Take 5 and come back tomorrow (5/9/24) Markets Taxes GRF BBVA SAB Services PMI

None of what follows is investment advice.

Market environment: Waiting for jobs – (Asia-Pacific markets were flat with futures for Europe and the US moderately down) – Asia-Pacific markets were flat, mostly erasing earlier gains, with investors cautious on the economy and the tech sector, ahead of the US jobs data on Friday. Futures for Europe and the US are mildly down.

Response to the crisis: Rich is relative –(PM Sanchez seeks support for his budget via tax increases “on those who have the most”, guaranteeing more funding for the regions in order to silence criticism of the proposed new financing system for Catalonia (Expansion p24)/The number of ultra wealthy (fortune of €30m or more) reaches another record in Spain but increasingly fewer pay wealth tax (Cinco Dias p24)/Sanchez plans to increase taxes on Madrid by having an obligatory inheritance tax and four more points of personal income tax (Okdiario) – PM Sanchez is attempting to square the circle by promising Catalonia more cash via reducing its contribution to interregional solidarity while not reducing the payments to the poorer regions. This will require more cash in the system, which the PM plans to collect by increasing taxation on the “rich”. In his speech Sanchez focused on “those who have fortunes enough for 100 lives” and called for “more public transport and fewer Lamborghinis”. This would point to the target of higher taxation being the super-rich. The problem is that there are too few of these (852 with worth of over €30m in 2022, or 0.23m subject to wealth tax in total). This coupled with a recent spate of media reports pointing out the low earnings/wealth needed to reach the “rich” threshold (i.e. c. €43,000/year in earnings puts you in the top 20%, €150,000 top 1%, median wealth is c.€60,000) suggest that the ground is being prepared for the weight of additional taxation to fall on more populated pastures. Squaring the circle is a hard job. But PM Sanchez is likely to make an effort to derive some pleasure from it. And nothing would please him most than to arrange it so that the Madrid region (led by his eternal foe Ms Diaz Ayuso) suffered disproportionately from the additional tax effort, despite the fact that this would require reducing fiscal autonomy (in the interest of increasing it for Catalonia) and that Madrid is already by far the largest contributor to interregional solidarity under the current system.

Grifols: Plan B – (Brookfield considers subordinating its bid for Grifols to paying a discount for the B shares (Expansion p5) – The potential Brookfield bid for Grifols is a walking conflict of interest. This is because the bid is to be launched in conjunction with the founding family. Thus, any attempt by Brookfield to offer a low price on the basis of any “discoveries” during the due diligence process, which could be tempting given past allegations by Gotham City Research, would be at the expense of the responsibility of its partner (the founding family). Another means of lowering the overall cost would be to maintain the current price discount exhibited by the non-voting “B” shares in the bid price structure. However, this is not allowed by the current by-laws, so Brookfield is said to be considering conditioning its bid to eliminating the restriction or perhaps bidding only for the voting “A” shares and having the company itself buy out the “B” shares, which would limit the cost to Brookfield. The added complexity/uncertainty should not be positive.

BBVA/Sabadell: Clash of the titans – (The bad relation between new Bank of Spain governor Mr Escriva and the BBVA Chairman will be an even bigger obstacle to the BBVA bid for Sabadell (Vozpopuli) – The alleged bad relations between the new Bank of Spain Governor and the Chairman of BBVA (both were employed at one time at BBVA) is not a helpful development. This is especially the case as Bank of Spain has been among the least hostile institutions to the deal so far, unlike the ministry of the Economy and the competition authorities. This does not serve to clarify the speed or the likely outcome of the bid.

Services PMI: Are you being served? – (The Services PMI for August came out at 54.6 vs. 53.9 in July (S&P Global) – The August services sector PMI continues to show expansion, even accelerated expansion, unlike its manufacturing equivalent, with positive demand, both domestic and international and hiring, with the main negatives being a slowing rate of growth of new orders and sentiment. Inflationary pressures seem to be easing. S&P calculates that the PMI figures are consistent with 0.3% growth in the third quarter.