Upbeat stock market welcomes ABN AMRO IPO

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After a two-week lull, global stock markets turned positive again last week, mainly as a result of falling capital market rates and positive macroeconomic news. Although I’m not at liberty to comment further on the IPO than the title of this post, the favourable financial climate in which the bank was able to float its shares was a serendipitous turn of events.

Last week, both the US Federal Reserve and the European Central Bank provided further clarification on their policies for the coming months Ben Steinebach Ben Steinebach Head of Investment Strategy

As noted above, that financial climate had been favourably impacted by falling capital market rates. US ten-year interest rates fell from 2.33% last Friday to 2.26% on Thursday. In the eurozone, these fell slightly more – in Germany, France and the Netherlands by thirteen basis points to 0.48%, 0.80% and 0.65% respectively, and in Spain by as much as fifteen basis points to 1.69%.

Today S&P may decide to upgrade the Dutch government’s credit rating. After that rating was cut from AAA to AA+ two years ago, an imminent upgrade would mean that the Netherlands would regain its position as part of a select group of AAA-rated entities and would thus be the first country ever to win back the highest possible rating after a downgrade. Such a move would also be seen as an acknowledgement of the improvements carried out in the Dutch economy and public finances in recent years.

More good macro data

The macroeconomic figures published last week were generally fair to good, further evidence of the favourable financial climate. In November, the Centre for European Economic Research’s ZEW Indicator of Economic Sentiment for Germany rose for the first time since March from 1.9 to 10.4, indicating greater investor confidence in the German economy. A comparable index for the eurozone did fall slightly (from 30.1 to 28.3), but is at a much higher level overall.

The first US economic indicators for November – both the Empire State Manufacturing Index and the Philadelphia Fed Index – also showed an increase, indicating that economic activity on the American east coast is picking up again after a lull of several months. This was also reflected by a 0.4% increase in manufacturing across the US in October, beating expectations of a 0.2% increase. An 11% reduction in the number of US housing starts in October was disappointing, however.

Central banks provide more clarity

Last week, both the US Federal Reserve (the Fed) and the European Central Bank (ECB) provided further clarification on their policies for the coming months. The minutes of the Fed’s October meeting, also published this week, suggest that a rate hike in December is very likely. Several members of the Fed’s policy committee (including Vice-Chairman Fischer, Lockhart and Mester) were unequivocal in their belief that the US economy can indeed sustain a rate hike. Fischer expressed the view that clarity on this issue would also help to calm financial markets.

The ECB, for its part, also provided more clarity with respect to its policy intentions. Although inflation for October was revised upwards (from 0.0% to 0.1%), the policymakers in Frankfurt are anxious about future price movements. Chief economist Peter Praet has suggested that the 2016 and 2017 forecasts are likely to be revised downwards, thus falling below the 2% target. As a result, the ECB is likelier to opt to intensify its bond-buying programme (from EUR 60 billion to EUR 80 billion a month) in December and extend the programme beyond September 2016. The ECB will probably also cut the deposit rate further from –0.2% to –0.3%.

Little corporate news in upbeat stock markets

Share prices worldwide were on the rise last week, with only the Asian stock exchanges lagging somewhat. Share prices in the US and Europe rose on average by about 3%.

In the US, the biotech seed producer Monsanto is preparing a takeover bid for its rival Syngenta, a high-value company in which ChemChina has also showed an interest. Syngenta’s share price has since soared 9%.

In Europe, gas supplier Air Liquide offered to buy the US firm Airgas for more than USD 13 billion. If the deal is successful, it would result in the creation of the world’s largest supplier of industrial gases.

Delta Lloyd received much positive attention in the Netherlands after appointing Clifford Abrahams, previously of Aviva, as its new chief financial officer. After the insurer was awarded a positive rating from SNS Bank, its share price rose more than 10% on Wednesday. At 469 points, the Amsterdam Exchange Index (AEX) was up 3.4% on Thursday, only to slide back by nearly two points again this morning to 467 points.

Next week is all about macro news

The one thing on the agenda next week is macro news, including several points of interest which could trigger developments in the markets. It all kicks off on Monday with the release of data on purchasing managers’ sentiment in November from China, a number of European countries and the US – more specifically an initial estimate of sentiment in the industry. Similar figures from the services sector will be published later in the week. The figures on industry in China and the US in particular will be scrutinised, as these sectors have been showing signs of strain in recent months.

US data on third-quarter economic growth (second estimate) and on consumer confidence in November are expected from both the Conference Board and the University of Michigan. We will also be looking forward to figures on new home sales in October, which will be of particular interest given the decline in the number of housing starts announced last week.

A range of figures on business confidence will be presented in Europe, the most important from the German Ifo index and from Belgium (which often serves as a good indicator for the rest of Europe). New Dutch business confidence data from November is also being released. The so-called Economic Sentiment Indicator for November, which looks at the European Union as a whole and combines data on consumer and producer confidence, will be published. We’re also anticipating inflation data from Belgium and Japan. Finally, the US stock market will be closed on Thursday for Thanksgiving.

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