Financial markets still fragile and jittery

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Map of the world with shares figures

Share prices across global markets experienced a renewed bout of volatility in the past week, mainly sparked by disappointing foreign trade figures for China. All had been relatively quiet until Thursday, but when European markets woke up to the news that Chinese exports had slumped by no less than 10% on their year-earlier showing, the mood rapidly changed. Imports also contracted by more than the markets had been holding out for (by 1.9%). Obviously, financial markets remain exceedingly sensitive to any disappointments about China’s economy and, other than this, there wasn’t much in the way of fresh data that could have such a major impact on share prices.

One swallow does not make a summer, of course, but this does fit in with our view of a recovery of global industry. Ben Steinebach Ben Steinebach Head of Investment Strategy

The numbers from Europe were mostly positive, and August industrial output increases beat expectations in both Germany and the wider European Union. One swallow does not make a summer, of course, but this does fit in with our view of a recovery of global industry. In addition, September saw sentiment improve among investors in the German and European economies, as reflected in the ZEW index. In the United States, the release of the Federal Reserve minutes of the September meeting didn’t bring much in the way of new insights: votes for and against a rate hike were very close and suggest early action. That said, an interest rate move is unlikely to transpire at the next policy meeting on 1 and 2 November, as this is too close to the US presidential election on 8 November. A more obvious date for the next raise is the December FOMC meeting on 13 and 14 December.

Results season off to a disappointing start

In keeping with tradition, aluminium producer Alcoa kicked off the third-quarter results season on Tuesday. Its figures disappointed, as did Unilever’s sales. At 32 dollar cents, Alcoa’s third-quarter earnings per share undershot average analyst expectations of USD 0.34. Its revenue likewise lagged behind forecasts and this US bellwether points towards relatively subdued 5% growth in global aluminium demand in 2016. Investors were disappointed and the company’s shares lost over 11%. South Korea’s Samsung also continued to garner negative headlines, as problems with batteries prompted it to call a total halt on manufacturing of its Galaxy Note 7, a smartphone for which it had had high hopes. In the Netherlands, TomTom was the bringer of bad news, warning of greater pressure on satnav sales in Europe as car manufacturers are increasingly churning out cars with inbuilt satnavs. 

In the run-up to its release of third-quarter figures, the company slashed its full-2016 revenue forecast to EUR 980 million from EUR 1.05 billion, and its unchanged profits projections failed to stop a drop of over 8% in its share price. Unilever revealed that its third-quarter sales were roughly stable at EUR 13.4 billion but that volumes shrank in the wake of declining growth in Asia. Its shares lost nearly 4% on the news. Disappointing trade figures for China were primarily to blame for the Thursday fall in global markets, causing losses relative to the Friday before that ranged from 0.5% in Japan to 1.5% in Switzerland. Middle-of-the-pack AEX clocked a loss of 1.1% and ended Thursday on 445.2. Like other European markets, the index had regained about half this loss by Friday morning and was fluctuating around 447.

Results season about to gather momentum

With the first trickle of company results out of the way, the results season is about to come into full flow in the week ahead, while we’re also looking forward to a couple of interesting pieces of macroeconomic data and the outcome of the policy meeting of the European Central Bank (ECB). The main corporate news will be from US companies about to post their results: Bank of America, Blackrock, Goldman Sachs and Morgan Stanley among financial services companies, IBM, Intel, Verizon and Microsoft in the IT arena, along with a mixed bag of companies including Netflix, Philip Morris, Johnson&Johnson, United Health, Halliburton, Kinder Morgan, Schlumberger, McDonald’s and General Electric. This last company is considered to be particularly representative of the US economy and can therefore count on attracting a great deal of interest. In the Netherlands, Wereldhave, TomTom, AKZO Nobel and ASML will follow in the footsteps of Unilever. In macroeconomic terms, we’re embarking on a week of September inflation figures for the European Union, the United Kingdom and the United States – all very interesting, as these are bound to inform central bank policies. 

We also look forward to industrial output trends in the United States for September and in Japan for August, while the Empire State Manufacturing Index will loom even larger in economic cycle terms, as it is the first industrial activity showing for October in the New York area. Next week also sees the publication of various housing market data for September and October, while Wednesday should be interesting as China is to release fresh figures on retail sales, industrial production and investment in September, as well as on economic growth in the third quarter (expected to come in 6.7% ahead of the third quarter of 2015). Other numbers should include fresh consumer confidence data for the European Union and the Netherlands in October, as well as for August consumer spending in the Netherlands. Lastly, on Thursday all eyes will be trained on Frankfurt, where ECB President Draghi will take a press conference on the outcome of the policy meeting scheduled for that morning.

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