Take 5 and come back tomorrow (8/8/24) Markets Regional Financing TLGO Immigration Real Estate

None of what follows is investment advice.

Market environment: Back to basics – (Asia-Pacific markets declined with European futures down and those for the US less so) – Asia-Pacific markets declined after the rebound of the previous day, with investors back to focusing on central bank economic policy and the strength of the US economy. Futures for Europe are down and those for the US less so.

Response to the crisis: Undefined benefit – (The fiscal agreement would boost Catalonia’s financing by up to €13.2bn per year, while former Catalan regional president Carles Puigdemont returns to Spain and threatens the elections of the Socialist Illa as regional president (Expansion p16) – The truth is that we do not know the impact of the new system as it has been left deliberately vague, and the two main factors, the “solidarity payment” and the “payment to cover national overheads” have not been specified. But it is widely believed, not least by the pro-independence Catalan parties, that there would be no reason for the agreement if it did not result in Catalonia obtaining more cash. And that can only come from the funds formerly used to finance public services in poorer regions or from more taxes in the rest of Spain, if the level of services were to be maintained.

Talgo: Useful issues – (The state railway operator Talgo estimates at 479 the problems with Talgo trains in just two and a half months (Cinco Dias p3) – Relations between the Government and Talgo are not at their best, largely due to the Government’s opposition to the takeover bid presented by the Hungarian Magyar Vagon. I have no information to deny that there have been technical issues with the high speed trains delivered by Talgo, but the situation may also be interpreted as a way for the Government to pressure Talgo to be open to other options which the Government seems busy trying to manufacture. This said, this is not positive for the brand.

Immigration: Active foreigners – (The activity rate of foreigners in Spain is among the highest of the EU (Expansión p19) – Foreign residents have been the most dynamic segment of the labor market in Spain, accounting for four out of ten jobs created in the first half of the year. The high activity rate (at 78% 4-points higher than that of natives) is positive as it means that the immigrant population is not a drag on the economy, unlike other countries where there is a greater dependence on government handouts. This is partly due the high weight of Latin American immigration which for language and cultural reasons is easier to integrate.

Real Estate: Steady residential – (Real Estate investment in 1H24 rose by 13% to €5.5bn (El Economista p29) – The growth in real estate investment is mostly due to shopping centres and hotels, with residential investment being mostly flat. A potential decline in rates would help but the political uncertainty/paralysis does not help.