Take 5 and come back tomorrow (31/7/24) Markets Politics GDP Inflation GRF

None of what follows is investment advice.

Market environment: Closing the gap - (Asia-Pacific markets rose with European and US futures up) – Asia-Pacific markets rose supported by the rise in Bank of Japan rates and expectations of a cut by the Fed. European and US futures point up.

Response to the crisis: Not a good look - (PM Sanchez sues the judge that is investigating his wife (Expansion p28) – PM Sanchez is within his rights to not testify before the judge investigating his wife’s business dealings, due to his status as her husband, as well as defend his right as PM to testify in writing (rather than verbally before the judge). However, refusing to testify (he could do it voluntarily) does not suggest an eagerness for transparency, an impression that is further reinforced by his presentation of a lawsuit against the judge due to alleged willful misapplication of the law. Being seen as trying to hold back information and pressuring an investigating judge is not a good look.

GDP: Less is more - (2Q24 GDP growth of 0.8% QoQ vs. the same in 1Q24, boosted by exports, hostelry and commerce (Expansion p26) – The 0.8% QoQ rise in 2Q24 GDP was mostly due to the contribution of the external sector, as domestic demand rose only 0.3% (again, the same as in 1Q24), and this more due to the decline in imports (-0.2% vs. +2.2% in 1Q24) than the rise in exports (+1.2% vs. +3.3%). It is also notable that the rise in final consumption of +0.3% (vs. +0.1% in 1Q24) was due to not for profit organisations (+2.6% vs. -0.7%) and the public sector (+0.2% vs. -0.6%) rather than households (+0.3% vs. +0.4%), with gross capital formation slowing down considerably (+0.3% vs. +1.2%).

Inflation: Mostly due to fresh food and energy - (The July CPI shows 2.8% YoY growth vs. +3.4% in June, with underlying inflation at +2.8% vs.+3.0% (Expansion p27) – The slowdown in the CPI according to the advance published yesterday of 0.6bp if mostly due to the decline in fresh food and energy prices, as shown by the 0.2bp decline in underlying inflation. The improvement in YoY inflation was helped by the fact that the 0.5% QoQ decline compares with an unchallenging +0.2% rise in July 2023.

Grifols: Cleaning the accounts - (Deloitte uncovers another accounting issue with a €457m accounting adjustment due to errors in attributing shares of a subsidiary leading trading on the stock being suspended by the Stock Market Commission (CNMV), with 1H24 net profit of €36m vs. losses of €70m on revenues of €3.444bn +7.5% and free cash flow of €57m (Expansion p5) – Given the controversy over the quality of its accounts sparked by the Gotham City short-seller, any hint of additional issues is likely to cause worry. Grifols has already stated that the adjustments made do not have a material impact on its results, cash generation or leverage ratios. The fact that the Grifols family is considering launching a bid (together with Brookfield) to take the company out of the market could increase speculation regarding what valuation would result from the accounts being completely cleaned.