A quiet week

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Oilrig

There is little news to report for last week. The big news came from France, where Macron’s party won the parliamentary elections. Beyond that, oil prices remained under pressure.

ABN AMRO still expects the oil price to be USD 60 per barrel at the end of the year, as both production and stock levels will decrease slightly. Ben Steinebach Ben Steinebach Head of Investment Strategy

The months-long French elections are now over. Having previously captured the presidency, Emmanuel Macron also triumphed in the parliamentary elections last Sunday. His new party, La République en Marche, pulled off a major victory, taking 355 of the 577 seats. The win had been expected and had little impact on the financial markets. Not true for oil prices, which fell again last week, bringing the loss for the week to almost 5%. Increasing production in May and high stock levels created negative sentiment. ABN AMRO still expects the oil price to be USD 60 per barrel at the end of the year, as both production and stock levels will decrease slightly. Interest rates in the United States remained virtually unchanged last week, while Europe saw interest rates edge down. The euro-dollar exchange remained stable, coming to around USD 1.12 per euro.

There was very little macroeconomic news last week. Sales of existing homes in the US rose in May, where a slight decline had been expected. Friday saw disappointing preliminary producer confidence data in Europe for June. The combined index for the manufacturing industry and the services sector for the eurozone decreased from 56.8 to 55.7, lower than the expected 56.6. Nonetheless, confidence is at a healthy level.

AEX down again

The AEX index came down again last week. Many markets in Europe and America barely budged, and declining oil prices kept the energy sector under pressure. The Amsterdam index lost ground again last week, declining -0.8% to around 518 points. Insurance company NN suffered the greatest loss (-3.4%), followed by Shell (-3.3%), Aegon (-2.3%) and Altice (-2.2%). ArcelorMittal gained the most ground, rising 5.4%, followed by Philips (+2.9%) and ASML (+1.1%). Philips’ share price went up due to reports in the Times stating that an activist shareholder is building up a stake in the company; this was later refuted. ASML benefited from the recovery in the technology sector. We also saw this in the United States, where the Nasdaq gained 1%. Other indices in the US remained unchanged. There was little movement in Europe as well, with the exception of the United Kingdom and Spain, where leading indices, like the AEX, came down. Asia showed the most favourable picture, with Japan on the rise and a big gain in China. The latter performed so well partly because several Chinese companies were admitted to the MSCI indices for the first time. The Netherlands had little to report last week. SBM Offshore was awarded a contract for ExxonMobil, and SIF was commissioned to construct the foundations (monopiles) for the Albatros wind farm.

Internationally, Oracle, FedEx and Adobe Systems all reported better-than-expected figures. The biggest news was that Uber founder Travis Kalanick stepped down as the head of his company, after receiving bad press in recent months regarding the poor working climate at Uber. In the automobile sector, Ford scrapped plans to build the small Focus models in Mexico. It will, however, discontinue production in the US in order to cut costs, and the model will now be imported mainly from China. Tesla also intends to start producing cars in China. Meanwhile, Boeing outsold Airbus at the Paris Air Show for the first time in years. The total value of Boeing’s contracts came to USD 52 billion. The Italian bank Intesa Sanpaolo offered to buy two failing banks based in the Venice region. These acquisitions would have to be for a symbolic amount and not bring down Intesa’s dividend or capital ratios. In the same sector, a number of large merchant banks are choosing Frankfurt as their European base following Brexit.

Last Friday, Amazon put enormous pressure on prices of retailers and supermarket chains such as Wal-Mart and Ahold by announcing its acquisition of Whole Foods Market for USD 13.7 billion. The markets fear that the takeover will intensify competition in the supermarket industry and that Amazon will act as a disruptor here as well.

Nothing earth-shattering

The coming week will see a reasonable amount of news, but nothing earth-shattering. On the macroeconomic front, a few companies whose financial year closes mid-year will publish a few interesting figures and reports. These are Monsanto, Nike and H&M. H&M will report its news before market opening on Thursday, while Nike will do so after trading closes. So far this year almost all of H&M’s monthly sales updates have disappointed, with lower-than-expected growth. As a result, sales in the second quarter are expected to decline compared with the same period last year. This was also the case in the first quarter. Management is consequently under increasing pressure to turn the tide. Sentiment around Nike’s share is sour, too. Growth of the sports clothing market in the US is waning, and remarks made by Foot Locker and Adidas indicate a slowdown of sales growth in Western Europe. The market is assuming fourth-quarter earnings per share (EPA) will come to USD 0.50 and hopes the outlook for 2018 will not disappoint (expected EPA of USD 2.52). 

Germany’s IFO index (producer confidence) will publish data on Monday. The market is expecting confidence to remain basically unchanged and at the highest level in years. On the same day, the US will report growth figures for orders of consumer durables. The market is expecting a decline of 0.7% . On Thursday, the eurozone will publish a number of confidence indicators on the economy, the investment climate and consumer confidence, among other things. June is expected to increase only marginally compared with May. Also on Thursday, the US will publish an interim update on economic growth for the first quarter, but the market expects annual growth to remain at 1.2%. The US will also announce a few figures on the housing market in the course of the week.

Most macroeconomic news will be published on Friday. China will announce producer confidence data for June, with a slight decline from 51.2 to 51.0 expected. Japan’s inflation figures will be published (+0.5% year-on-year expected). Inflation figures will also be published by the eurozone, where a further decrease to 1.3% is expected. And finally, the US will publish figures on personal income (0.3%) and spending (0.1%), as well as consumer confidence as measured by the University of Michigan, which is expected to remain unchanged at 94.5.

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