Just as it was unclear exactly what triggered negative sentiment in the first six weeks of this year, the upturn this past week was equally surprising. Share prices worldwide recovered, while bond yields in supposedly safe harbours inched up.
The recovery of the markets was kicked off by bank shares, which had been the biggest losers the previous week.
Ben Steinebach Head of Investment Strategy
The macroeconomic indicators published last week were a mixed bag. In Europe, the ZEW index fell further, reflecting how investors view the European economy. On the other hand, there were good figures on European car sales in January. The United States presented a decline in the number of housing starts in January, whereas a recovery compared with December was expected. This was supposedly related to the severe winter weather, which hit the northeast of the country the hardest. Stronger-than-expected growth of industrial production was reported for the same month, though. This was good news, as industry had long painted a bleak picture due to the strength of the US dollar. China also reported mixed figures – horrendous numbers for international trade, but remarkably good figures for growth of the money supply. These contrasting numbers would not make you expect negative sentiment to improve. Plus, several organisations (OECD, IMF, ECB) have downwardly adjusted their estimates for growth and inflation of the global economy, as have we. Yet the figures and downwardly adjusted estimates do not point to an impending recession: most confidence indicators are still too high, and the job market data – both in the US and in Europe – are still too good.
Randstad benefits from early cyclical recovery
The recovery of the markets was kicked off by bank shares, which had been the biggest losers the previous week. An agreement between Russia and Saudi Arabia on oil production restrictions also had a positive impact on share prices. Favourable developments took place mainly this week, while sentiment had already turned last week Friday. Compared with that day, markets worldwide rose by nearly 4% up to Thursday. The US markets lagged behind, but European markets – which suffered much more under the weight of negative sentiment – rose by an average of over 5%, with an outlier of more than 6% on the French CAC-40. Bank shares were given a helping hand this past week by ECB President Mario Draghi, who stated in a speech that bank share prices were wrongly below book value. Oil prices perked up a bit on an agreement between Russia and Saudi Arabia. Iran, too, joined in in the agreement, although it failed to state by how many barrels it would reduce its production.
Things are gradually calming down on the international corporate results front. Results published by the US retailer Walmart were in line with expectations, but the sales forecast for the year ahead disappointed investors (0% versus the previously expected 3-4%). Due to higher wage costs, zero profit growth is expected for 2016. In the Netherlands, Aegon announced underlying profit of EUR 470 million for the fourth quarter of 2015, but excluding non-recurring items, profit lagged expectations by 3%. It was announced last week that Ziggo and Vodafone will pursue a joint venture. This will make Ziggo the leading brand for broadband internet, fixed-line telephony and television by the end of this year, while Vodafone will concentrate on mobile telephony and the business market. Together these two firms have more than 9 million customers. Randstad reported good results for 2015, with net profit clocking in at EUR 518 million on sales of EUR 19.2 billion (up on 2014 by 52.4% and 11% respectively). AkzoNobel agreed to buy Basf’s industrial coatings segment for EUR 475 million. The deal had already been announced and will be completed in the second half of the year. The AEX rose last week by 5.6% to 413.79 on Thursday, performing well in the international arena. This morning the index inched up one point to 414.75.
Two Dutch firms soon to disappear from the exchange
Quite a few companies will publish their results this week, including a few interesting ones in the Netherlands. On the macroeconomic front, we are looking mainly at sentiment among purchasing managers, which indicates how the different economies are doing. It starts off on Monday with the mood among purchasing managers in the industrial sector in China, Europe and the United States in February. These are initial estimates, with final figures to follow in two weeks. Comparable estimates for the services sector will be published on Wednesday. Next week will also see the announcement of important data on business confidence in Germany (the Ifo index), consumer confidence in the United States (both from the Conference Board and from the University of Michigan) and the Economic Sentiment Indicator of the European Union (a combination of consumer and business confidence). All these figures relate to the month of February. Italy, meanwhile, will publish new data on inflation, industrial sales and orders, and retail in January . And the United States will also announce figures on orders of sustainable goods and house sales (both for January).
On the corporate results front, we are looking at the banks HSBC and the Royal Bank of Scotland as well as at Bayer and Basf, Home Depot, Peugeot, Anheuser Busch, Deutsche Telekom, Telefonica and Allergan. Up next in the Netherlands are Wolters Kluwer, RELX (formerly Reed Elsevier), NN Group, Vopak, Fugro, Aalberts, Delta Lloyd, ASMI and BESI. Ten Cate, having been acquired by Gilde, will publish its results for the last time before being delisted on 17 March. Ballast Nedam will also lose its listing in the week ahead, having been taken over by Turkey’s Renaissance. And although V&D is not listed, an icon of Dutch retail will presumably disappear from the high street.