Sentiment not suffering under Greece and disappointing macroeconomic news

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Global equity markets saw prices fall last Friday in response to fears of Greece going bankrupt. Although nothing really changed and there was some fairly disappointing macroeconomic news this past week, market sentiment is once again cautiously positive.

First-quarter results were a mixed bag, with banks and technology firms generally doing well Ben Steinebach Ben Steinebach Head of Investment Strategy

Greece’s deadline for announcing measures to get its public finances under control and to improve its economic outlook was last Friday. There was little chance of the Eurogroup’s finance ministers hearing details of these measures at their meeting in Riga (Latvia), however. The Greeks seem to be pushing things to the limit in antagonising their European partners and slowing down negotiations. We do expect a breakthrough in the near future, though, possibly heading off acute liquidity problems and keeping the country within the eurozone. The European Central Bank (ECB) has increased emergency provisions by EUR 1.5 billion and the Greek central bank has instructed local governments to transfer their cash surpluses to the central bank. This would secure Greece’s payment obligations until the end of May.

The financial markets were equally unmoved by last week’s fairly disappointing macroeconomic news, mainly regarding sentiment among purchasing managers, which fell in all significant parts of the world. This was the case in the United States, where the index is still relatively high (54.2), but also in China and Japan, where it even dipped below the ‘neither growth nor contraction’ level of 50. The biggest disappointment came from Europe, where the industrial index came down from 52.2 – not exactly high – to 51.9, while this was expected to rise to 52.6. This could be a temporary decline following sharp economic growth in the first quarter, which was prompted partly by the good mood among German businesses. This morning it was announced that the Ifo index, the leading indicator for economic activity, rose in April for the sixth consecutive month. Economic news from the United States is starting to improve, with sales of (new and existing) homes rising more sharply than expected in March. Compared with the lower level of the previous Friday (caused by the fear of Greece going bankrupt), all leading stock exchanges regained ground last week. The same cannot be said of the bond markets, which edged down. German 10-year bond yields consequently rose from 0.08% to 0.16%, despite the fact that central banks bought around EUR 10 billion in German bonds and the shortage of this paper is gradually starting to emerge.

Corporate results take the lead

There was plenty of corporate news last week. First-quarter results were a mixed bag, with banks and technology firms generally doing well. The same is true for European businesses that benefited from the strong dollar. The week started off with KPN announcing the sale of its Belgian mobile activities for EUR 1.3 billion to Telenet. The proceeds of the sale were higher than expected and will considerably strengthen KPN’s balance sheet. ASML announced last week that it is selling at least 15 chip machines equipped with the latest EUV technology to an American customer. This order is a major breakthrough, and the company’s price immediately jumped by over 10%. The fact that the sharply risen US dollar played a key role in the results was evident from the figures announced by AkzoNobel and TomTom. AkzoNobel benefited greatly from the more expensive US dollar, which was fully responsible for the 6% rise in turnover. TomTom, on the other hand, which mainly has costs in US dollars, suffered under the stronger dollar. Both good and disappointing results were announced by companies such as Microsoft, IBM and Google, while SAP’s and Schneider Electric’s figures were more in line with expectations. Good earnings figures were also posted by Credit Suisse and Morgan Stanley. General Electric, which previously announced it would sell off part of its financial activities to, presumably, Wells Fargo, reported better-than-expected earnings per share of USD 0.20 and significant growth of its industrial activities. The AEX rose again this past week to upwards of 500 points and closed off Thursday at 503 points, 1.6% higher than the previous week Friday. The Dutch index opened on Friday morning at almost 506 points.

Another wave of results expected

Another wave of quarterly results will be published the coming week, but there will also be some interesting macroeconomic news. The biggest international companies that will announce their first-quarter results are Apple, Volkswagen, BASF and the banks Barclays, BBVA and Deutsche Bank. In the Netherlands, we are expecting to hear from Philips, TNT-Express (for which SHV’s offer will expire on Thursday), DSM, KPN, Royal Dutch Shell, BESI, USG People and Randstad. On the macroeconomic front, a final Purchasing Managers Index in US services will be published and a lot of data will be published on consumer confidence in April (in the United States, France, Germany and the European Union). Germany, Spain and the US will present data on consumer spending in March. And finally, Germany will publish inflation figures for April.


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