Recent turmoil in the financial markets has helped make up the US Federal Reserve’s mind to hold off on raising the federal funds rate – to a generally positive response in the financial markets, which had already factored in the non-move.
Turmoil in and about China has kept Greece out of the limelight for a while
Ben Steinebach Head of Investment Strategy
The US Federal Reserve (Fed) has not raised the fed funds rate, a decision increasingly anticipated in the past few months, as the risk had grown that such a rise would fan the turmoil in the financial markets. Fed chair Janet Yellen suggested an increase later in the year is not altogether off the table, but has become somewhat less likely. We still expect the first hike in December: with a further drop in unemployment, to 5.1% in August, the US economy looks to be in good shape and could well sustain a higher fed funds rate than its current 0-0.25% range. The financial markets were quite upbeat in the run-up to the Federal Reserve decision, and equity prices added an average 1.5% in both the United States and in Europe, while bond markets edged down to see long yields creep up. Following the US interest rate decision, by contrast, short-term yields inched up, while long yields fell.
Positive macroeconomic data
On the whole, last week’s macro data were pretty good. Admittedly, business investment in China disappointed somewhat, but industrial production and retail sales were ahead of expectations. In the United States, retail sales were also up but industrial production weakened. In Europe, industrial production is one of the key drivers of accelerating economic growth – in the Netherlands, for instance, as suggested by the latest projections released by the CPB Netherlands Bureau for Economic Policy Analysis on the occasion of the annual state opening of parliament. The Dutch economy is expected to grow by 2% in 2015, to pick up speed to 2.4% in 2016.
Amsterdam equities struggle to bounce back
On Thursday, the AEX closed 1.7% up on the previous Friday, in line with international trends, but the index had a bit of a bumpy ride to get there, going down, up and then back down again. The encouraging noises from the Dutch government at the opening of parliament caused barely a flutter in the Dutch equity market, and neither did a massive EUR 5 billion tax cut to provide an extra boost to the Dutch economy. The mood being sanguine on balance probably had more to do with favourable global macro data, both in the United States and in the rest of Europa, with corporate news – both domestic and international – serving as another driver.
Major takeover by brewer AB Inbev
The world’s biggest brewer AB Inbev this week announced merger talks with SABMiller, number two in the league table, creating a brewing conglomerate cornering nearly one-third of the global beer market. The deal can count on intense scrutiny from third-ranking Heineken, of course, even if it does mean fewer competitors in the beer market. Plus, there was good news from market players Boskalis and TomTom. Boskalis has just filled its order portfolio for the next couple of years with a dike-strengthening project at Markermeer, the first phase of a much larger project five times the size of the Maasvlakte 2 Rotterdam port expansion. TomTom has landed a number of new orders, taking its total order receipts to over EUR 250 million (from EUR 220 million today), while its current contract with Fiat has been renewed and the company has been selected to deliver the full navigation package for the Lancia-Ypsilon, including a five-year subscription to the TomTom satnav service. Incidentally, on the morning of Friday 18 September, the AEX recorded a loss of nearly 1%, much as at other European stock markets, and the Fed’s decision not to move on interest rates seems to have made little difference.
Elections put Greece back on the radar
Turmoil in and about China has kept Greece out of the limelight for a while, but this might change on Sunday when the world will have its eyes trained on the country’s parliamentary elections. It’s a close race, with New Democracy hot on the heels of the Syriza parties, and the outcome is likely to have a major effect. As for the corporate arena, there is not much news due for release in the week ahead.
At the macroeconomic end, we are looking forward to the first projections of purchasing managers’ sentiment in September, as many countries are set to release their PMIs for both the industrial and services industries. The United States will be releasing the August figures for new and existing home sales, which will be closely monitored after it emerged last week that housing starts have fallen. Also due is the durable goods report for August, another key indicator for the state of the US economy. In Europe we are awaiting releases on consumer confidence in the European Union as a whole, and in Germany and Belgium. (Confidence data for September will also be published in the United States.) In addition, restated GDP figures for the second quarter are slated for release in the Netherlands.