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: Betting on a soft Fed - (Asia-Pacific markets rose with European and US futures mildly up) – Asia-Pacific markets rose, although off their highs, as bets on softer Fed policy increased due to US employment numbers offset renewed worries about the Chinese economy. Futures for Europe and the US were mildly up.

Response to the crisis: Crisis? What crisis? - (Pension expenditure rises 33.6% during the “Sanchez era” (Expansion p15)/New pensions are 14% higher than the normal wage (El Economista p23) – As I have already mentioned, there was already upward pressure on pension expenditure due to demographic reasons and the fact that new pensions are higher than old ones, and the decision to index pensions to inflation has not helped. This in turn puts pressure on government finances which are not exactly in good shape. This may lead to the need for hard decisions in the future.

Banks: Less money in the bank - (Households and corporates have withdrawn €19.5bn in deposits in Jan-Jul, with a €13.2bn decline in July (Expansion p9) – The decline amounts to 2% of total so it should not imply liquidity problems, especially as a significant part seems to have been used for early loan repayment. However, the resulting savings in borrower payments also represents a decrease in recurrent revenues for the banks. And part of the decline seems to have been used to fund consumption (see below) and for alternative investments with unequal impact on the banks (investment in short-term government bonds a net negative, investment funds at least partial compensation for loss of deposits).

Real Estate: Interesting times - (The number of housing transactions slows (-4.6% YoY in 1H23) and anticipates the end of the Real Estate boom (Expansion p14) – The decline in activity (which is accelerating as 2Q23 showed a 7.3% fall) is logical given the rise in prices (partly driven by higher costs) and the decline in affordability due to the increase in interest rates. Additionally, it is to be noted that this compares with a period of still high activity as a result of relatively low inflation/interest rates and satisfaction of pent-up demand resulting from the Covid period (especially in new homes where the lag between buying decision and completion of the transaction is highest). Nevertheless, the figures do point to a change in cycle.

Macro: Shop ‘till you drop - (Real retail sales rose 7.3% YoY in July (adjusted for working days and seasonality) vs. +6.5% in June (National Statistics Institute)/Spaniards spend €2,781/year on average more than they earn (El Economista p24) – The acceleration in retail sales is impressive, especially as July 2023 does not compare with an especially negative July 2022 (-0.3%), with the overall rise being understated by the modest (+1,8%) rise in food sales, with non-food sales rising at a 17.6% pace (and within this the only moderate growth was in household equipment, which rose 1.2%). The main question is how sustainable the increases are given that part of the spending seems to have been financed with savings/borrowing, as shown by the decline in household bank deposits and the gap between average expenditure and income.

*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.?