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: End of quarter cheer - (Asia-Pacific markets rose with European futures flat and those for the US modestly up) – Asia-Pacific markets rose on greater optimism regarding economic activity, despite Fed comments regarding the need for higher rates. Futures for Europe are flat and those for the US modestly up.

Response to the crisis: Inflated performance - (The Treasury lowers the budget deficit to under 5% due to €32bn in extra tax income (Expansion p28) – The 2022 budget deficit came in at 4.8% of GDP (0.2pp lower than the commitment to the EU) on the back of a 14% rise in tax revenues. The main problem is that a significant part of the rise in tax revenue is due to inflation (about half according to Bank of Spain) and, thus, it is likely to slow with the CPI. And at the same time a significant part of spending is structural and tied to inflation. 2023 is likely to see very different revenue and expenditure trends to those of 2022.

Banks: If on the left there is nothing right, on the right there is nothing left - Spanish banks can resist the withdrawal of 33% of their deposits (Expansion p19) – Although the Spanish banks have a lower figure than the overall European sector (38%) the above would seem to be enough to cover any reasonable scenario. This is especially the case as Spanish banks are mainly retail institutions with a high weight of sticky deposits covered by deposit insurance. Trouble is more likely to come from the asset rather than the liability side of the balance sheet. If on the left nothing’s right, on the right there’s nothing left.

Macro: Based numbers - (The March CPI shows 3.3% YoY growth vs. the +6% of February, with underlying inflation at +7.5% vs. +7.6% (National Statistics Institute) – The sharp decline in CPI growth in March is obviously good news, being also below the 4% consensus. However, it is important to note that the decline is largely explained by the base effect, as March 2022 showed a 3% MoM rise (coming just after the initial Russian invasion of Ukraine) vs. the +0.4% of March 2023. April 2022 showed a 0.2% MoM decline, so next month should be more challenging. Additionally, underlying inflation only declined by 0.1pp, remaining very high at 7.5%. If this pattern is replicated throughout the Eurozone, this might present the ECB with a difficult decision regarding rates.

Macro: Food for thought - (Retail sales (adjusted for working days and seasonality) rose 4% in February vs. +5.5% in January (National Statistics Institute) – The February retail sales figures make for a complicated reading, as although overall sales were supported by a 6.9% rise in petrol station sales, leading to only a 3.1% rise in the rest, a 1.8% decline in food sales (!!) led to a 9.3% rise in non-food sales. But even within non-food sales the performance was quite divergent, with personal equipment sales up 10.4% but household equipment sales being down 3.1%. The sharp increases in sales by store chains vs. the decline in single shop locations would seem to point to a preference for price over convenience.

*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.?