Prices in the global equity markets showed little movement on balance. Up-and-down variations were significant between countries, although most of Europe’s stock markets moved south.
Most companies – and particularly the most important ones – have now presented their results for the first quarter.
Ben Steinebach Head of Investment Strategy
This absence of any clear direction would appear to reflect a similarly ambiguous macroeconomic picture. In the United States, employment growth figures announced last Friday turned out to be a damp squib, with just 156,000 more jobs added. The good news was that SMEs in the US were showing greater confidence, but a number of European countries – including Germany and France – posted disappointing industrial output figures for March. That said, industrial orders in Germany were up by nearly 2% in the same month when compared to February, well ahead of the 0.6% advance that had been predicted. European car sales are also giving indications of positive economic trends, which were corroborated by the provisional first-quarter GDP estimate for Germany: at 0.7% up on the previous quarter, this was even more robust than the Eurozone-wide 0.6% figure released last week.
In the week just past, China announced a gigantic new package of USD 700 billion in infrastructure spending for the next three years, worth 2% of annual GDP. It’s unclear whether this is all new money or if it includes ongoing programmes, but it is bound to have a beneficial effect on economic growth. And yet the Shanghai market ended the week on a 2.8% loss. Most other global markets did not come down that hard, losing a few tenths of a per cent, while the MSCI World, the Eurostoxx 600 and the S&P 500 even recorded slight net gains of between 0.3% and 0.4%.
IPOs galore in the month ahead
We’re looking at busy weeks and months ahead, with lots of IPOs about to hit the markets on top of M&A activity. Meanwhile, the results season is drawing to a close. In the past week, we’ve learned that Bavaria is acquiring a 60% stake in Belgium’s brewer Palm and is proposing to buy the remainder of its shares in 2020. There are also rumours that Bayer is considering a bid for US seed maker Monsanto – although it might not be able to pull this off, as the US company likes to think of itself as hunter rather than prey and will no doubt resist. Besides, US regulators are likely to hold off on approving such a tie-up as seed technology is seen as a strategic interest.
Meanwhile, a number of companies are beating a path to the stock markets, seeking listings either in Amsterdam or in London. In the Netherlands alone, the past week saw Roermond-based Sif, a maker of steel tubes for offshore wind farms, make a swift entrance onto the markets. Philips Lighting is slated to follow soon, with insurer ASR – currently still in state hands – expected to follow the same route before the summer. A number of smaller IPOs are also expected, such as those of ForFarmers and Basic-Fit. This sudden haste to get a foot in the door reflects the turmoil expected in the markets following the possible UK vote to leave the EU.
A number of companies reported their first-quarter results in the past week. ING, for one, recorded a fall in underlying profits of 30% to EUR 842 million, although this was actually an improvement on its earlier revised forecasts. Key detractors included the turbulent markets in the first three months of the year, coupled with the steep increase in regulatory costs (which came in at EUR 496 million). Meanwhile, insurer Aegon saw its first-quarter net profits halved to EUR 143 million, but the worst news was its sharply lower solvency: from 150% in 2015 to 135% at the end of the first three months of the year. Last year, Delta Lloyd had reported that new legislation was eating into the company’s solvency and Aegon now turns out to be facing similar issues. Investors dumped the shares big-time and they lost 11% in price. PostNL also disappointed. Admittedly, revenues from its parcel service advanced smartly by 16% on the back of increased online buying, but this failed to make up for diminishing returns on its letter services, and the company’s underlying profit contracted by 11% to EUR 61 million. The news shaved 4% off PostNL’s share price.
The Amsterdam week’s most volatile stock was undoubtedly Arcelor Mittal. Concerns about the Chinese economy and falling steel prices sparked price falls of 12% at the beginning of the week, but the stock recovered some ground as the week progressed and had been recording major gains in the year to date. On Thursday, the AEX closed 0.1% below its Friday morning opening of 430.89, and it continued to inch down in the course of the morning to dip below 429.
News-lite week ahead
Most companies – and particularly the most important ones – have now presented their results for the first quarter, so we can expect macroeconomic news to step in and take the limelight. However, in the short week ahead even macroeconomic news will be thin on the ground. Bringing up the rear of the results season, Vodafone, Home Depot, SAB-Miller, Cisco Systems, Wal-Mart and Merck are slated to report, while in the Netherlands all eyes are trained on the results to be announced by Delta Lloyd, particularly after the Aegon disappointment.
In the macroeconomic arena, the most interesting release should be the Empire State Manufacturing Index, a first indication of May industrial activity in the New York area, while US-wide industrial output figures for April will also be published. The week’s other highlights include the inflation figures for the United States, the United Kingdom, Germany and the European Union at large. US housing market data will also be released in the shape of existing home sales in April. Lastly, in Europe it will be figures on April retail sales we’ll be looking for in the United Kingdom and those on March building activity across the EU. Not a very exciting slate of numbers on the whole, unless there’s an unexpected turn of events.