Take 5 and come back tomorrow (2/9/24) Markets Regional financing TLGO GRF Hotels

None of what follows is investment advice.

Market environment: Caution ahead – (Asia-Pacific markets fell moderately as do European and US futures) – Asia-Pacific markets declined moderately on China manufacturing concerns, with investors increasing caution ahead of key data for guessing monetary policy. Futures for Europe and the US were moderately down.

Response to the crisis: Asymmetric federalism – (The Socialist Party in Aragon rebels against the national leadership due to the new Catalonia financing system (cupo) (Expansion Sat p19)/Catalonia would add €30bn to its tax take with the new financing system but would not alter the €5bn deficit in pension payments (Vozpopuli) – Opposition by the Aragon Socialists to the new financing system for Catalonia is understandable as their regions would be among the list of potential losers from a reduction in the redistribution of tax income from a rich region (Catalonia) to the poorer ones. In the case of Aragon this would be especially objectionable as Aragon is one of the main “export” markets for Catalonia. If we are going to do the “confederal” thing, even going as far as internal customs borders, Catalonia might not come out that far ahead. The same is true for the current pension payment deficit (let alone the unfunded problem), where Catalonia is one of the regions in which pensions are paid on the back of payroll taxes collected in the rest of Spain. This said, what is, or is not, included in the proposed tax changes depends on the correlation of power (the central government depends on the votes of Catalan parties to stay in power), and the concept of “asymmetric federalism” was invented in Catalonia, in any event.

Talgo: Confidential bias – (Magyar Vagon withdraws its bid for Talgo and will sue Spain before the Supreme Court and the EU due to the government veto on it (Expansion Sat p3) – Magyar Vagon had already threatened legal action is if bid for Talgo were blocked. So, an appeal against the Government veto to Spain’s Supreme Court and the EU is logical. The main problem is that Spain’s government having declared “confidential” the file on which its veto (for national security/public order reasons) was based is not exactly going to help. The likely appeal to the EU (as the bidder is from an EU country) may also be undermined by the fact that Hungary’s government is currently among its least favoured.

Grifols: Put your money where your mouth is – (Large Grifols shareholders band together and hire a legal adviser to demand before the Board and the Stock Exchange Commission (CNMV) that the bid by Brookfield and the founding family exceed €15/share (Expansion p3) – Talk of the Grifols large shareholders banding together to demand a minimum €15/share price should a bid be presented by Brookfield/founding family (in line with expectations at the time of the initial announcement of exploratory talks) is positive for two reasons: 1) It shows that large shareholders believe that the bid price should not be affected by all the recent “noise” (especially as if it is not “noise” the Board, including founding family, should have admitted this to be the case) and 2) Because it seems to show that the large shareholders believe that the deal is still “alive” and that the main risk is a low-ball bid.

Hotels: Give me your poor and huddled masses, but only off-season – (Italy considers imposing a tourism fee that could reach €25/night (Expansion Sat p19) – Italy seeking to substantially increase the fee charged to tourists in a bid to limit excess volumes of low value-added tourism could be positive for Spain, as an alternative destination, but only if the latter were eager to accept an increase in volumes of low value-added tourism. This said, tourism in Italy is not as much the “sun and fun” variety often associated with Spain, so capturing some of its tourists could help the aim to grow beyond the current saturated summer/beach sweet spot. By the way, if Spanish cities were really fed up with low value-added customers, they might want to look into doing away with the subsidies to low cost airlines at local airports.