Take 5 and come back tomorrow (14/1/25) Markets Real Estate Economy Banks Utilities

None of what follows is investment advice.

Market environment: All rise! – (Asia-Pacific markets rose with European equities up and US futurs pointing higher) – Asia-Pacific markets rose on optimism about a gradual introduction of US tariffs, with markets rebounding from previous losses. European markets are up and US futures point higher.

Response to the crisis: I’ve seen this movie before – (The Government presents 12 measures to support access to housing including discounts in the personal income tax for affordable rentals, government guarantees, an investment plan for Valencia, VAT of 21% for Airbnb and a tax surcharge for buyers from outside the EU (Expansion p24) – I don’t think a very long comment on the Government plans for housing is needed. On the one hand it basically consists of the type of announcements it has made over the six plus years in power without much to show for it. On the other, most of the measures with likely short-term impact (cuts in personal income tax for affordable homes, higher VAT for Airbnb) are more likely to result in a distortion of the market than anything else. What is mostly missing are measures to boost supply via allowing the market to do its work.

Economy: US, minus the Tech angle – (Productivity stagnates in Spain at the level of ten year ago (Expansion p26)/The Minister for Labour attacks the employer’s federation stating that it does not understand what productivity means (Expansion p26) – Spain’s economy has a clear productivity problem, with most of the recent GDP growth having been driven by immigrant job creation in low value-added sectors. The productivity level is unlikely to be improved by Government plans to lift the minimum wage and reduce the working week, while doing little to incentivize capital investment and/or lower cost of energy for corporates. From the statements of the Minister for Labour, it is clear that it is she who does not understand the concept of productivity.

Banks: Choose wisely – (Have an €8bn capital cushion for dividends and supporting their business (Expansion p15) – Spanish banks having capital ratios above the required minimum is a plus, as it offers some flexibility in its use in shareholder remuneration or business expansion. However, it is not clear that those banks that try to maintain the bare minimum levels will be rewarded, as raising additional capital might be needed at the most expensive time, should the economic situation take a turn for the worse.

Endesa/Utilities: No country for old policies – (The CEO of Endesa says that at this critical time it is not the time for taxes but for investments (Cinco Dias p7) – The statement would seem to be self-evident, except for the Government. Recent developments point to a decarbonization process being made even more complex by the unexpected growth in demand for electricity from new sectors such as AI-related data centres. And Spain is not operating in a vacuum, with other countries likely to offer more attractive regulatory/tax frameworks.