Schäuble increasingly annoyed

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The tensions surrounding the Greek situation increased further last week, and the question on Friday was whether a solution would be found. The financial markets responded calmly, and Europe’s stock exchanges continued their upward march.

This week will reveal how the events surrounding the Greek negotiations will play out and whether investors will remain as stoic as they have been over the past fortnight. Ben Steinebach Ben Steinebach Head of Investment Strategy

Having started the week uncompromising and unwilling to accommodate their European lenders, the Greeks later became considerably more flexible. Their government presented a proposal asking for a six-month bridging loan and demonstrating a willingness to satisfy most of the demands. However, by then the Germans – and in particular German finance minister Schäuble – had become considerably irked by the Greeks’ attitude and the proposal was dismissed out of hand. Although the possibility cannot be ruled out that Greece will leave the eurozone, in our view a much more likely outcome is a compromise that is based on the most recent Greek proposal. This will also be very much in the best interests of the Greeks, who will need external financing however the situation develops. An exit would cut them off from their sources and a return to the drachma would undoubtedly result in a bank run and plummet the country into immeasurable chaos.

Ukraine, the other geopolitical problem, is similarly presenting difficulties. After the pro-Russian separatists had seized the strategically important town of Debaltseve early in the week, as the week went on the cease-fire was also violated in other parts of Eastern Ukraine. Yet the response from the financial markets to these tensions was minimal. The European stock markets continued to climb, with the US markets again dropping a little behind. On average prices on the bond markets fell slightly, which caused interest rates (except in the south of Europe) to rise marginally: in the United States, the 10-year yield in fact climbed from a little below 2% to 2.1%.

AEX at highest level since 2008

Although investors ignored the geopolitical tensions last week, other news was reported that explained the price movements on the international stock markets. Europe outperformed the United States in both macroeconomic and corporate news. Disappointing macro data were published in the US: confidence indicators (the Philadelphia Fed Index and the Empire State Manufacturing Index) were announced to have fallen further than expected in January, as had housing starts. Corporate data also fell short of expectations, though primarily in the oil industry, which of course has been hit hard by the sharp drop in energy prices.

Much of the data published in Europe, conversely, were encouraging. Following the publication of relatively favourable data about economic growth in Europe’s separate countries the week before, the ZEW Index of investor confidence in the German and European economies also showed significant signs of recovery and the upward trend in the European economy was confirmed. In the corporate arena it was primarily European companies that announced their results for the final quarter of 2014 and for the year as a whole. Many of these earnings were in line with the forecasts, for example Nestlé and Schneider Electric. In light of the loss of income caused by the pilots’ strike, Air France-KLM’s reported earnings were relatively positive. The earnings published by Aegon were as expected, though the underlying profit exceeded the analysts’ consensus estimate by around 10%. A range of other Dutch companies also recorded excellent corporate earnings, for example Randstad, which saw its turnover grow at a significantly higher pace, and BAM, whose civil engineering operations showed a particularly strong growth rate, though the number of homes built remained stable at around 450. The earnings reported by Wolters Kluwer also slightly outperformed the analysts’ forecasts. On Thursday the AEX reached almost 470 points: the highest point since June 2008 and more than 1% higher than the Friday before. p>

Earnings season coming to a close

This week will reveal how the events surrounding the Greek negotiations will play out and whether investors will remain as stoic as they have been over the past fortnight. Another factor that will undoubtedly impact the markets is how the West will respond to the violations of the cease-fire in Eastern Ukraine. An array of data will also be announced, both macroeconomic figures and corporate earnings. Although the earnings season is coming to a close, this week still offers some highlights. Internationally, companies such as BASF, Bayer, AXA, Allianz, Telefonica, Deutsche Telekom and Anheuser Busch Inbev will report their results. Yet quite a number of Dutch companies are also scheduled to publish their earnings, the most important being Ahold, PostNL, Delta Lloyd, Reed Elsevier, Aalberts, Fugro and Vopak. In macroeconomic news, we will be looking at US consumer confidence (both the Conference Board data and the data of the University of Michigan), as well as a series of European confidence indicators covering both producer and consumer confidence. Lastly, various European countries will be releasing data about retail sales in January.


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