Monday, 23 July 2018

Struggling Spain and its own Argentinian problem

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If Spain was already in the wars – and to what extent we might know more about, market-wise, over the next couple of sessions as it comes to ask fixed income investors for funding – then the aggressive move by the Argentinian administration in announcing that it is to nationalise 51% of YPF, the Argentinian oil company owned by Spain’s Repsol is the last thing it needed.

Anthony Peters, SwissInvest Strategist

President Cristina Fernandez De Kirchner was right up there with the rhetoric as she announced that it was her duty to bring Argentina’s resources back under its own control where they belong.

Absolutely by coincidence, I am currently reading the memoirs of Kate Adie, a well-known but not universally loved British TV journalist who writes about being in Brussels when the Argies landed on the Falklands thirty years ago and how all but the French – they understood the issues of owning overseas territories – laughed at the British and assumed that impotence would reign.

They have given the Spanish a headache they may not need but then again, as with the United Kingdom in 1982, this could prove to be the catalyst that brings the country together at a time of national crisis.

One needs to recall that the military junta was facing economic melt-down and a bit of flag waving and martial music can go a long way to chivying up public morale. Let it not be forgotten that Britain went to war in the Falklands in 1982 as the “Sick Man of Europe” and came back with a spring in its step and full of self-confidence. Prime Minister Margaret Thatcher was suffering from record low poll approvals before the war but went on to sweep the next one as though she walked on water (some Tories still believe she did).

Fernandez de Kirchner has already begun to crank up the rhetoric on “Los Malvinas” again – not least of all because there is some oil out there although nobody can yet work out whether this promises to be the oil find of the century or will prove to be a wet squib – and has by and large found reasonable if discreet support from the Latin neighbours. However, in nationalising YPF, she seems to have missed the target and both Chile and Brazil are showing no enthusiasm for the policy.

YPF is broadly and under-performer but not, it appears, due to Repsol mismanaging extraction but because of rash and unconsidered energy policies hatched in Buenos Aires. Nationalising the company changes nothing on that front and does no more than to cut YPF off from the sort of foreign investment it needs to develop its reserves.

Venezuela’s irrepressible President Hugo Chavez has already discovered to his detriment that foreigners with deep pockets are not all bad but pride prevents him from admitting it. So all watch on as the huge Venezuelan oil industry falls further and further behind. I had Fernandez de Kirchner down as a ruthless populist but not quite as another Chavez – let’s see.

The Argentinians have probably made a huge mistake here, have leapt out of the blocks without the support of their peers and have, I guess, shot themselves in the foot – if not even in both feet. Nevertheless, they have given the Spanish a headache they may not need but then again, as with the United Kingdom in 1982, this could prove to be the catalyst that brings the country together at a time of national crisis.

I heard a journo say on the radio this morning that Spain can do nothing about it – he might do well to listen to some of his predecessors in the 1980s who were convinced that Britain would take the loss of the Falklands – 99½% of the country neither knew where it was nor that we owned it – sitting down. Big mistake.

In a New York state of mind

Meanwhile – I have been away for a few days – I have watched the markets price in the end of the world as we know it in the morning, only to decide that there is life after death by lunchtime and acknowledge that actually things are improving by the close. Well, that is Europe. It is staggering how mindlessly European equities and bonds wait for the New York open and then follow it blindly, whichever way it might be going in.

Monday was decidedly mixed with a strong March US Retail Sales reading at +0.8% as opposed to a forecast of +0.3% on the one hand but then a surprisingly week reading for the Empire State Manufacturing Survey which measures business conditions in the State of New York on the other. This reported at 6.56 in April, down from 20.21 in March and massively off the 18.00 forecast by economists. It must be said that the Empire State is a highly volatile series – in the eight months from February 2009 and October 2009 it rose from -32.28 to +32.28 since when it has averaged 10.84.

There was something in their for bulls and bears alike which had the DAX trade in a 127pt range on Monday and the rare picture emerge of the Dow closing up while the S&P closed down, albeit only by a whisker. Australasia looks to be closing on the weaker side again and Europeans will probably follow their instincts and sit on the fence until the Americans have had their first cup of coffee.

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