Earlier today we held a conference call with special contributor Daniel Lacalle to discuss Spain’s economy, stock market, and political outlook.





Key take-ways from the call include:

  • Hedgeye’s quantitative outlook on Spain shows its equity index, the IBEX 35, broken across our intermediate term TREND and long term TAIL levels, a bearish signal in our model.
  • Hedgeye’s Growth, Inflation, and Policy (GIP) model shows the Spanish economy in Quad 3 for the remainder of the year – an indication of growth slowing as inflation accelerates, another bearish signal in our factoring process.
  • Spain’s fiscal imbalances remain, with the sovereign debt load near 100% of GDP and a deficit above the 3% target. Politically the government looks poised to tack on spending and issue limited market reforms.
  • Key indicators like Manufacturing Production, IP, PMIs (Manufacturing and Services), Consumer and Economic Confidence, Retail Sales, and Housing indices are all turning over/declining over recent months.
  • A key tell on the health of the Spanish economy is its largest trading partner, France, which is seeing growth go in the wrong direction.
  • Do not confuse ECB President Mario Draghi’s agenda to expand QE with growth, as it will have little impact on the real Spanish economy.
  • There’s high probability that Spanish elections this year (December 20th) result in a narrow win by the PM Rajoy’s ruling Conservative (PP) party, but with a coalition build that includes the Socialists. Expect Spain to revert to its 2008 “ways” when labor market reforms were halted. This is very negative! 
  • As growth slows as debt expands with high unemployment and a rigid labor market, and no prospect for a QE-led recovery, a dangerous cocktail is brewing that could drive economic fundamentals much lower.


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