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: Weak China - (Asia-Pacific markets declined with European futures down and those for the US steady) – Asia-Pacific markets declined due to fears regarding a weakening of growth in China and further interest rate rises by the Fed. Futures for Europe point down and those for the US are flat.

Response to the crisis: You can always try - (The Minister for the Economy wants the ECB to reexamine its interest rate policy (Expansion p15) – Governments trying to influence the central bank to ease monetary policy ahead of an election is hardly a novelty. If the government involved is from a country with below average inflation (in fact below the ECB target) as is the case in Spain, even more so. However, the point of a monetary union is to have a common monetary policy and underlying inflation remains stubbornly high even in Spain. You can always try.

Utilities: How low can you go? - (Endesa, Iberdrola and Naturgy face a historic decline in electricity prices (Expansion p5) – Volatility in prices is certainly not a positive, especially if it on the downside. The incoming increases in renewables capacity, together with moderate demand growth, is not likely to help (renewables may see lower returns than expected, and likely demand a top-up via regulation/subsidies). And the utilities will have to contend with potential further rises in CO2 costs as well as the energy tax (which in theory was tied to “windfall profits”, and the PP has not said it would eliminate).

Hotels: Onwards and upwards - (Face the high season with prices that are 20% higher than in 2019 (Cinco Dias p3) – The sharp rise in prices is a reflection of strong demand that is delivering at the same time high occupancy rates. The other side of the coin is that costs have also increased significantly since 2019, although it is difficult to quantify by how much. As I have argued before, the key question is at what point the higher prices, and the measures taken by central banks to cool the economy, will dent demand.

Macro/Real Estate: Housing doubts - (The number of housing transactions registered in May fell 6.4% YoY (-4.1% YTD) (National Statistics Institute) – The decline in housing transactions registered in May (part of which may have been executed in prior months) represents an acceleration on that of earlier months (-6.4% May, -4.1% YTD). The situation is, however, very different between the new and second-hand markets, with new homes showing a May 4.1% rise (-2.4% YTD) and second-hand homes an 8.6% decline (-4.5% YTD). The overall decline likely reflects the tougher financing environment, with the new homes market seeing this partly compensated by increased availability/greater lag between buying commitment and execution.

*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.?