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Why Spain's hung parliament won't dent the economy … yet Why Spain's hung parliament won't dent the economy … yet
(35 minutes later)
Spain’s dramatic election result – a hung parliament and a roughly equal split between left and rightwing parties – was followed by only modest drama in financial markets. The Ibex-35 index of leading companies lost 3.6% and the yield on t10-year Spanish bonds rose 8 basis points to 1.78% but these are not big moves in the face of what is being billed as a momentous shift in the political landscape of a large eurozone country. Spain’s dramatic election result – a hung parliament and a roughly equal split between left and rightwing parties – was followed by only modest drama in financial markets. The Ibex-35 index of leading companies lost 3.6% and the yield on 10-year Spanish bonds rose eight basis points to 1.78%, but these are not big moves in the face of what is being billed as a momentous shift in the political landscape of a large eurozone country.
Complacency on the part of investors, or a rational assessment that political uncertainty probably won’t derail an economy forecast to grow by about 3% this year? On balance, the latter.Complacency on the part of investors, or a rational assessment that political uncertainty probably won’t derail an economy forecast to grow by about 3% this year? On balance, the latter.
The political map is messy, no doubt about it. Almost any combination of the four leading parties would look unstable. The conservative People’s party of Prime Minister Mariano Rajoy could form an alliance with newcomer Ciudadanos, from the centre-right, but would still fall short of an overall majority. An administration led by the Socialists could enlist the anti-austerity Podemos party but would still need support from pro-independence Catalans. The political map is messy, no doubt about it. Almost any combination of the four leading parties would look unstable. The conservative People’s party of the prime minister, Mariano Rajoy, could form an alliance with newcomer Ciudadanos, from the centre right, but would still fall short of an overall majority. An administration led by the Socialists could enlist the anti-austerity Podemos party but would still need support from pro-independence Catalans.
Alternatively, a grand coalition of PP and the Socialists is possible but would not address the apparent message that Spaniards want change. Fresh elections next spring are possible.Alternatively, a grand coalition of PP and the Socialists is possible but would not address the apparent message that Spaniards want change. Fresh elections next spring are possible.
Related: Spanish elections: what happens next after the unprecedented result?Related: Spanish elections: what happens next after the unprecedented result?
For all that, Spain is not Greece, or even Portugal. The European commission’s latest forecasts suggest growth this year of 3.1% will be followed by 2.7% next year and 2.4% in 2017. If the next government lightens up on austerity, those projections might look more solid, not less. Meanwhile, a low oil price and a weak euro are strongly supportive and the European Central Bank will still be buying Spanish bonds. And, remember, none of the main parties is arguing for an exit from the euro.For all that, Spain is not Greece, or even Portugal. The European commission’s latest forecasts suggest growth this year of 3.1% will be followed by 2.7% next year and 2.4% in 2017. If the next government lightens up on austerity, those projections might look more solid, not less. Meanwhile, a low oil price and a weak euro are strongly supportive and the European Central Bank will still be buying Spanish bonds. And, remember, none of the main parties is arguing for an exit from the euro.
On the other side of the ledger, official unemployment in Spain stands at the appalling rate of 22% and public debt is roughly 100%. Those factors help to explain why the political landscape is so confused. But to translate a messy election result into a fresh economic crisis, or an automatic slump in inward investment, is a step too far. On day one, markets were right not to panic.On the other side of the ledger, official unemployment in Spain stands at the appalling rate of 22% and public debt is roughly 100%. Those factors help to explain why the political landscape is so confused. But to translate a messy election result into a fresh economic crisis, or an automatic slump in inward investment, is a step too far. On day one, markets were right not to panic.
