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IBERIAN DAILY 31 JULY + 2Q’23 RESULTS. PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, BANKING SECTOR, CELLNEX, FERROVIAL, ROVI.

At the end of today’s report, and during the entire results season, we will include a presentation with positive and negative results highlights and previews for the 2Q’23 results to be released over the coming days in Spain.

At a 2023 high before August
The week of Central Bank meetings ended with strong performance on European stock markets, where the expectation that rate hikes will soon end and the results campaign were a support for the markets. In the Euro STOXX, the best-performing sectors on the week were Basic Materials and Financial Services, whereas Utilities and Pharma ended with the biggest losses. On the macro side, in Spain, July’s inflation sped up unexpectedly, as did the core figure, returning to 2.3% and 6.2%, respectively. The 2Q’23 GDP reading was also disappointing, slowing to 0.4% QoQ. On the geopolitical front, the mail-in vote changed one seat in favour of the conservative PP in Madrid to the detriment of the liberal PSOE, and thus PM Pedro Sánchez will have to gain the support of the Catalan separatist party Junts for a hypothetical government. In the US, real personal outlays beat expectations in June, showing highly dynamic private consumption. In Japan, the flexibilisation of the curve-control programme (carried out by the BoJ in its meeting on Friday) has led to a yield increase in reference bonds to a nin-year high, and June’s retail sales rose more than expected. In China, mixed PMI data, with the manufacturing index rosing more than expected (although without reaching a growth zone) and services falling unexpectedly. In US business results, Aon released worse earnings than expected, Colgate and Procter & Gamble were in line and Chevron beat expectations.
What we expect for today
European stock markets would open flat and with a possible bearish skew after last week’s gains. Currently, S&P futures are down slightly (the S&P 500 ended unchanged vs. the European closing bell). Volatility in the US fell (VIX 13.33). Asian stock markets are rising (China’s CSI 300 +0.50%, Japan’s Nikkei +1.10%).
Today in Germany we will learn June’s retail sales, in the euro zone 2Q’23 GDP and July’s inflation and in Mexico the 2Q’23 GDP. In US 2Q’23 Results, Welltower, Loews Corp and AvalonBay, among others, will release their earnings.


COMPANY NEWS


BANKING SECTOR
After Friday’s closing bell the EBA published the results of the stress test carried out on 70 banks in the euro zone or ~75% of the financial system. As expected, the exercise confirmed the system’s solvency: the banks analysed had an average CET1 of 15%. The losses in the stressed scenario would total € 496 Bn and would reduce CET1 by -459bps to 10.4%, still above the average regulatory level required. Only 4 banks of all those analysed would be below 7%. In the base scenario, average CET1 would remain improved in the 3 years of the exercise, reaching 16.3% in 2025.
We should point out that despite the fact that the stressed scenario was the toughest of all the tests, with a cumulative drop of -6% in GDP-23.25, the capital erosion was less than in previous tests due to the higher profit quality and the lower level of unproductive assets. In this case, the test projected an inflation shock of +20% accumulated over the 3 years, and thus a scenario of high rates, which has also helped to diminish the impact of the higher losses.
In our coverage universe, the most resilient banks are Bankinter (-160bps capital erosion) and Santander (-170bps), followed by BBVA (-300bps), Caixabank (-320bps) and Unicaja (-390bps).
Note that the stress tests are another tool the ECB includes in the process of evaluating capital (ICAAP) which serves to set the CET1 ratio required for each bank (SREP), which is usually released the last quarter of the year.
The results are positive, and we expect no impact. Of our coverage universe, and as on previous occasions, we highlight Bankinter on the positive side. We do not rule out the possibility that the results of the stress test will mean an increase in SREP for 2024, although we see no risk in the dividend, given the current excess capital (CET 13.5%) over the 2023 SREP (9.36%).