EUR 100.00 For Business Accounts Only

IBERIAN DAILY 04 MARCH (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, BANKING SECTOR.

MARKETS YESTERDAY AND TODAY

The FED behind the curve
In an unexpected and move taken outside the regular calendar, the Fed cut interest rates by -50bps (leaving the range at 1.00%-1.25%) due to the impact of the coronavirus on the economy, although the market is already pricing in another -50bps cut by mid-2020. This is the first cut made outside the ordinary meeting calendar since 4Q’08, and the future curve still prices in more cuts throughout the year. With this, the Euro Stoxx posted general gains thanks to Financial Services and Construction, whereas Banks and Food showed the biggest drops. On the macro side, in the euro zone, February’s preliminary inflation rose slightly, in line with expectations. In the US, president Trump called for more rate cuts and monetary stimulus measures. Separately, Democratic candidate Joe Biden would have been the big winner on “Super Tuesday”, although Sanders won in California. In China, the Caixin services PMI fell in February more than expected to 26.5 from the previous 51.8. In US business results, Autozone, HP and Kohl’s were very much in line with expectations.
What we expect for today
Stock markets would see gains of +1.0%. Currently, S&P futures are up -+1.17% (the S&P 500 closed -2.32% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 36.82%). The Asian markets are trading with mixed results (Japan +0.08% and Hong Kong -0.18%).
Today in the euro zone we will learn February’s final services PMI and January’s retail sales and in the US February’s ADP private employment survey, non-manufacturing ISM and the Fed’s Beige Book.


COMPANY NEWS

BANKING SECTOR. ECJ ruling on IRPH, favourable for the banks
The ECJ’s ruling on the validity of IRPH clauses means Spanish judges will have to resolve lawsuits on a case-by-case basis whether there was transparency. Transparency is defined (clear and understandable wording of how the index performs) and the replacement of the IRPH if the clause were not transparent (bank IRPH index or judge’s discretion) in a decision favourable for the banks. The verdict eliminates the risk of class-action lawsuits and dilutes the risk of individual ones, as the Supreme Court ruled in 2017 in favour of the banks. We also rule out the possibility the banks will have to make a provision for this risk, and we do not expect a financial impact (neither positive nor negative) from the ruling. CABK and BKIA, the two banks with the most exposure, rose more than 5% after the ruling, although by the closing bell these gains hade been reduced due to the Fed’s rate cut. Although following the sell-off last week it is difficult to isolate the “IRPH risk” on the share price, the maximum impact we calculated meant ~7% of CABK’s market cap and ~5% for BKIA. Thus, we think the share prices could still have upside of +2%/+3% to completely close the gap vs. the rest of the banks. CABK, along with UNI and SAN, remain our top pick in the Spanish banking sector.