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IBERIAN DAILY 26 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, BANKING SECTOR, INDRA, PHARMA SECTOR.

Rate cuts lose steam
European stock markets fell, as the strong US employment data and the latest comments from the Fed have cooled the likelihood of seeing the amount of rate cuts the market expects (fed fund futures through Dec’25 rising to 3.76%). Thus, in the STOXX 600, the best-performing sectors were Basic Materials and Retail, whereas Pharma and Construction suffered the biggest drops. On the macro side, in the euro zone August’s M3 slowed its rise more than expected. In the US, weekly jobless claims fell unexpectedly, the final 2Q’25 GDP reading was raised to 3.8% QoQ due to the improved private consumption, August’s core capital goods orders rose unexpectedly and pending second-hand home sales remained at August’s levels. From the Fed, although S. Miran expects a greater consensus to lower rates, Goolsbee was uncomfortable with cuts in view of the risks of persistent inflation, and Daly called for caution. In Japan, August’s Tokyo core inflation came in below expectations. On the trade front, D. Trump announced 100% tariffs on branded or patented drugs starting on the 1st of October with the exception of those companies building plants in the US. He also announced 25% tariffs on trucks, 30% on upholstered furniture and 50% on kitchen cabinets and bathroom vanities, studying the implementation of tariffs on chip manufacturers not increasing their production in the US.
What we expect for today
European stock markets would open with gains of around +0.3%, with strong performance from financials. Currently, S&P futures are nearly flat (yesterday the S&P 500 ended down -0.2% vs. the European closing bell). Asian markets are falling (China’s CSI 300 -0.3% and Japan’s Nikkei -0.6%).
Today in Spain we will learn the final 2Q’25 GDP, in the US personal outlays, personal consumption expenditures for August and September’s final U. Michigan consumer confidence.


COMPANY NEWS

BANKING SECTOR. The market is already pricing in record earnings in 2026.
In the past 6 months the sector has climbed +17% (vs. +9% IBEX and +4% ES50) with an 11% revision of medium-term estimates. With a cost of equity that has fallen from 15.5% in Jan’25 to 11.7% in the sector and against a backdrop of reasonably stable rates (2%/2.25% in the short-term and 2.25%/2.5% from 2027), the banking sector will continue to hit new record Net Profit levels in 2026/28 but the improvement of estimates is very limited from these levels. In this regard we believe that a reduction of the cost of equity is the only reason that could justify a better performance of the banking sector although we believe that this upside is very limited. We have revised our estimates for the 2025-27 period, adding 2028 for the roll-over of our models through 2026. Although the 2025-27 revision has an impact (+15% on average) the 2028 Net Profit used in recurring terms is also relevant (+3% on average above Net Profit’27). With this in mind, we maintain our overweight recommendation for Santander, which remains our top pick, as its delivery for ROTE improvement continues, as well as the possibility of not only improving buybacks but also its cash payout.