Take 5 and come back tomorrow (21/6/24) Markets Budget BBVA SAB Regional financing

None of what follows is investment advice.

Market environment: Tech stall - (Asia-Pacific markets declined with European and US futures flat) – Asia-Pacific markets declined due to continued fears over China’s growth and the stalling of the Tech rally. European and US futures are flat.

Response to the crisis: Too many shortcuts - (Removing the Senate power of veto on the spending ceiling via the Parity Law could be unconstitutional (Expansion p24) – The legal advisors to the lower house of Parliament have already warned that trying to modify the Budget Stability Law (which grants the Senate its veto power) via amendments to the Parity Law draft risks being considered unconstitutional. This type of short-cut approach is starting to be a common feature of the Government, largely due to the weakness/instability of its support in Parliament. This does very little to provide the necessary legal certainty and stability.

BBVA/Sabadell: Don’t buy into a lawsuit - (BBVA and former Chairman Francisco Gonzales are to be tried for the Villarejo illegal surveillance case (Expansion p13) – The investigation into the potential BBVA involvement in an illegal surveillance case (the “Villarejo case”) is not new, but the fact that it is progressing to the trial stage is not positive for the BBVA bid for Sabadell, which is, after all, to be paid fully in BBVA shares. If sentenced this would involve a fine for BBVA (in addition to other punishment for convicted officials) but also potential pressure on its shares from institutional investors whose internal rules regarding legal issues may not allow holding the shares in their portfolios.

Regional financing: Everything is connected - (The Independent Fiscal Authority (AIReF) warns about the damage that a “singular” financing system for the Catalonia region would have on the other regions (El Economista p34) – The AIReF’s point is that the financing of public administrations is connected. If the financing of one improves, those of the rest should worsen. Unless additional funds are provided by the central government, upon which it would be the finances of the central government that worsen. There might be some form of political return to a decision to improve Catalan regional finances, but this is likely to accrue only to politicians, rather than to the taxpayers of the rest of Spain.

Budget: Living on borrowed time - (The Independent Fiscal Authority (AIReF) warns that the Government will not comply with the deficit promised to the EC without adjustments (Vozpopuli) – The EC already did Spain a favour by not including it in the list of countries subject to the excess deficit procedure, despite not complying with the 3% budget deficit/GDP limit. That decision was apparently based on the idea that the excess deficit was only “temporary”, which increases the pressure to achieve short-term results. Should the central government have to solve its challenges regarding Catalonia regional financing by increasing the size of the overall pie, this would definitely add to the problem.