Last week, the European Central Bank (ECB) caught the markets by surprise when it reduced the monthly amount earmarked for its asset purchase programme. The US Federal Reserve, by contrast, did exactly what everyone had been expecting and raised its Fed funds rate by 0.25%, while forecasting three more likely hikes over the coming year.
Financial markets were on a roll across large parts of the world.
Ben Steinebach Head of Investment Strategy
Global financial markets hardly moved on news of the rise, which has pushed the rate into a 0.5-0.75% range, as they had long since factored it in. The Federal Open Market Committee (FOMC), the Federal Reserve’s monetary policy committee, considered the US economy so robust that all committee members supported the hike. Admittedly, inflation is not quite at its target level of 2% – it recorded 1.7% in November – but US employment, the Federal Reserve’s other criterion, has been staging satisfactory growth, taking unemployment back to the extremely low showing of 4.6% of the labour force in November.
In fact, financial markets were on a roll across large parts of the world. The United States saw equity markets hit new record highs, with the Dow Jones approaching the psychological barrier of 20,000. Flying in the face of positive business confidence reports for SMEs, however, the Russell 2000 – the US index for small companies – failed to match this performance and closed 1.5% below its showing for Friday of last week. The upbeat tone of the Dow Jones and S&P 500 indices is quite striking, given further upticks in bond yields. US ten-year yields added nearly 20 basis points to 2.58%.
The European continent, by contrast, saw yields stall after earlier gains, and Italian yields – which had shot up in the run-up to the referendum – came down by nearly 20 basis points. Slack European bond markets probably also explain why European equity prices gained a little more traction this past week, varying from gains of 1% for the Eurostoxx 600 to 2% for Spain’s IBEX and 3.8% for outlier MIB in Italy.
AEX notches up annual high
Amsterdam’s AEX index had another excellent week and nudged its highest levels of the year. There was little in the way of corporate news to buoy up the market, and sentiment mostly reflected the Federal Reserve’s interest rate move as well as the ongoing Trump rally.
The AEX index ended up adding 1.4% to 476, with the country’s corporate playing field seeing only three stocks fall, of which ArcelorMittal recorded the biggest losses, followed by AKZO Nobel and Unibail Rodamco. The week’s biggest winners were Altice, Boskalis and Gemalto, all three of which recorded price gains at around 5%. Boskalis cut its stake in Fugro from 15% to 9%, reflecting its dashed aspirations for a long-term collaborative venture with Fugro. Following the sale of its Fugro stake, the company has shifted its focus back to a share repurchase programme.
Other top performers, with gains in excess of three per cent, included cyclical player Randstad, chip-making equipment manufacturer ASML and energy-related names such as Shell and SBM Offshore, which benefited from higher oil prices. Price gains aside, the news wasn’t good for SBM: legal procedures in Brazil suffered delays and pushed back the time when the company might look forward to receiving new orders from Petrobras. As expected, Shell replaced its CFO and scooped an order to build offshore wind farms Borssele 3&4 together with its consortium partners – which may also be good news for monopile producer SIF.
Among Dutch builders, Heijmans sold a German operation for a consideration of EUR 15 million, while BAM is facing a new GBP 31 million claim in the United Kingdom. Lastly, Philips sold 80% of its Lumiled division to Apollo at the start of the week. The USD 1.5 billion deal somewhat disappointed and came in sharply below the previously envisaged – and blocked – sale to Go Scale Capital. That said, the sale helped Philips to further simplify its company model.
News-lite week ahead
News is likely to be thin on the ground in the week ahead, both in terms of macroeconomic figures and slated corporate news, with third-quarter results now almost fully out. In the United States, only FedEx and Nike will release their figures. Encouraging macroeconomic news has chiefly reflected consumer and business confidence in the past couple of weeks, with harder data for manufacturing and consumption a little more subdued to date.
The week ahead should see the latest showings on a few confidence indicators: business confidence will be reported by Germany (Ifo) and Belgium, with the latter traditionally a bellwether for the rest of Europe. New figures for consumer confidence are due out in Germany, the Netherlands and Belgium, while other key data will include the US housing market (existing home sales) and durable goods orders, also for the United States. This latter figure was sharply up in October (4.8%) and a rather weaker showing cannot therefore be ruled out for November. Lastly, we look forward to the latest news on third-quarter gross domestic product (GDP) trends in the United States, the United Kingdom and the Netherlands, even if these are partly second and third estimates.