A volatile week

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Volatility returned to the financial markets last week. This was caused by statements made by a few central bank presidents, who hinted at further tightening of monetary policy. In the news, interest rates rose and bond yields came down. The statements had little impact on interest margins (extra interest/premium charged on top of government interest) of corporate bonds

The AEX had a bad week, with a fair bit of corporate news. Nonetheless, the index largely went along with sentiment on the global markets. Ben Steinebach Ben Steinebach Head of Investment Strategy

Equity markets also declined last week. The biggest loser was Europe (losing between one and two per cent), followed by Japan and the United States, each losing around one-half per cent, while China’s markets gained ground. On the technology front, markets remained under pressure; the Nasdaq index lost 1.5%. 

Statements made my Mario Draghi helped strengthen the euro, bringing the euro/dollar exchange rate to around 1.14. The oil market recovered somewhat, gaining 5% in a week, but both WRI and Brent remained well under USD 50 per barrel. Gold had a very volatile week as well, but losses were limited to 1% and the price was around USD 1,244 per troy ounce.

And finally, there was little macroeconomic data last week. Germany’s Ifo index (producer confidence) rose, exceeding expectations. Economic growth in the US for the first quarter was upwardly adjusted from 1.2% to 1.4 % A few housing figures in the US disappointed, though, while producer confidence in China rose unexpectedly.

AEX depressed

The AEX had a bad week, with a fair bit of corporate news. Nonetheless, the index largely went along with sentiment on the global markets. The leading index in Amsterdam lost 2% last week, ending up at around 510 points. The biggest loser last week was Altice (-7.3%), followed by Wolters Kluwer (-5.8%), Galapagos (-5.0%), ASML (-5.0%) and Philips (-4.9%). Philips announced that it will be acquiring the American company Spectranetics for EUR 1.9 billion. Spectranetics is a big player in the production of catheters that remove vascular blockages by laser. The acquisition is a good strategic move and a further step in transforming Philips into a health firm, even if it is paying a hefty price. Philips also announced it would buy back a maximum of EUR 1.5 billion in shares starting in the third quarter. Last week’s risers included a raft of financial services providers, buoyed by Mario Draghi’s comments. Among the winners were Aegon (+4.1%), NN (+2.4%), ING (+2.1%) and ABN AMRO (+1.2%). But the news wasn’t all good last week. Aegon and NN suffered a sensitive defeat in court in cases relating to misleading and overpriced policies. Plus, the Dutch State sold 7% of its stake in ABN AMRO, reducing its shareholding to 63%. Besides financial institutions, ArcelorMittal (+3.8%) and SBM Offshore (+1.9%) ranked among the risers. Other Dutch news came from the province of Zeeland where, after a lengthy struggle, the decision was taken to develop a holiday island in Lake Grevelingen. Boskalis will carry out the dredging work. And finally, the head of DSM stated that the company has grown by more than 10% in China and that activities in the US are also growing rapidly.

Internationally, too, there was news on the corporate front last week. First, Monsanto and Nike published better-than-expected results. Investors were charmed in particular by Nike’s outlook and its announcement that the company would work together more effectively with shops.

BlackBerry’s published disappointing results. The European Commission slapped Alphabet (Google) with a EUR 2.4 billion fine for putting competitors at a disadvantage by favouring its own comparison shopping service in its search results. Financial stocks in the US turned in a good performance last week. This was because all major banks, including JPMorgan Chase and Bank of America, passed the stress tests and obtained approval for their dividend policies and share buyback programmes. Cyberattacks last week hit TNT Express (FedEx) and A.P. Moller-Maersk hardest, with activities suffering delays or being shut down. On the acquisition front, it looks like Qualcomm will have a hard time taking over NXP if it fails to raise its offer. Investors have only subscribed to 12.5% of the shares so far. And finally, Nestlé is next in line to be badgered by an activist shareholder. Third Point hedge fund is pushing for a change, perhaps by having Nestlé sell L’Oreal. The hedge fund may have been a bit premature, as shortly after it said this, Nestlé announced it would be repurchasing CHF 20 billion in shares and that it is looking forward to making acquisitions.

A full week on the macroeconomic front

The week ahead will be a busy one on the macroeconomic front, while the corporate results season is two weeks away. A few companies whose financial year closes mid-year will publish results. In the US, that is Yum Brands, known from KFC and Pizza Hut, and in Asia these are Seven & I and Samsung Electronics.

A great deal of macroeconomic data will be reported in the week ahead. The bulk of the data will relate to producer confidence, early in the week within the manufacturing industry and mid-week on the services sector. Many of these confidence indicators are final data, following the initial indicators published last week; no changes are expected. In addition, Japan will announce the Tankan index (producer confidence) on Monday. The index is expected to rise again, from 12 in the first quarter to 15 in the second quarter . The US will report data from the ISM Manufacturing Index on Monday afternoon. The market expects producer confidence to rise marginally from 54.9 in May to 55.0 in June. The eurozone, meanwhile, will announce retail sales on Wednesday. The market expects this figure to rise by 0.3% month-on-month. On Wednesday evening, the Fed will publish the minutes of its latest meeting. The market will pay close attention to whether the tone of the report has changed. On Thursday, the US will publish the ADP Jobs Report, which is the precursor to the more important jobs report to be issued on Friday. The market assumes the number of jobs will rise by 178,000. Later on Thursday, confidence data for the services sector will be announced in the ISM Non-Manufacturing Index. This index is expected to inch down from 56.9 to 56.6 in May. And on Friday, many European countries published industrial production data for May. The market expects increases of 0.3%, 0.5% and 0.3% month-on-month for Germany, France and the United Kingdome respectively. The week concluded with unemployment figures in the US. The market expects a total of 179,000 jobs will have been added in June and unemployment to remain stable at 4.3%.

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