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: Lower bets on lower interest rates - (Asia-Pacific markets were mixed with European futures slightly lower and US ones more so) – Asia-Pacific markets were mixed, with investors lowering their expectations of rate cuts this year and being impacted by negative macro in China. Futures for Europe are modestly down and those for the US more so.

Response to the crisis: Showing who is the boss - (Puigdemont paralyses the amnesty law in Parliament and leaves PM Sánchez with a significant defeat (Expansion p30)/The Government does not rule out extending the budget (Cinco Dias p22) – The Junts radical pro-independence Catalan party voted against a draft law granting amnesty to those who took part in the illegal referendum/declaration of Catalan independence of 2017 because it believes that the amnesty is not wide enough. The bill will now return to the commission where additional amendments may be accepted. The move could be also seen as a way of highlighting to the PM his dependence on Junts’ votes. This is why it may prove necessary to extend the current budget, should the PM not wish to make additional concessions. This episode highlights the fragility of the government and who is the real boss.

BBVA: Good despite FX - (2023 attributable net profit of €8.019bn +26.1% on NII of €23.089bn +20.7%, increasing the dividend on the year by 28% and stating that it has not yet reached its profits ceiling (Expansion p13) – The BBVA results were very good despite the negative FX impact (at constant currency +40%) reflecting the rise in interest rates in its main markets (Spain, Mexico). There is still some momentum for 2024 as the loan portfolio has not been fully repriced, but if we start to see central banks cutting interest rates this year this could limit the upside profit potential. The statement that BBVA has not reached yet its profit potential could be in this sense.

CPI: Easier ahead - (The advance indicator for the January 2024 CPI shows YoY growth of 3.4% vs. the +3.1% of December, with underlying inflation at +3.6% vs. +3.8% (National Statistics Institute) – The January CPI figure is not very positive given that it rises again after two months of declines, being now clearly above 3%, and underlying inflation slows its pace of decline (Sep +5.8%, Oct +5.2%, Nov +4.5%, Dec +3.8%, Jan +3.6%). The main consolation is that January presented a relatively challenging MoM base for comparison (-0.2% Jan 2023 vs. +0.1% Jan 2024), which will not be the case in February (Feb 2023 +0.9%).

GDP: Buying growth - (4Q23 QoQ GDP growth of +0.6% vs.+0.4% in 3Q23, with household consumption at +0.3% vs. +1.2%, public consumption at +1.4% vs.+1.4%, gross capital formation at +0.2% vs. -1.0%, leading to domestic demand at +0.5% vs. +0.8% (National Statistics Institute) – The acceleration of growth in 4Q23 is less positive than it might seem, as the item which increases the most is public consumption, while household consumption and gross capital formation show little dynamism (in fact investment in machinery and equipment falls 4.8%), and the contribution to growth of the external sector declines notably. In view of the above, the only part of the 4Q23 GDP that is “racing like a motorcycle (as the PM described overall economic performance recently) is public spending, which is financed with more debt.

*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.