Take 5 and come back tomorrow

First of all, let’s be clear. The following is not investment research/advice.?And, as such, it involves no investment recommendations. These are my thoughts on Spanish equity issues, which I find relevant. I share them freely (and not just as regards price). As always, I am only trying to help. Please read the rest of the “discomplainer (*)” at the end of the article.

Market environment: Killing me softly - (Asia-Pacific markets were mostly up with futures flat for Europe and pointing higher in the US) – Asia-Pacific markets were mostly higher following the US rebound on Fed reassurance regarding interest rates and inflation. Futures look flat for Europe and point higher for the US.

Response to Covid-19 crisis: I can only please one person per day. Today is not your day - (PM Sanchez pardons the politicians jailed as a result of the Catalonia independence process and seeks to return Catalonia to prosperity) – The granting of pardons to the Catalan politicians that promoted the illegal declaration of independence should not in theory have much impact on the recovery from the Covid crisis, although the Minister for the Economy claims as one of the reasons backing them the need to ensure economic stability. However, even if there is some discussion regarding whether it would help to ease tensions between the central and Catalan regional governments, the move is likely to make any agreements with the opposition parties much more difficult, including those regarding medium term economic reforms that are essential for a full recovery.

Utilities: Least bad, for the time being - (The Government estimates at 10% the savings in the electricity bill due to the changes in taxes: temporary cut in VAT on electricity from 21% to 10% and temporary elimination of the generation tax) – A cut in taxes is the least negative solution for the utilities in order to achieve a reduction in electricity prices. However, as a solution it has problems, such as the fact that prices are likely to continue rising (due to CO2 and natural gas prices) without there being much in the way of additional taxes that could be cut (plus, at some point prices will have to rise if the “temporary” tax cuts are reversed). And the cuts are likely to boost demand (from where it otherwise would have been), leading to higher emissions (which someone would have to explain), but provide almost no relief to corporates (most pass VAT on to consumers). Regulatory risk remains.

Iberdrola: Key person risk - (The anti-corruption prosecutor wants to declare Iberdrola Chairman Ignacio Sanchez Galan as a formally investigated person in relation to illegal spying by a former police officer) – The Iberdrola Chairman potentially being considered an officially investigated person in relation to the alleged hiring of a former policy officer to carry out illegal surveillance activities would not be a plus. ?Utilities are not usually seen as suffering significant key person risk, but Mr Sanchez Galan has been at the helm a long time, and he is responsible for positioning Iberdrola as the “green utility”. Given the geological pace at which the Spanish judiciary proceeds, if he is declared an officially investigated person this could represent a question mark around Iberdrola for some time.

Macro: Big bump from a low base - (The Services Sector Revenue index for April rose 57.7% YoY (adjusted for working days and seasonality) while the Industry Sector Revenue index for the same month rose 68.1%, adjusted) – The Services and Industry sector revenue figures for April join the list of statistics reflecting a very sharp rebound, from a very low base. Unfortunately, “pandemic adjusted” figures are not available, which seriously reduces the visibility of underlying trends.

*The above information has been read/understood/summarised/evaluated/copied as well as I could to provide a guide to Spanish equities, given available timing/intellectual constraints, and I accept no liability for misreading and/or mistranslating the original copy as set out in my previous article (which I urge you to check, as I am only trying to point you in the right direction, I hope). As for what you may decide to do, after reading the above, please contact your legally approved provider of investment advice on Spanish equities.?