We all know about the amazing diminishing Spanish bond yield.
But have you heard the one about the Spanish recovery having totally viable legs?
Spanish consumer prices may have fallen 0.5 per cent in August, year on year — their sharpest drop since 2009 — but the final reading of second quarter GDP confirmed the economy still grew 0.6 per cent q/q versus 0.4 per cent q/q in first quarter of 2014.
As this chart from Marco Protopapa at JP Morgan shows, that makes for quite a turnaround, deflation or no deflation:
On Tuesday, US short selling specialist Gotham City Research declared Spain’s Let’s Go Gowex to be a fraud. When the shares collapsed, triggering a suspension, the immediate response of regulators at Spain’s alternative stock market regulator, the Mercado Alternativo Bursatil, was to fire off angry missives to America’s SEC and the UK’s FCA. It wanted to “determine if there have been illegal operations” on the part of Gotham and its managers.
Lo and behold it looks like any illegality may just have been a little closer to home. Click to read (spanish)…
Something to keep in the back of your mind as once remote political events become everyday, is that the Catalan question still lingers.
Here’s Citi’s recent assessment of the local but in no-way endorsed by Madrid poll set for the Autumn:
Catalonian independence (due in November 2014).
Glimmers of hope in Spain, which has adjusted its economy (cut labour costs) and is peering around the corner of recovery. Credit Suisse has sufficient confidence to upgrade its views on some of the banks.
They would now buy Caixabank and Popular, while Sabadell gets a reprieve from the sell list.
We see Spanish banks approaching a ‘turnaround’ in the earnings cycle after material progress in terms of funding, capital and Non Performing Asset recognition, and with superior operating leverage adding appeal to the story…
Typical — you take off as the risk on Spanish bonds fades… only to get sold off as Argentina implodes. Read more
Bankia, of course. Why a 13 month deposit is required, we’re not so sure.
Reality at last for the crumpled Spanish savings bank? Maybe. Read more
John Calverley and team at Standard Chartered have a big report out looking at how a selection of developed economies are doing post-2008. The short answer is that the US has largely recovered from the crisis, with growth there likely to be above trend in 2014. The UK and Japan, meanwhile, are still behind in terms of balance sheet adjustment and effective monetary policy, while poor Spain “still has a long way to go.” Read more
Is it only going to get worse before it gets better?
Societe Generale think so: as the chart says, they’re expecting it to reach 30 per cent in 2015 (from an already-awful and record-breaking 27.2 per cent, at last count). Read more
The chart above shows the decline in Spanish bond yields “occurring at a time that Spain has announced that it had not hit its deficit targets and would not hit next year’s,” as David Watts of CreditSights points out. Read more
Nothing like taking the long view – such as this snapshot of Spanish, Portuguese and Italian 10 year paper, over 150 years. Click to enlarge
Bond yields in the eurozone are hitting new lows not seen since 2010…
Not the full-on collision of the two which initially popped up in Cyprus.
Still, we missed this slapdown by the ECB… directed at Spanish plans for the deposit guarantee fund there to buy out retail investors from illiquid preferred shares and subordinated debt in unlisted banks, when those banks are being restructured. Read more
Mortgage markets come in many different flavours. Some American states, for example, like theirs to be non-recourse. In such locations, a homeowner can walk away from their mortgage, and send the house keys to the lender secure in the knowledge that the only asset that can be seized is the property.
Such tastes no doubt contribute to a higher proportion of non-performing loans, as mortgage-holders are quite aware of their right to walk away — an option that becomes increasingly more attractive in an economic and housing downturn.
And now it would appear that the Spanish might prefer their mortgage market to have a taste of the non-recourse mortgage in future, as a pressure group succeeded on Tuesday in getting the country’s parliament to debate an initiative for making the change. Read more
Just how bad could the Rajoy slush fund scandal get? What we have so far is a little confusing. From El Pais on Monday:
Answering reporters’ questions for the first time since details emerged late last week about an alleged slush fund his Popular Party (PP) controlled, Prime Minister Mariano Rajoy said on Monday in Berlin that all the information that has been published by the media “is untrue — except for some things.”
Hmm. Rajoy reportedly didn’t clarify which things were true and which were not — although he had already denied allegations he took cash payments from a secret slush fund paid for by construction companies. Read more
El Pais has a nifty interactive whereby you can search the 14 sheets of manuscripts allegedly penned over 18 years by Luis Gutierrez Barcenas, the party manager and treasurer at the heart of the supposed Rajoy “slush fund” scandal in Spain…
In our last post, we covered up-to-date figures on some of the major components of the headline Spanish deposits number. Here we discuss a new component that will come into play over the next few months. In fact, it might have already been a factor in November’s number.
