Spain’s manufacturing activity improved in July, marking the year’s best increase in new orders. Output grew, alongside sustained job creation, reflecting a positive manufacturing trend over the past few months.
The overall headline index rose for a third consecutive month. Despite only moderate increases, both domestic and overseas order volumes showed an upward trend, indicating a stable demand environment.
Industrial Production Prospects
Industrial production has expanded for three consecutive months, with future improvements anticipated due to better demand conditions. US-EU tariff agreement may bring short-term planning stability but US policy unpredictability remains a concern.
Employment trends and capacity utilisation support the ongoing growth. Work backlogs have increased over three months, while finished goods stocks fell. Manufacturers show reluctance in boosting intermediate goods purchases, relying on current inventories for production growth.
In July, price dynamics changed after two months of price declines, with both input and output prices rising again, likely influenced by tariffs. Input delivery times are extending, and increased costs are being partially passed to consumers. This outlook indicates a rise in production, workforce expansion, and adjusted pricing strategies among manufacturers.
We see Spain’s manufacturing sector showing notable strength, 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 of 52.5 for July stands out, especially when compared to the more modest 50.8 for the entire Eurozone. This suggests a specific opportunity in Spanish assets.
Potential Market Strategies
The report’s mention of rising input and output prices is a critical signal for us. This aligns with preliminary Spanish CPI data for July 2025, which ticked up to 2.8% and reversed the cooling trend we saw in the second quarter. This renewed price pressure could lead to a more hawkish tone from the European Central Bank in their upcoming meetings.
Given the uncertainty surrounding US trade policy and its effect on supply chains, we anticipate increased volatility. For options traders, this suggests considering strategies that benefit from price swings on key industrial or shipping stocks. The report’s note on lengthening delivery times is a classic precursor to this kind of market instability.
A potential strategy is to focus on relative value trades, favouring Spanish equities over their German or French counterparts where manufacturing has been less robust. We can express this by going long IBEX 35 futures while simultaneously shorting DAX futures. This position capitalizes on Spain’s unique resilience shown in this data.
For those in interest rate derivatives, the shift in price dynamics warrants attention. We should consider positioning for a steeper yield curve, as short-term inflation fears could outpace long-term growth expectations. This view is supported by historical patterns, such as the inflationary period we saw back in 2021-2022 that followed similar supply chain disruptions.
