Following the fireworks unleashed by the European Central Bank (ECB) last week Thursday, it was quiet on the financial markets this past week. There was little corporate news in the form of earnings reports, and (as already reported last week) there was relatively little happening on the macro side. Most of the reports consisted of further debate about the implications of the ECB’s measures. The prevailing feeling was that the policy measures announced have a wider scope than expected. At the same time, there is a general belief that it is important to see whether the cheap (or at least cheaper) financing for banks will in fact lead to significantly higher lendings to small and medium-sized enterprises (SMEs). A low level of lending could be caused by a shortage of capital at banks, though it may also stem from a lack of demand from SMEs.
It is important to see whether the cheaper financing for banks will in fact lead to higher lendings to SMEs
Ben Steinebach Head of Investment Strategy
Generally positive macro news
The macro news, from the United States, China and Europe, was generally positive. In the United States, although retail sales in May fell slightly short of expectations (+0.3% compared with a projected +0.6%), the data for April proved to be higher than previously reported (+0.5% instead of +0.1%). The markets were still riding high on the encouraging employment figures announced last week Friday. With the labour market recovering in recent months, lendings to consumers have increased. In China, positive data were published about retail sales, production and investments. The data reported matched or exceeded the forecasts, and have led to improved optimism about the outlook for the Chinese economy: until recently there were fears that the country’s economic growth would fall noticeably. In Europe there were encouraging figures about industrial production in the euro zone. These developments buoyed the capital market interest slightly, and the stock markets were at levels close to the highs reached last week. On balance the international stock markets dropped slightly, though, and the earlier part of the week was more positive than the latter part.
AEX at its highest since mid-2008
Although no corporate results were announced this week, there were still some interesting developments. The AEX saw reports about Unilever and KPN. In the United States, the most important piece of business news was in the technology sector: Apple recently effected a 7:1 stock split. In theory this will not impact the company’s revenue or profit forecasts, yet it nevertheless improves the stock’s appeal for investors, particularly smaller investors. It also increases the possibility that the stock will be added to the important Dow Jones Industrial Average index. The stock had already climbed 8% last month. Intel announced a higher full-year revenue forecast, based on a projected increase in the demand for computers from corporate customers. In particular, the discontinued support for Windows XP by Microsoft is expected to boost sales for replacement PCs. These projections are in line with our positive forecasts for the IT sector. Intel stock rose 4% after the announcement, and technology exchange NASDAQ slightly outperformed the general indexes this week.
In the Netherlands, Minister Kamp of Economic Affairs announced the introduction of a framework to better protect the telecommunications network from potential takeovers. This measure is aimed particularly at vital networks used by the military, the police and other emergency services. The decision probably comes in response to the attempts – since cancelled – by Carlos Slim’s América Móvil to take over KPN. This week also saw some speculation about Unilever and the possibility that the company would be broken up. Reports in the Daily Mail suggested that a small group of private equity firms were set to bid GBP 40 (approx. EUR 50) per share. We believe that there would be little purpose to such a step: according to the article Nestlé and Procter & Gamble will acquire the separate divisions, and the premiums for those divisions will be quite high. The AEX has passed the 400-points mark. Last week Friday the index closed at 413.26 and this week it reached 415.86, the highest level since mid-2008, and closed at 414.74 on Thursday.
Little direction to be expected from next week’s news
Next week will again feature little in the way of news. The earnings season is still some weeks off, and not many exciting macroeconomic data are expected. The most important macro data are in fact the final figures about inflation during May in the euro zone. However, these are not expected to be much different from the provisional figures (+0.5% compared with a year before). Obviously slightly higher inflation would be good news and might relieve some of the pressure on the ECB to introduce further stimulus packages. The United Kingdom and the United States will also be publishing their inflation data, and in Germany the ZEW Index will be published, giving an indication of the prevailing mood among investors in the German economy. The United States will be looking forward on Monday to industrial production data for May, which are expected to be positive. The week will close with the announcement of consumer confidence in June in the euro zone and in the Netherlands. This figure might offer an indication of consumer spending patterns during the months to come, which is an important factor in overall economic growth.