It’s the €40bn of previously undeclared assets of Spanish residents! The finance minister announced last week that this was simply hiding in a sofa (or possibly multiple sofas), and it wasn’t all that hard to find once they went to the trouble of removing all the cushions. Or, something like that…
OK, actually it’s the amount that came to light through the government’s tax amnesty that closed on November 30th, 2012. But hey, that would have been a hell of a couch, eh? Read more
The measurement of Spanish deposits is whatever you want it to be! Or at least it sometimes seems that people regard it as such.
FT Alphaville has previously discussed how hard it is to meaningfully interpret this number. The last time we went there, to try to explain various underlying components of the figure and which direction they’re travelling, the media was aflutter with tales of deposit flight.
Now, there are stories of deposits and capital returning… and we need to add further driving factors to the headlines. What with the tax amnesty that unearthed some €40bn of previously undeclared assets of Spanish residents, as announced by the finance minister last week, and all. Read more
An unlikely beneficiary of the fiscal fudge, perhaps. Here’s Spanish 10 year paper, the yield on which was threatening to drop back below 5 per cent on Thursday. Read more
Last weekend’s Catalan elections returned perhaps the most difficult-to-read result. Judging by the overall support for separatist parties, there was significant support for at least a referendum on independence. Yet the largest separatist party, the centrist Convergència i Unió, saw its majority in the regional parliament slashed, forcing it to seek a coalition. Read more
Catalonia’s regional election on Sunday delivered a big victory for the separatist movement — but a more fragmented one than had been expected. Four separatist parties won 87 of the regional parliament’s 135 seats. The ruling CiU party didn’t do so well, losing 12 seats to hold 50. This was much lower than polls had suggested, and follows a battle between supporters and opponents of independence that has become increasingly bitter, as the allegations against Artur Mas last week illustrated.
As the FT’s Miles Johnson reports, the vote brings the prospect of a stronger push for Catalan independence. Regardless of the CiU’s own performance, the surge in support for smaller separatist parties raises the big question of what this means for heavily-indebted Catalonia, and for Spanish prime minister Mariano Rajoy. Read more
The Catalan elections are on Sunday, and perhaps unsurprisingly there’s been an escalation of tensions ahead of the vote. The question is how this might benefit the CiU, the main separatist party. Read more
A report in the Spanish paper El Confidencial says that the Spanish government is considering asking just the IMF for aid in an attempt to bypass Eurogroup conditionality.
It seems quite an unlikely option (and no sources are cited) but it may nevertheless be an indication that the government is feeling increasingly anxious about its ability to hold out on asking for a bailout. Read more
Not the kind of youth sacrifice once practiced by the Aztecs, the Inca, and the Carthaginians in order please distant, fickle gods if course. We’ve moved on a bit since then.
Then again, it’s still the younger generation that generally draws the short straw in a crisis… Read more
Spain’s fiscal management seems to increasingly be a case of plugging holes, watching new ones appear, ignoring them, then relenting and also plugging those… all while delaying a clearly inevitable request for assistance from Brussels.
On the positive side, the auction on Thursday marked the completion of the country’s planned funding for this year (€86bn, but there’s also €10bn in private placements issuance). On the negative side, the €4.7bn debt sale saw unenthusiastic demand, which has helped spook investors and driven 10-yr yields up. Read more
Some more details about Spain’s bad bank are filtering through, mainly on how it might function in practice. And analysts are finding that the more they find out, the more concerns they have.
On Thursday Credit Suisse’s Ignacio Cerezo and Andrea Unzueta summed up their latest thoughts on AMC following a meeting with Cuatrecasas, legal advisers to the bank recap fund FROB. Overall, they see the new details that emerged as ” incrementally negative” for both Spain and its banking sector. Read more
The ECB may have granted loans to the Spanish bank sector on too low an interest rate given the quality of the collateral posted, according to an investigation by Die Welt. It potentially raises rather worrying questions about the bank’s risk control systems and whether it is even following its own strict lending rules. Read more
Another day, and another confirmation that the eurozone economy is struggling to gain traction. And it’s not just the small peripheral economies that are seeing factory activity slowing.
Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) fell to 45.4 in October from September’s 46.1. The October figure was just up from an earlier reported flash reading of 45.3. The index has been below the 50 mark that divides growth from contraction since August 2011.
It includes an almost 80 per cent haircut on buying foreclosed land assets from banks. (“The transfer price is not a reference for the valuation of nontransferred bank assets.” – OK then) Useful to remember that pricing will be based on “real economic value” – which Ireland’s Nama showed can be an elastic term – but the presentation also says further “adjustments” will be made on top of that.
There’s also a “conservative” target of 14 to 15 per cent return on equity over 15 years for working out loans… while Sareb will spend €45bn on a first wave of loans transferred from Bankia and other particularly weak banks.
Most commentary on Catalonian nationalism dwells on whether this is something that’s going to have implications outside of Spain. How worried should we really be if the Catalans get a bit more fiscal autonomy or even independence? But the Catalan debate actually raises a much bigger question that goes right down to the essence of the eurozone as it stands, namely if Catalonia is unprepared to subsidize Spain’s poorer regions, why should northern Europe do so? Read more