After the many ups and downs of the first two-and-a-half weeks of December, this week saw some calm return to both equity and bond markets. Bond yields in the United States and the eurozone core countries edged back down, while the equity markets moved pretty much sideways.
The week that was saw the AEX index notch up a fresh annual record.
Ben Steinebach Head of Investment Strategy
The week had little in the way of news to give direction to the markets in the run-up to Christmas, and that’s unlikely to change much in the week ahead. The macroeconomic outlook remains moderately positive, with confidence indicators continuing to get better, and production and spending indicators recording slightly less improvement. The week brought one example from the first group of indicators – the Ifo, which happens to be the best gauge of business confidence for Germany. This index has been high for quite some time now and moved up a little further in December. US durable goods orders, by contrast, are an example of a somewhat lagging indicator. Its November reading showed a steeper than expected month-on-month fall of 4.6%, although it should be noted that orders had staged a rise of 4.6% in October and that this indicator is known to fluctuate sharply from one month to the next. A third revision saw US gross domestic product (GDP) for the third quarter inch up a little further, to an annualised 3.5% relative to the second quarter. The same report revealed that third-quarter corporate profits had recovered more than had been expected and that inflation had remained very subdued right through November. Whereas the Dow Jones looked certain to break through the psychological barrier of 20,000 last week, the index had to settle for a little more than 19,900 by the end of the week.
AEX records new 2016 high
The week that was saw the AEX index notch up a fresh annual record. At a weekly gain of 1.2%, the Amsterdam index was among the few outliers in an otherwise flat market.
There was little corporate news to stir the AEX, with the most important nugget emerging at the end of the week when insurers NN Group (Nationale Nederlanden) and Delta Lloyd finally announced agreement. NN will be paying EUR 5.40 a share to take over Delta Lloyd, fractionally below what the markets had been expecting.
The week’s other M&A news included the tie-up of Linde and Praxair to create the world’s biggest supplier of industrial gases. Meanwhile, Euronext is in talks with the London Stock Exchange (LSE) to bag France’s Clearnet, and Actelion resumed negotiations with Johnson & Johnson, after the latter had walked out in the previous week. This was bad news for Sanofi, which had come to the negotiating table only last week and was in advanced negotiations to take over Actelion. Lastly, Sligro snapped up Tintelingen, an online retailer of Christmas presents and hampers.
In the week that was, Nike reported mixed figures and outlined cautious guidance for the period ahead. FedEx’s results disappointed despite a solid performance by recently acquired TNT Express, but the company did uphold its earlier projections for full 2016. Other disappointments included a profits warning issued by Danone, with sales of products such as Activia yoghurt in Europe falling short of expectations.
In Italy, the government earmarked EUR 20 billion to rescue its ailing banking sector after Europe’s oldest bank, Banca Monte dei Paschi di Siena, failed to secure enough funds from investors. This aid will not solve the troubles facing the Italian banks.
Other financial sector news came from Deutsche Bank and Credit Suisse: both reached settlements with the US Department of Justice over the sale of toxic mortgage securities in the run-up to the financial crisis, at a total amount of USD 12.5 billion. Almost simultaneously, the DoJ filed a fraud suit against Barclays.
Recovering from festive excesses
A short trading week and an almost empty diary. On Monday, many stock markets will remain closed for the holidays and trading volumes are likely to stay low in the rest of the week, much as they were in the week just past. There are no companies slated to release results in the week and the macroeconomic diary is virtually empty as well.
Japan is scheduled to produce most of the week’s macroeconomic news: unemployment (expected: 3%) and inflation (core inflation expected at 0.1%) for November.
On Tuesday, the United States will release consumer confidence figures for December, with the headline indicator expected to rise further to 108.5 from 107.1 in November. US home sales in the pipeline will be published on Wednesday and business confidence for the Chicago area on Friday (expected: 56.5).
We wish you very happy holidays and will be back next week.