the fact that the capital involved in the new corporates rose 31.1% and that companies liquidated in the month declined 17.8%. It would be better if the net between incorporations and liquidations were positive due to higher growth in incorporations, but you take what you can.

*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.