Morrisons, a matter of convenience and deliveryMorrisons, a matter of convenience and delivery
There was fresh indignity for Morrisons as it departed the FTSE 100 index: founder and grocery supremo Sir Ken Morrison, a thorn in the side of former chief executive Dalton Philips, was revealed as the owner of 2.6m shares in Sainsbury’s. Son William is in for 2.1m, meaning the pair have £11.9m backing Sainsbury’s. “It is a well-run company,” Sir Ken told the Times (£). There was fresh indignity for Morrisons as it departed the FTSE 100 index: its founder and grocery supremo Sir Ken Morrison, a thorn in the side of the former chief executive Dalton Philips, was revealed as the owner of 2.6m shares in Sainsbury’s. His son William is in for 2.1m, meaning the pair have £11.9m backing Sainsbury’s. “It is a well-run company,” Sir Ken told the Times (£).
True, and is Sainsbury’s also the company Sir Ken wishes Morrisons could have been? The great man didn’t say that, but it is hard to avoid the contrast between the relative stability at Sainsbury’s and the stop-start strategy pursued by Morrisons in recent years.True, and is Sainsbury’s also the company Sir Ken wishes Morrisons could have been? The great man didn’t say that, but it is hard to avoid the contrast between the relative stability at Sainsbury’s and the stop-start strategy pursued by Morrisons in recent years.
Morrisons has more than twice as much debt - £2bn at the last count – as it did five years ago when it was taking its first steps in convenience stores and contemplating its online options. The adventure into convenience stores has been abandoned by new chief executive David Potts and the online offer seems to many outsiders to be more beneficial to Ocado, to whom delivery has been outsourced, than to Morrisons. Morrisons has more than twice as much debt - £2bn at the last count – as it did five years ago when it was taking its first steps in convenience stores and contemplating its online options. The adventure into convenience stores has been abandoned by the new chief executive, David Potts, and the online offer seems to many outsiders to be more beneficial to Ocado, to whom delivery has been outsourced, than to Morrisons.
Sainsbury’s, of course, does both convenience and delivery. The difference is that it got into both markets early; with Tesco, it bagged most of the best high street sites. Morrisons, it now appears, came so late to both battles that it should have avoided them altogether and focused on combatting the more potent threat from discounters Aldi and Lidl. That, of course, is roughly what Sir Ken was arguing all along.Sainsbury’s, of course, does both convenience and delivery. The difference is that it got into both markets early; with Tesco, it bagged most of the best high street sites. Morrisons, it now appears, came so late to both battles that it should have avoided them altogether and focused on combatting the more potent threat from discounters Aldi and Lidl. That, of course, is roughly what Sir Ken was arguing all along.
Keep going, Shell shareholdersKeep going, Shell shareholders
Get your skates on, Shell shareholders, if you want to lobby chief executive Ben van Beurden to renegotiate the terms of the planned £36bn takeover of BG Group. Even as the price of oil fell to a new 11-year low on Monday, the oil giant took another step towards completing a cash-and-shares deal it negotiated last April when the price of a barrel of Brent was $65, not today’s $36. It set a date for its shareholders to vote – 27 January. Get your skates on, Shell shareholders, if you want to lobby the chief executive, Ben van Beurden, to renegotiate the terms of the planned £36bn takeover of BG Group. Even as the price of oil fell to a new 11-year low on Monday, the oil giant took another step towards completing a cash-and-shares deal it negotiated last April when the price of a barrel of Brent was $65, not today’s $36. It set a date for its shareholders to vote – 27 January.
Among major fund managers, only David Cumming, head of equities at Standard Life Investments, has gone public with his misgivings, saying last week the takeover “doesn’t make financial sense” at the current oil price. If that is the extent of the rebellion, the deal will glide through.Among major fund managers, only David Cumming, head of equities at Standard Life Investments, has gone public with his misgivings, saying last week the takeover “doesn’t make financial sense” at the current oil price. If that is the extent of the rebellion, the deal will glide through.
It’s a very odd of state of affairs, though, since BG’s board, if pushed, would surely be obliged to give some ground on the price to reflect changed circumstances. Yet nobody – Cumming apart – seems prepared to turn up the heat. Activism in fund management remains conspicuous by its absence.It’s a very odd of state of affairs, though, since BG’s board, if pushed, would surely be obliged to give some ground on the price to reflect changed circumstances. Yet nobody – Cumming apart – seems prepared to turn up the heat. Activism in fund management remains conspicuous by its absence.