2023-07-24 11:46:47
The stock markets again approached annual highs despite the contradictory signals about the evolution of the economy in the short term. Personal consumption is slowing down and in recent months the part of this spending supported by credit instead of savings has been growing. Unemployment claims, job turnover and dollars per hour are also deteriorating and we expect this trend to accelerate in the second half of the year.
Although we remain optimistic, we do not rule out new bouts of volatility. The S&P 500 is 6% away from all-time highs, and we don’t see it losing the gain from the lows of last October. We continue to work on a mild and rapid recession scenario, while we value the upcoming corrections as entry opportunities.
The ideal scenario at the moment is that of economic conditions that are neither good enough to prevent inflation from falling further, nor bad enough to accelerate a recession. Upcoming central bank meetings and corporate earnings season will help test investor sentiment.
Featured events for this week
-Impact of the general elections in Spain.
-Decision of interest rates in the US, where a rise of 25 basis points is expected and there is speculation about the possibility of a new increase before the end of the year. In Europe, another rise of 25 basis points is also expected, while the CPI is still far from the target to discuss the end of the cycle of increases. Finally, no changes are expected at the Bank of Japan despite the rebound in inflation and the weakness of the yen.
-The season of business results continues, in Spain more than 20 of the 35 Ibex companies publish, among which Santander, BBVA, Iberdrola, Repsol, Telefónica and IAG stand out. In the US it will be the turn of big technology companies like Microsoft, Alphabet, Meta or Amazon.
-Among the most outstanding macro data are PMI services and manufacturing in Europe and the US, consumer confidence (The Conference Board), housing data, employment and prices. At the end of the week, the GDP for the second quarter and inflation for June in Spain will also be published.
Asset of the week: Spanish banking sector
This week the rest of the Spanish banks that make up the Ibex 35 publish their accounts. Last week Bankinter inaugurated the business results season for the second quarter of the year with a notable increase in profits and a cold reception from investors. The “orange” entity fell 3% despite raising its profit by 54% more than in the same period of the previous year, up to 418 million euros.
The progressive rise in interest rates continues to boost interest income and bank fee income. However, in recent months, the collapse in the demand for credit and the outflow of deposits are generating certain doubts for investors. The biggest fear is that the economic slowdown will deepen and continue to curb loan production while increasing a delinquency rate that is at its lowest in the last decade.
You will also have to face the drop in deposits, many clients have been forced to use their savings to combat the rise in prices and others have decided to withdraw them in search of higher remuneration. Until now, Spanish banks were one of those that were paying the least for deposits in all of Europe. With the return of the ECB TLTROs and increased competition, it will be forced to progressively increase its yields if it wants to keep deposits stable, which will result in a narrowing of the interest margin.
Although we remain confident that the Spanish banks will continue to increase their profits, we consider that the upward path in the price of their shares will be increasingly limited. The highs of last February seem to us to be significant resistance that will be difficult to overcome in the short term, so a new approximation will be a good opportunity to reduce exposure to the sector most vulnerable to uncertainty. The increases in the dividend, the repurchases of shares and the improvement in profits are already widely discounted and over the next few months we see it difficult to improve all these circumstances.
#keys #week #July #invest #Stock #Market