Take 5 and come back tomorrow (18/5/24) Markets Labour regulations BBVA SAB Regional financing Banks

None of what follows is investment advice.

Market environment: Tech boom - (Asia-Pacific markets rose with European futures up and those for the US flat) – Asia-Pacific markets rose extending the tech rally experienced in the US. European futures are up and those for the US are little changed.

Response to the crisis: Time has lost its value - (The Ministry of Labour resumes work on lowering the working week amid clashes between employers and trade unions on the issue (Expansion p26) – The current coalition government is big on headline grabbing populist initiatives without a negative impact on government finances. So far this has concentrated on increases in the minimum wage as well as limits to temporary contracts. But it has also promised to lower the working week without any adjustment to worker remuneration. This would not have as significant impact overall as it might seem as several sectors already have lower than maximum hours as a result of sector negotiations but might be very hard to apply in smaller companies.

BBVA/Sabadell: Living apart together - (BBVA’s president says that his bank will buy Sabadell even if the Government blocks their merger, minimising the job cuts that would be required, while the Minister for the Economy considers that the degree of banking sector concentration is high and could be excessive (Expansion p16) – Although it might be technically possible (there are some doubts) for BBVA to buy Sabadell even if it were prevented from merging with it due to government opposition, it is unlikely that investors would be happy with that outcome as it would be a clear obstacle to the generation of cost synergies. This would increase pressure to deliver “revenue synergies” which might be seen as equivalent to greater commercial coordination (i.e. reduction in competition).

Regional financing: No is not part of the vocabulary - (The proposal by PM Sanchez of a “singular financing scheme” for Catalonia raises opposition among other regional governments and parties while the ERC Catalan party wants to collect all taxes and a referendum on independence (Expansion p24-25) – The Government acceptance of a series of demands by the pro-independence Catalan parties (pardons, softening of laws regarding the pro-independence process, amnesty etc.) do not seem to have had a calming effect on them.? The new demands include the granting of a specific financing system that would take into accounts the “singularities” of the region. In essence they want more money. On top of the fact that other regions may also lay claim to “singularities” and that Spain’s Constitution does not allow discrimination, there is no guarantee that if the additional funds were granted the parties involved would not come back for more. And, as long as the government depends on their votes and is willing to pay the price, it would be surprising if they did not.

Banks: Finished at the top - (The ECB vice-president says that the returns of the banks have reached their ceiling (Expansion p18) – The above would be due to the lag between the rise in revenues and that of financing costs after a process of rising rates. The statements could be seen as supporting further sector concentration as a means to further improve returns, via cost reductions, absent further support from interest rates.