Germany’s market leads Team Europe

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The US stock market hit fresh all-time highs last Friday, and it was Europe’s turn this week: one per cent up on balance and its seventh consecutive increase in as many weeks. Team Europe was powered by German players such as Allianz, BASF and Siemens, with Switzerland’s Nestlé also pulling its weight.

The United States’ non-farm payrolls for July significantly exceeded expectations Ben Steinebach Ben Steinebach Head of Investment Strategy

PostNL took on the mantle in the Netherlands. Bristol-Meyers Squibb stood out for bad news: trial outcomes for one of its prospective blockbusters disappointed and the stock lost nearly 20% in the week. At over 4%, Germany’s Dax notched up the biggest rise of Europe’s week, led by the heavyweights already mentioned.

Encouraging employment data

The United States’ non-farm payrolls for July significantly exceeded expectations – reassuringly so, as these had disappointed in previous months. June’s figures had also been good and, if this trend continues, it might just be proof that the US economy is moving ahead of current market expectations. This would increase the chances of the US Federal Reserve raising interest rates this year – not something we’re actually assuming right now, as global conditions remain very fragile and more evidence is needed that the economy is indeed gaining traction. Once again, the energy markets claimed the limelight, as Brent oil has been coming down from its June high of USD 52. Hedge funds are speculating on a market sell-off as the level of short positions in the futures market is exceedingly high. That said, we reckon that, with oil prices this low, an ever larger number of oil resources will become unprofitable, reducing oil production and getting oil prices back up later in the year.

Corporate profits: a varied bunch

As noted last week, the results season has now slowed to a trickle, with a few corporates posting their results in the week. In the Netherlands, PostNL reported that it hopes to resume dividend payments next year, as its cash reserves have been boosted by the takeover of TNT by Fedex – a positive surprise that added no less than 8% to its share price on Monday. Randstad acquired Monster Worldwide, which runs Dutch vacancies website Monsterboard, an internet player which should contribute to Randstad’s turnover and profits from day one, and help it bolster its position in the United States and on the web. Germany utility E.On reported new, significant write-downs on its power plants, now part of its Uniper operations. The dismantling of its nuclear power plants continues to depress its shares, which lost around 7% on Wednesday. Dutch insurer Aegon’s figures did not generate much excitement either: its profits fell short of market expectations and, at the operational level, all business divisions disappointed. Admittedly, its Solvency 2 ratio was better than expected, but this was mainly down to an adjustment in the way it’s calculated.

Next week: a slew of Dutch corporate results as well as macro data

Worldwide, most corporate results are now out and the markets have turned their attention to macroeconomic data. Provisional indicators of second-quarter economic growth in Japan will be posted on Monday. Tuesday should see the release of industrial production and inflation figures in the US, while inflation numbers for the eurozone are slated to be published on Thursday. Also due next week: the ZEW indicator of economic sentiment, taking the measure of analyst views of the German economy. Last month, this took a massive plunge in the wake of the Brexit vote, but now that the dust has settled and more analysis has been carried out, it’s time to find out whether prospects have really got so much worse. In the corporate arena, US companies Cisco, Wal-Mart and Home Depot are due to reveal their results, while in Europe there’s Nestlé still to come. The wave of corporate results may have come and gone elsewhere, but not so for the Dutch stock market: Vopak, Delta Lloyd, ABN AMRO, NN Group, TKH and BAM are among the latest players scheduled to present their figures.

Piet Schimmel Standing in for Ben Steinebach Head of Investment Strategy ABN AMRO.


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