The financial markets have grown increasingly jittery in the past week in the face of a range of factors, including greater uncertainty over the US elections. Donald Trump is benefiting from the Hillary Clinton email probe and it looks a very close race indeed. Meanwhile, oil prices came under considerable pressure because of doubts over the attainability of OPEC production cuts and surging inventories.
Donald Trump is benefiting from the Hillary Clinton email probe and it looks a very close race indeed.
Ben Steinebach Head of Investment Strategy
As a result, the oil sector acted as an additional drag on sentiment, while higher yields contributed to the turmoil. Granted, both the Bank of Japan (BoJ) and the US Federal Reserve have left their key rates unchanged but a majority in the market is factoring in a December interest-rate hike in the United States. One striking yield uptick was recorded in Italy, which is facing growing uncertainty in the run-up to its 4 December referendum and has seen yields surge by no less than 75 basis points in the past couple of weeks. Lastly, already fragile conditions in the United Kingdom were thrown into further disarray when the High Court ruled that Parliament should vote on when the government can trigger Article 50. This might make a hard Brexit extremely complex and severely slow down the process. All these factors combined to nearly double the volatility index or VIX – which basically measures fear – and most equity indices lost ground across the board.
Global economic recovery proceeds apace
GDP data for the third quarter reveal a pick up in the US economy: whereas the three previous three-month periods had seen growth averaging 1.0% (annualised), this accelerated to 2.9% in the past three months. This is good news.
This afternoon should bring greater clarity about the state of play in the American labour market, with provisional forecasts assuming jobs growth up by around 173,000 and a fall in unemployment to 4.9% from 5%. In Europe, by contrast, recovery remains fragile and growth stalled at 0.3% in the third quarter. That said, we expect this recovery to gain traction and are looking for an annualised growth upturn of around 1.6%. For the BoJ, conditions still look pretty grim and it is apparently now resigned to a lengthy period of low inflation. More stimulus measures might well be needed to get the Japanese economy back on track. The news from China was good: PMI data jumped to their highest levels since July 2014. The same was true in India, and if we compare notes with last week’s fine PMI figures from the United States, Japan and the eurozone, global trade would finally appear to be reviving.
Robust figures for Shell and ING
Shell’s third-quarter results benefited from deep cost-cutting and were sharply up on the year-earlier figure, with earnings based on current cost of supplies (CCS), excluding identified items, working out at USD 2.8 billion. This CCS measure, which financial analysts use as their main gauge, had produced a result of USD 2.4 billion a year earlier. Including identified items, CCS earnings attributable to shareholders amounted to USD 1.5 billion compared with a loss of USD 6.1 billion in the same quarter of last year.
ING also revealed solid results, clocking up third-quarter net profit of EUR 1.35 billion, up 27%. Adjusted for one-off items, profit amounted to EUR 1.34 billion, 22% higher than the year-earlier quarter and clearly ahead of the average EUR 1.15 billion analysts had been holding out for. The bank’s total revenues added 9% to EUR 4.4 billion, as lending grew by EUR 3.6 billion and net saving flows touched EUR 2 billion. ING bucked low interest rates and noted ‘healthy’ margins on its lending. This week’s disappointments included Wolters Kluwer and Heijmans. Growth at Wolters Kluwer fell well short of expectations and Heijmans is facing conflicts with clients over a number of major construction projects, casting doubt over their financial settlement. The builder is now talking to its lenders and saw its share price take a massive 25% hit. By contrast, PostNL had a great week and notched up share price gains of around 10%. Belgium’s Bpost is reportedly preparing a new takeover bid, even if the Dutch post and parcel company’s first response was to dismiss the takeover news.
American elections in focus
Most of the market’s attention will switch stateside next week, where American voters will vote in the next US president on Tuesday 8 November. The winning candidate needs 270 electoral votes to claim the presidency and the first indications should come in on Tuesday night and early Wednesday. Next week’s macroeconomic news will include trade and inflation figures for both China and Germany.
In the corporate arena, the US results season is drawing to a close with names such as Priceline and TripAdvisor bringing up the rear. Dutch market watchers are looking out for data from PostNL, FlowTraders, ArcelorMittal and Aegon, while European companies about to report results include HSBC, Anheuser-Busch Inbev, Adecco, Deutsche Post, Credit Agricole, Alstom, Vivendi, Kuka, Siemens, Lanxess, Continental and Allianz.