Results season in full swing

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This week, investors had a veritable feast of corporate results to sink their teeth into – it was time for US-listed heavyweights. In keeping with tradition, US aluminium producer Alcoa last week kicked off the results season and this week it was the financial services industry’s turn: Citigroup, Bank of America, Goldman Sachs, JPMorgan Chase, Wells Fargo, American Express and by the end of the week also BNY Mellon and Morgan Stanley.

Quite a few US retailers issued profit warnings despite growing consumer confidence and robust retail sales figures. Ben Steinebach Ben Steinebach Head of Investment Strategy

This week Mark Schneiders is standing in for Ben Steinebach, who is absent. 

With the exception of Citigroup, all corporate profits have so far generally lived up to expectations. The one thing all of the US banks shared were the massive provisions they took for legal proceedings they’re caught up in, while the big traders among them – e.g. Goldman Sachs and JPMorgan Chase – were hit by lower revenues from bond trading in the fourth quarter. Profits figures reveal that, five years on from the financial crisis, these major American players have bounced back nicely.

Striking a discordant note, quite a few US retailers issued profit warnings despite growing consumer confidence and robust retail sales figures. Last week it was Bath & Body that raised the alarm, while electronics chain Best Buy was this week’s fall guy, as competition with internet retailers is putting pressure on margins. Best Buy saw its share price plummet 28% on Thursday. In Europe, too, share prices of consumer-oriented companies, such as retailers Ahold and Carrefour, and Switzerland’s Richemont of the watches and other luxury goods, dipped below the line following the release of disappointing sales numbers. Bloomberg’s poll of analysts arrived at a consensus profits increase of 4.9% for S&P500 companies in the fourth quarter of 2013, and sales up by 1.8%.

Royal Dutch/Shell shocker
Today, investors were spooked by a profits warning from Royal Dutch/Shell. The oil major warned that fourth-quarter 2013 earnings would be “significantly lower than recent levels of profitability”. Shell cited disappointing production figures, higher refining costs and lower oil and gas prices as the key problems. Other oil companies, such as Total and Exxon, are also weighed down by refining issues, and the results confirm our view that there’s more mileage to be had from oil industry suppliers than from the oil companies themselves.

Yields back to early-December levels
In the bond markets, bond yields continued on their upward trajectory and have now returned to levels last recorded in early December 2013. Following the Federal Reserve’s tapering announcement, markets initially responded by driving down bond prices – with yields rising – but they would now appear to be convinced that tapering is separate from the Fed’s interest-rate policies. Inflation figures were released in both the United States and Europe this past week, coming in way below the central banks’ inflation targets. Investors expect the Federal Reserve and the European Central Bank (ECB) to keep their official rates low for now, and bond yields declined accordingly.
Spain had a remarkably easy time of it this week, placing EUR 6.6 billion worth of new loans. It was the first time since January 2012 that the country succeeded in collecting so much money from investors – a sign of confidence and a confirmation of our views.

The Netherlands retains Triple A from Fitch
The good news this week was that Fitch confirmed the Netherlands’ high credit status, although the credit rating agency continues to take a negative view of this country’s outlook. Disappointing economic growth expectations could adversely affect the Dutch government’s debt position, Fitch believes. Last November, Fitch’s competitor Standard & Poor’s took the country’s rating down a notch to AA+.

Economic data and World Bank confirm economic recovery
The week didn’t just see the release of a slew of corporate figures – economic data were also thick on the ground, with both hard data and confidence indicators all pointing to a further recovery of the world economy. The World Bank Report envisages the global economy staging robust growth this year, led by the developed countries. However, the report also warns that too swift a winding-down of financial support by central banks could sharply reduce capital flows to emerging countries, causing widespread economic damage and tripping some into a fresh crisis. At this point, markets would seem to have enough faith that monetary policymakers will execute the process with due care.


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