Take 5 and come back tomorrow (15/7/24) Markets Budget LRE Taxes Utilities

None of what follows is investment advice.

Market environment: The calm after the storm - (Asia-Pacific markets declined with European futures pointing down and those for the US up) – Asia-Pacific markets declined due to weak Chinese growth, with the dollar rising on increased expectations of a Trump victory after the failed assassination attempt. European futures point down and those for the US higher.

Response to the crisis: Living by spreadsheet rules - (The Treasury Minister may raise public spending by €5.1bn this year and still respect the deficit target due to a GDP growth estimate of 2.5% (El Economista Sat p37) – The only rules with which a budget must comply are those of the spreadsheet with which it is produced. This means that you can work back from the desired result by working on the inputs of the model. It is amazing what can be done on the back of macroeconomic estimates and elasticity assumptions.

Lar Espa?a: Work for your pay - (Hines and Grupo Lar launch a bid for Lar Espa?a at €8.1/share (16% premium, 20% below NAV) (Expansion Sat p3) – There is nothing wrong with current shareholders, even if they manage the company, launching a bid for their investee. Or launching it below the value they publicly assign to the stock. It is not as if acceptance is mandatory, or the stock is being delisted (for the time being). All that will be required is a good explanation. What I object to is the core shareholders making their adviser work so hard during the Spanish summer.

Taxes: Covering all the bases - (The Minister for Labour says that taxes on corporations and capital income should be taxed appropriately in order to reduce inequality, including taxing investment and pension funds more, and wants to set the minimum wage by law at 60% of the average wage (Expansion p18) – The Ministry of Labour, at least under current leadership, could be renamed the Ministry of Misguided Populist Initiatives. There is nothing wrong with populist initiatives, but the ones set out above should have a negative impact on investment, hiring and pensions. At least the approach is comprehensive.

Utilities: Choosing degrowth - (Red Electrica chose to limit supply to large industrial customers rather than activate CCGT plants (El Economista sab p14) – Last Wednesday the electricity system operator decided to cut back supply to large industrial customers rather than activate available CCGT generation capacity as a way to offset a decline in wind power generation. There is nothing improper in this as the large industrial consumers affected had presumably signed up to the interruptible demand management mechanism (and been compensated for it), although, in theory, this should reduce the attractiveness of the scheme going forward. What the decision seems to represent is a direct prioritising of lower emissions over industrial production. Welcome to the age of degrowth.