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: The devil is in the details - (Asia-Pacific markets declined with European futures down and those for the US little changed) – Asia-Pacific markets fell led by China due to disappointment regarding lack of details on potential stimulus. European futures were down and those for the US flat.

Response to the crisis: Never leave for today what you can do tomorrow - (The Minister for Labour and candidate for PM for Sumar proposes a voucher to offset mortgage costs and a lower working day (Cinco Dias p21) – Given that the elections are to be held on July 23rd having candidates for PM make populist proposals should not surprise. However, the above is somewhat more surprising coming from a government minister (as opposed to from the opposition) given that the above are measures that could have been proposed to the Council of Ministers over the last years.

Banks: Hope for the best, prepare for the worst - (The large banks will join the battle for deposits and will pay up to 3% by the end of the year (Expansion Sat p17)/Banks raise provisions by 31% and expect a rise in NPLs (Cinco Dias p3) – The large banks joining the battle for deposits would seem to point to rising competition in the sector (as well as rising market rates) and is clearly not a plus for sector P&Ls. Rising provisions also impact the P&L negatively, but at least represent an advancing of costs that would likely be taken in any event via higher NPLs.

Hotels: Climbing is harder the higher you go - (Spain starts the year (Jan-May) with 30% more tourists (Expansion Sat p29) – According to numbers advanced by the Minister for Tourism, Spain received 34m international tourists in Jan-May +28.8% YoY. This represents a moderate slowdown from the +32.4% of Jan-Apr, continuing the slowdown trend seen since the start of the year. Bookings for the summer season seem to be strong. But given that we are already talking about high absolute numbers, comparisons are likely to be increasingly challenging.

Macro: All that glitters is not gold - (Total labour costs per month rose 6.2% YoY in 1Q23 vs +4.2% in 4Q22 (National Statistics Institute) – The 1Q23 growth in total labour costs per month represents a significant acceleration on previous quarters which had hovered at c.4%. A negative feature (from the point of the workers) is that non-wage costs (+6.8%) rose more strongly than wages (+6.0%, +5.6% excluding variable pay), especially as regards payroll tax (+7.0%). That said, even +6.0% should make a start in terms of preserving purchasing power, although at the expense of the low cost of labour that seems to have been one of the drivers of employment growth.  

*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.