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: Losing appetite - (Asia-Pacific markets decline with European futures down and those for the US flat) – Asia-Pacific markets declined, with negative performance in tech stocks, due to a decline in risk appetite caused by worries over the Chinese economy and Fed monetary policy. Futures for Europe were down and those for the US flat.

Response to the crisis: If you lend me money I will be forever in your debt - (New record in government debt which rises in June to €1.57tn (Expansion p20) – The debt rose from €1.503bn in May, representing the largest YoY rise risen 2021 and reaching 113.1% of GDP, close to the limit for the year. The performance is made worse due to the fact that it takes place in the context of strong nominal GDP growth. This confirms the view that the government response to any crisis is to increase spending and finance the exercise with debt.

Hotels: On shaky foundations - (Marriott, Hilton, NH and Melia beat pre-Covid revenues by €2bn (Expansion p3)/ The tourism sector expects a “historic” year exceeding 84m foreign tourists (Cinco Dias p4)/ Households prefer to increase their debt rather than not go on holidays (Cinco Dias p22) – The sharp rise in revenues, exceeding pre-Covid levels should not surprise given the recovery in number of tourists and the effects of inflation. In addition to the fact that inflation has also impacted costs, the foundations of that growth do not look as solid as desirable, given that it depends on debt-fueled domestic demand and dependence on European countries that are slowing sharply.

Macro: Not the ideal driver - (The trade balance showed a deficit of €2.355bn in June vs. €5.393bn in June 2022 on exports of €33.982bn -2,8% and imports of €36.337bn -9.9% (Ministry of Trade) – The decline in the deficit is due both to the energy balance (which showed a €2.128bn deficit vs. €4.905bn) and the non-energy one (€226.9m vs. €488.5m). The “problem” is that the improvement in the deficit is mostly due to the sharp fall in imports, as exports fell as well, with the overall decline in imports more than being accounted for by the decline in energy products (-50.3%, contributing -10.4 points to the 9.9% overall fall). There was also material weakness in consumer products (durable consumer goods -10.3% and consumer manufactured products -3.6%). This seems to suggest weaker domestic demand as the driver of the improvement in the deficit. It is not the ideal driver.

Macro: Underwater - (Services revenues fell 0.9% YoY (adjusted for working days and seasonality) vs. +0.7% in May, with industry revenues falling 8.7% vs. -2.8% in May (National Statistics Institute) – The performance of service sector revenues is the worst over the last two years and the first time it has turned negative in the period (with 2Q overall performing badly), and this despite strong growth in car sale and repair (+13.1%), retail (+5.9%) and hostelry (+9.6%). The same is true for industry revenues, although in this case growth had turned negative since April. The decline is based on energy (-40.9%), intermediate goods (-13.5%) and durable consumer goods (-6.3%). A negative performance had already been previewed in the PMI numbers and the trade balance would seem to confirm it.

*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.?