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: This time it’s half-full - (Asia-Pacific markets rose with futures for Europe and the US up) – Asia-Pacific markets rose due to lowered concerns over Evergrande and a good reception of the Fed’s message. Futures for Europe and the US are positive.

Response to the Covid-19 crisis: Plenty more to come - (The fight over taxes centres the internal battle within the Government over the budget) – The Government is finalizing the 2022 budget proposal, and this starts with an internal negotiation between the Government partners, the Socialists and Podemos.?The negotiation is made somewhat easier by the fact that the EU fiscal rules are still suspended and the support of the ECB for the bond market continues. On that basis this is basically political theater, with both parties trying to look good before their electorates. The problem for the Socialists is that they seem to be trying to execute a move towards the political centre, whose market-friendly credentials keep getting sabotaged by the need to not lose votes on the left (i.e. the populist move to lower utility profits in response to the rise in electricity prices). Plenty more to come.

Utilities: Trial and error - (The Tax Office will collect €1.1bn more in taxes on electricity despite the cut in taxes, while the utilities say that the majority of their electricity does not benefit from the price of natural gas) – The Government is making so much money from the rise in electricity prices that it can afford to temporarily give part of it back (i.e. buying PR points). The issue of whether internal contracts between generators and suppliers of the same group, which in theory are “arms-length transactions” should be treated differently from other bilateral contracts is likely to generate a great deal of litigation. And the Government’s record on this is not good.

Real Estate: Unfinished business - (50,258 homes were sold in July +53,5% YoY) – The YoY increase in sales of homes is quite impressive, with overall numbers continuing a rising trend that it back to 2008 levels (and above the 2019 ones). Both new and second-hand homes show strong growth. But part of this might simply be a release of pent-up demand from the pandemic period, so it might be too early to call a change in trend.

Macro: Mirror, mirror on the wall… - (The service sector revenues in July rose 11.6% YoY vs. the +21.7% of June, while the industry sector revenues in July rose 13.7% YoY vs. the +18.8% of June) – Revenue figures for industry and services continue to show a moderating YoY growth trend, although this is largely a mirror effect due to the base for comparison. The key is what the comparison will look like once we are comparing periods featuring a reopening of the economy.

*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.?