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: Falconry at work - (Asia-Pacific markets declined with European futures down and those for the US flat) – Asia-Pacific markets declined (China closed for holidays) as hawkish Fed statements pressured US government bond rates. Futures for Europe were down and those for the Us flat.
Response to the crisis: Spending more with less - (The EC gives the go-ahead to increasing European aid to Spain by €94.0bn, replacing the commitment to introduce tolls on government-owned motorways with increased rail investment (Expansion p25) – unblocking further European aid to Spain is good news due to the expected contribution to economic growth and (hopefully) productivity improvements. However, swapping the politically controversial commitment to reintroduce tolls on government owned motorways for additional investment in rail infrastructure should not help to control the budget deficit as it entails lower revenues (tolls) and higher expenditure (investment).
Corporate margins: Full shopping list - (Sumar demands the control of food margins in order to support the re-election of PM Sanchez (Expansion p27) – Sumar which is part of the current coalition government with the Socialists is making a list of demands in order to support the re-election of PM Sanchez that includes not only the above control of food sector profit margins but also higher dismissal costs, lower working hours and effective control of house rentals. Hopefully this is just an extreme bargaining position, and, in the end, Sumar will settle for a choice of ministries in the new government.
Banks: No pain, no gain - (ECB vice president De Guindos says it is premature to talk about rate cuts and that the tax on banks has created uncertainty (Expansion p15)/The Ministry of the Economy will limit commissions charged by investment funds (Expansion p17) – Whether interest rates decline or not will depend on the efficacy in permanently controlling inflation via an economic slowdown. In this respect, Mr De Guindos might consider alternative wording, as not wanting to create and “unnecessarily painful” recession, could suggest that creating a needfully painful one is acceptable. This may be the truth, but it is not tactful. Obviously for the banks, lower rates on the back of a painful recession is not a positive scenario.
Macro: The Devil is in the details - (Spain’s manufacturing PMI index for September printed 47.7, up from 46.5 in August (Samp;P Global) – Although the PMI index improved in September vs. the prior month, the details are not positive, given declines in output, new orders, staffing, purchasing and backlogs, with only confidence remaining positive. At least margins seem to have been preserved, as lower input costs were only partly matched by a modest reduction in output prices.
*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.