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: I doubt, therefore I am - (Asia-Pacific markets were mixed with European futures flat and those for the US mildly down) – Asia-Pacific markets were mixed amid doubts about monetary policy and US-China relations. Futures for Europe were flat and those for the US mildly down.

Response to the crisis: Past experience is not on its side - (The head of the opposition presents today his programme and review of public expenditure (Expansion p27) – The opposition PP is fast approaching the status of a closet populist party. We will see what the actual programme is. But so far it has indicated that it does not plan to do away with key Socialist reforms (labour market/taxes on banks and energy companies) and those that it does propose are clearly populist (restricting use of the PM’s airplane, lowering personal income tax for lower earners etc.). The party is trying to win an election. But it is trying to do so on the basis of presenting itself as a “responsible” party, while not proposing any of the necessary unpopular measures. It may be easy to say that once the vote is over it will do the right thing. But past experience is not on its side.

Endesa/Repsol: It’s good to keep your options open - (The Chairman of Repsol and the former CEO of Endesa meet to explore the potential acquisition of Endesa by Repsol (El confidencial) – The convergence within the energy sector, especially with oil companies trying to move into electricity has been there for a while. On that basis, Repsol considering the acquisition of Endesa should not surprise, even though the latter is limited in geographical scope (basically Spain) and still heavily reliant on legacy generation sources. Mr Borja Prado would seem a logical investment banker for a potential deal as he is a fomer CEO of Endesa. The timing is also not irrelevant as Endesa is very much dependent of government decisions and elections are due on July 23rd, which are expected to lead to a change in government (and much will depend on the Italian government’s stance, as Endesa is controlled by Enel).?Whether a deal is positive, should it materialise, will depend on the terms.

Banks: It’s all about spreads - (The ECB warns about the risk of intervening in the cost of deposits (Expansion p13) – Banks are, for the time being, for profit institutions. And they make their money as the result of a spread between borrowing and lending costs. This means that if deposit costs are pushed higher via government decision, the banks are likely to also push up lending costs in order to make a profit (and avoid liquidity/solvency issues). And this would be made easier if the rise in deposit costs was the result of a government mandate which undermined the healthy effects of competition.

Macro: Nothing in, nothing out - (The Manufacturing PMI for June came out at 48.0 down from 48.4 in May (S&P Global) – The decline in manufacturing activity is driven by a decline in new orders, despite the positive impact on capital goods of the EU Next Generation funds.?This has led to lower production and employment, as well as attempts to reduce inventories. The positive side is that this is reducing cost pressures, with input and output prices declining, as has been evident for some time from wholesale price statistics.

*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.?