Take 5 and come back tomorrow (8/11/24) Markets Federal Reserve GRF GDP BBVA SAB
None of what follows is investment advice.
Market environment: Flat – (Asia-Pacific markets rose very moderately while European markets and US futures are flat) – Asia-Pacific markets rose very moderately with the announcement in China of financial support measures for local governments being offset by fears of the impact of a trade war with the US. The Fed rate cut was also partly offset by lowered optimism regarding a further cut in December given the state of the economy. Markets in Europe and futures for the US are flat.
Response to the crisis: What now? – (The Fed cuts rates 25bp to 4.75% after the Trum victory (Expansion p19) – The cut in rates by the Fed was completely expected by the market, partly because doing otherwise so soon after the elections could seem political. There is, however, considerable debate regarding whether the cut was justified given the recent run of positive economy data and strong markets performance. What the cut will do, is to further pressure other central banks, including the ECB to cut rates, at a time when it is not certain that inflation has been completely vanquished.
Grifols: Mixed news – (Will unify the A and B shares in order to ease the Brookfield bid and adjust the voting rights (El Economista p6)/The Brookfield bid faces financing obstacles as CaixaBank gives up and Santander will only make a minimum contribution (OkDiario)/ 9m24 net profit €88m vs. loss of €14m on revenues of €5.237bn +8.6% and adjusted EBITDA of €1-253bn +25% (Expansion p5) – News that Grifols will unify its two types of shares (voting A shares and non-voting B shares) could be seen as good news, as previously what the media had speculated about was eliminating the rule in the bylaws by which B shares would receive the same price as the A shares in case of a takeover. However, there is no clarity on how unification is to be done, so applause may be premature. What is not positive are the apparent difficulties in lining up financing for the bid (and subsequent refinancing of Grifols debt).
GDP: Bring down that wall! – (The trade war and uncertainty push Europe towards recession (Expansion p21) – The tariff war to be unleashed by the US should the promises of president elect Trump materialise would clearly not be positive for the EU. Directly, this would be negative for the more export-oriented countries, but second round effects would spread the impact via intra-EU trade links.? Additionally, higher US tariffs on China should also indirectly impact the EU. And the uncertainty about all of this should not help. In the case of Spain this would hurt two of the current drivers of growth, tourism and goods exports, leaving only government spending as the more dynamic contributor to GDP. That is not ideal.
BBVA/Sabadell: Clarification may not be positive – (The Competition Authority (CNMC) will decide on the BBVA bid for Sabadell next week (Expansion p13) – The decision of the competition Authority should provide some clarification on the timing of the bid, although it is unlikely to be a positive one. The most likely outcome, in my opinion, is that the Authority will decide that further analysis if required, after presentation by BBVA of a number of proposed remedies at the end of October and go on to a Phase 2 process. This would not only delay the final decision but also indicate that the Authority considers there are significant issues. Should excessive remedies be demanded by the Authority (later on the Government) launching a bid might not make sense.