Take 5 and come back tomorrow (30/8/24) Markets Labour market TLGO GRF Inflation

None of what follows is investment advice.

Market environment: Goldilocks, but still rate cuts? – (Asia-Pacific markets rose moderately with European and US futures mildly up) – Asia-Pacific markets rose with investors awaiting the US inflation figures after the upward review of US GDP growth. European and US futures are up.

Response to the crisis: Boomer blockade – (The rising age of the occupied workers blocks entries into the labour market (Cinco Dias p20) – Boomers are not exactly popular people these days. Not only does the idea of their retirement strike fear into the hearts of government officials/economists (due to the cost of their pensions) but they are also being blamed for holding on to their current jobs, thus blocking the access of younger workers to the labour market. Adding insult to injury, the Government is actively trying to get the boomers to postpone retirement, so it is not really the Boomers who are to blame for the lack of access of younger workers to jobs. The problem here, in the end, is the same as in absorbing immigration, Spain’s economy is not generating enough value-added jobs to sustain its welfare state.

Talgo: Dangerous liaisons – (Skoda, the Government’s bet for Talgo has Russian ties (Expansion p4)/Magyar Vagon will withdraw the bid for Talgo if asked by the Securities Exchange Commission (CNMV) (Expansion p5)/(The EC backs the Spanish veto the acquisition of Talgo by Ganz-Mavag (Cinco Dias p5)/The veto to Magyar Vagon in Talgo puts on alert Spain’s automotive sector and CAF (El Economista p6) – The Hungarian bid for Talgo is likely to enter a “gossip” stage. This is because apparently the “national security/public order” reasons cited by the Government for its opposition to the bid for Talgo are tied to “Russian connections”. Unfortunately, the Government’s alleged preferred alternative Skoda is now also being reported in the media as having "Russian connections”, which is hardly unusual for Central/Eastern European companies. But at least Skoda is not from a country whose leaders are on the list of the EC’s least-favourite people. What counts here is not so much the Russian as the Orban connection. All of this is disappointing to Magyar Vagon, although it may eventually obtain some satisfaction in the courts, and to shareholders who wanted to sell, who are the ones truly out of pocket.

Grifols: Proof of life – (Brookfield contacts sovereign wealth funds in relation to the bid for Grifosl (Expansion p5) – Reports of Brookfield being active in negotiating the debt picture for Grifols after a potential bid already cheered up investors who were starting to be worried that the fund was starting to get cold feet with respect to its announced joint bid with the founding family. News that it is also contacting sovereign wealth funds to accompany it in its investment are also likely to be seen as proof of life for the deal, although wanting to share may send a mixed message regarding the attractiveness of the deal (more for the potential partners in the bid than the current shareholders).

Inflation: Underlying support – (The advance CPI for August shows a 2.2% YoY rise vs. +2.8% in July, with underlying inflation at +2.7% vs. +2.8% (National Statistics Institute) – The August inflation was a positive surprise due to falling more than expected (the market consensus was c.2.4%) and approaching the 2% ECB target.? However, the improvement was mostly due to non-processed food and energy prices as the underlying figure remained relatively stable and owed much to a step effect (August MoM was flat while August 2023 showed 0.5% growth on the same basis). The September (+0.2%) and October (+0.3%) comparisons should also be helpful, with the main challenge coming in November (-0.3%).