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: China tries to build confidence - (Asia-Pacific markets rose futures for Europe rose and those for the US were steady) – Asia-Pacific markets rose on hopes that stimulus for the property sector would lift the Chinese economy and that the Fed is nearing the end of its interest rate rises. Futures for Europe rose and those for the US were steady ahead of the Monday Labor Day holiday.

Response to the crisis: All in the family - (The Government will transfer another €39bn to pay pensions in 2024 (El Economista p20) – The idea that Social Security is separated from the Government is a fiction. In the end, the obligations of the Social Security are backstopped by the Government and any deficit if easier to finance at the central government level than by the institution itself. Additionally, it is better for deficits be financed by “loans” from the central government, as this means that pension payments are financed by a combination of taxes that is less negative for growth/employment than an increase in payroll tax.

Banks: Mind the gap! - (Banks resume the fight for savings ahead of the ECB meeting (Expansion Sat p17)/Net subscriptions of €775m in August, reaching 34 months of cash inflow (Expansion Sat p19)/Households use the capital accumulated during the pandemic to repay loans rather than extend maturities (Cinco Dias p3) – Downward pressure on loan books as a result of early repayment is a negative for the banks due to the loss of NII, but it has the upside of easing pressure to maintain deposits. Net subscriptions to bank managed investment funds are likely to represent pressure on deposits (from which at least a part is financed) but with partial compensation via fees for the loss of NII. The above would not really explain the upward pressure on deposit remuneration, but what is missing from the picture is the cash being withdrawn by clients to fund consumption and non-bank investments.

Hotels: Cash talks louder - (Spain received 10.1m tourists in July +11.4% YoY, with total expenditure of €13.853bn +16.4% (National Statistics Institute)/September starts with the best level of bookings of the last five years some 17,04% higher than those of 2019, with two thirds being international (El Economista p12) – The growth rate in number of tourists represents a slight increase vs the +10.9% of June, in a key summer month. But is still generally fits in with the slowing trend since the start of the year. However, this uptick was not replicating where spending is concerned, with growth slowing from +17.5% in June to +16.4% in July. For the hotels, it is notable that spending on lodging at +7.6%, significantly lagged the +16.4% overall growth rate. At least spending on non-packaged tour holidays at +17.7% exceeded that in packaged tours (+10.3%), with positive implications for margins.

Macro: Keep calm and carry on - (The August manufacturing PMI came out at 46.5, down from 47.8 in July (S&P Global) – This marks the 5th month in a row of contraction in the manufacturing sector and the sharpest decline so far this year. Demand remains weak (mainly domestic) which led to lower production and purchasing, with orderbooks declining, as did input/output prices. However, confidence rose, which had a positive impact on employment.

*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.?