Spain’s manufacturing activity saw notable improvement in July, marking the best month of the year for new orders. Production increased, and job growth continued, highlighting a positive trend in manufacturing over recent months. The overall index climbed for the third month in a row. Although increases were moderate, both domestic and international orders grew, showing stable demand.

Industrial Production Prospects

For three months, industrial production has risen, with expectations for further growth thanks to better demand. The US-EU tariff agreement might provide short-term stability, but uncertainty in US policies remains a concern. Employment trends and capacity utilization support this growth. Over the past three months, backlogs of work have increased, while stocks of finished goods have decreased. Manufacturers are hesitant to increase purchases of intermediate goods and are relying on current inventories for production increases. In July, price trends shifted after two months of declines, with both input and output prices rising again, likely due to tariffs. Delivery times for inputs are getting longer, and some of the cost increases are being passed to consumers. This outlook points to increased production, workforce growth, and adjusted pricing strategies among manufacturers. Spain’s manufacturing sector shows strong growth, which helps explain why the IBEX 35 has outperformed the broader Euro Stoxx 50 by nearly 2% over the last month. The final Spanish manufacturing PMI was 52.5 for July, significantly higher than the Eurozone average of 50.8. This highlights a unique opportunity in Spanish assets.

Potential Market Strategies

The report’s focus on rising input and output prices is an important indicator. This aligns with July’s Spanish CPI data, which rose to 2.8%, reversing the cooling trend from the previous quarter. This new price pressure may lead the European Central Bank to adopt a more aggressive stance in upcoming meetings. With ongoing uncertainty surrounding US trade policy and its impact on supply chains, we expect increased market volatility. For options traders, this suggests looking at strategies that profit from price fluctuations in key industrial or shipping stocks. The report’s mention of longer delivery times is a classic sign of potential market instability. One strategic approach could be to focus on relative value trades, preferring Spanish equities over weaker German or French counterparts. This can be expressed by going long on IBEX 35 futures while shorting DAX futures, taking advantage of Spain’s resilient performance. For those dealing with interest rate derivatives, the shift in price dynamics is important. We should consider positioning for a steeper yield curve, as short-term inflation concerns might exceed long-term growth expectations. Historical patterns, like the inflationary trend from 2021-2022 that followed similar supply chain issues, support this view. Create your live VT Markets account and start trading now.

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