Take 5 and come back tomorrow (11/12/24) Markets Industry Utilities Banks Wages

None of what follows is investment advice.

Market environment: Waiting for information – (Asia-Pacific markets fell modestly with European markets flat and US futures unchanged) – Asia-Pacific markets fell modestly with investors focused on potential Chinese stimulus and the US November inflation figures. European markets are flat and US futures unchanged.

Response to the crisis: Barriers to exit build barriers to entry – (The Government approves the draft Industry and Strategic Autonomy Law including the toughening of measures against delocalisation of activity (Expansion p30) – We already commented yesterday on the Government’s intention to approve the above law, noting that it would not be a bad idea if the Government knew what it was doing in the area of industrial policy (and did not engage in cronyism). An example of this is the toughening of the obstacles to delocalisation by requiring companies that received subsidies (of more than €3m) over the last 5 years will have to maintain their activity for 3-5 years, with any company planning to end industrial activity having to announce it with a 9-month warning. As in most activities, any barriers to exit succeed in building barriers to entry first.

Utilities: Lower taxes and higher prices – (The Junts pro-independence Catalan party and the PP ally with each other to suspend the 7% tax on electricity (Expansion p31)/The part of the electricity bill set by the Ministry of Ecological Transition will rise 33% in January for the average user (Cinco Dias p4) – For the time being the two allies (with the help of an absentee Socialist MP) managed to introduce the relevant amendment approved in the Ecological Transition parliamentary committee, which would have saved c.€1.5bn. However, the government parties have suspended the vote on the amendment, so its final success is uncertain. In the meantime, the other regulated charges included in the electricity tariff are set to rise sharply, mostly due to the end of capacity to offset costs with accumulated tariff surpluses and taxes (including the 7% tax). The impact of this on the final tariff will be offset by the cut in access fees to the network and will depend on the wholesale generation prices. This means that although an end to the generation tax might help some utilities, it could result in additional upward pressure to the price of electricity.

Banks: You can’t make everyone happy all the time – (The Santander chairwoman believes that domestic mergers are currently more feasible than cross border ones in Europe (Expansion p20) – The Santander Chairwoman stated that in the context of a slowing market, domestic mergers were more feasible than cross border ones, as they provided an easier tool for cost reduction. This is true, but they are also likely to face greater regulatory obstacles, due to the potential for resulting market concentration. You can’t make everyone happy all the time.

Wages: Beating inflation – (Wages agreed in union negotiations rise 3.05% through November, recovering purchasing power (Expansion p33) – The 3.05% YTD rise in November compares with 3.06% in October, but still beats the 2.4% inflation print last month, despite the rise from 1.8% in October. Thus, wages are recovering part of the purchasing power lost in recent years, mainly as a result of the acceleration of agreed wage rises during the summer. The rise in wages is also likely to put upward pressure on the rise in the minimum wage for 2025, which is currently being debated by the Government. The gain in purchasing power should be a plus for consumption, although not so much for Spain’s labour competitiveness.