Take 5 and come back tomorrow (29/11/24) Markets Pensions Banks GRF Inflation
None of what follows is investment advice.
Market environment: Eastern optimism – (Asia-Pacific markets rose modestly with European markets flat and US futures up slightly) – Asia-Pacific markets rose on increased optimism regarding China stimulus and US tariffs. European markets were flat, and US futures point to slight increases.
Response to the crisis: Inflation trouble – (Pensions will rise 2.8% in 2025, with a cost of €7.3bn (Expansion p35) - The rise in pensions is the result of the average YoY increase in inflation over the last year. The automatic updating is an especially negative factor at a time when inflation is declining (November 2.4%, see below) and, together with the rise in the number of pensioners and the fact that new pensions are higher than those that exit the system, leads to an unsustainable rise in total pension spending for an economy that is showing itself incapable of generating enough value added (i.e. high payroll tax) jobs.
Banks: Double tax – (Banks will be able to deduct the new tax on banks if their returns decline (El Economista p30) – The new drafting of the tax on banks tries to soften its impact by including the possibility of deducting part of the tax from the Corporate Tax. However, the terms are very restrictive as the ROA required for deductions to kick in is 0.7% (deduction proportional to the actual ROA vs. 0.7%), with banks also being able to deduct from the amount payable for the tax 25% of its Corporate Tax payment. In the end, the improvement seems minor and mostly confirms that this is a case of double taxation of bank earnings.
Grifols: Trying to convince with what didn’t work on Brookfield – (Will focus on a new strategic plan to be presented in late February/early March after Brookfield walks away from a bid (Expansion p3) – Brookfield walking away from a potential bid for Grifols has had a very negative impact on its share price, as it seems to have reinforced the doubts sown by the Gotham City Research negative report. The fact that Brookfield examined the company closely, with the help of the founding family, and could not come up with a price of over €10.5/share does not help. On that basis Grifols will have to come up with a very compelling new strategic plan that convinces investors in a way that the company was not able to convince Brookfield.
Inflation: Misleading first impressions – (The advance on the November CPI shows a YoY rise of 2.4% vs. +1.8% in October with underlying inflation falling from 2.5% to 2.4% (National Statistics Institute) – The rebound in November inflation is not as bad as it seems given that it is mostly due to the rise in energy prices (underlying inflation fell slightly) and compared with a very challenging November 2023 MoM print (-0.3% vs. the November 2024 +0.2%). Going forward weakness of the Euro could continue to add pressure, but the base becomes easier (Dec. 0%, Jan +0.1%, Feb +0.4% and Mar +0.8%).