EUR 100.00 For Business Accounts Only

IBERIAN DAILY 01 DECEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, IAG, MAPFRE.

MARKETS YESTERDAY AND TODAY

The Ibex manages to keep the 8,300-point level
European stock markets ended with corrections, although drops came to a halt at the end of the session after the University of Oxford showed its optimism about the efficacy of vaccines against the Omicron variant and the WHO warned about some overreaction of governments to mobility restrictions. In this regard, new restrictions would be on the table, and the US could require a test for all air travel the day before departure regardless of the traveller’s vaccination status (and not up to 3 days, as was the case to date for vaccinated travellers), whereas Germany is studying the possibility of making vaccination obligatory. In the Euro STOXX, where drops prevailed, Insurance ended in positive territory whereas Banks saw the lowest drops. However, Consumer Goods and Household posted the biggest drops. On the macroeconomic level, in the euro zone November’s inflation rose more than expected up to 4.9%, where the core data increased to 2.6%. In this regard, Germany’s next chancellor, O. Scholz, requested the ECB action if inflation does not moderate. In Germany, November’s unemployment fell more than expected, whereas in Spain, October’s retail sales slowed down unexpectedly. Lastly, in the US, the Conference Board consumer confidence dropped more than expected given the fall in the expectations component and despite the fact that the S&P500 hit new record highs in November. From the Fed, J. Powell supported a faster reduction of the purchase programme for a few months and withdrew the “transitory” term to define the current situation of inflation, which opens the door to rate hikes sooner rather than later. Fed Funds futures had already priced in two and a half rate increases by Dec’22. In Turkey, the lira hit a new low after Erdogan promised lower interest rates before the 2023 election. OPEC+ could postpone the production increase expected for December (+400,000 b/d) due to the impact from the Omicron variant.
What we expect for today
European markets would open with slight gains, with value performing better than growth due to the rise in short-term debt tranches. Currently, S&P futures are up +0.9% (the S&P 500 ended -0.23% lower vs. its level at the European closing bell). Volatility in the US rose (VIX 27.20). Asian markets are climbing (China’s CSI 300 +0.1% and Japan’s Nikkei +0.4%).
Today in the euro zone we will learn November’s final manufacturing PMI, in the US November’s manufacturing ISM, November’s ADP private employment survey and the Fed Beige Book. In debt auctions: Germany (€ 3 Bn in bonds due 2026) and Greece (€ 625 M in 6M T-bills).

COMPANY NEWS

IAG, BUY
According to Bloomberg, a While House report would be planning to tighten travel restrictions in the US this week to face the Omicron variant. Among the new measures, the Biden administration plans to demand all travellers to take a diagnostic test one day before their departure regardless of their vaccination situation. Note that the current rules demand travellers to take a test in a 3-day period.
In this regard, Ireland will demand all travellers a negative Covid-19 test regardless of their vaccination situation no later than 48 hours before they arrive, in the case of an antigen test or a PCR test no later than 72 hours before they arrive. This new rule will come into force starting on 03/12.
Negative news, as this means new restrictions for international travels, although the possible impact is difficult to assess, as these are just restrictions and not prohibitions. As we have already outlined on several occasions, the US market accounts for 17% of IAG’s sales on a normalised year and 30% of its capacity. This geographic segment is particularly relevant due to British Airways dominant position in the North Atlantic, which has higher unit revenues (due to the higher weight of the business segment), and therefore, higher returns, backed by business travel.
At current prices, and assuming a recurring EBIT margin of 12%, the market would be pricing in capacity levels of around 60% vs. 2019, which we think is too low given that, for the time being, there is much uncertainty surrounding the new Omicron variant.