Chaos continues to engulf Washington

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Trump splits Republicans

The week saw Robert Mueller appointed special prosecutor to investigate President Trump and his team’s alleged contacts with the Russians. The equity markets retreated a little overall, while bond markets gained across the world.

With Trump’s original economic plans – infrastructure spending, tax cuts and trade treaty changes – less of a certainty to succeed Ben Steinebach Ben Steinebach Head of Investment Strategy

The ongoing turmoil in Washington is beginning to rattle many Republicans. But although the word impeachment is being bandied about, it is way too soon to think President Trump will be forced to resign. That said, the appointment of this former FBI chief as special counsel puts in place a leading prosecutor, who enjoys the confidence of both parties in the US Congress. With Trump’s original economic plans – infrastructure spending, tax cuts and trade treaty changes – less of a certainty to succeed, US bond yields have been coming down further. European yields also contracted, if slightly less so. 

Failing to keep up with upbeat bond markets, the equity markets retreated in the week that was, the net result of a steep fall on Wednesday that was caused by chaos in Washington. On Thursday, US markets closed around 1% lower than the previous Friday, with Europe’s price falls around double that.

In Europe, Emmanuel Macron’s inauguration as France’s new president was swiftly followed by his appointment of moderately right-wing Edouard Philippe as his prime minister, a sign that bridges are being built with the country’s Republican party. Macron has gone on to appoint a highly diverse government in terms of gender, age and political leanings.

Macroeconomically, things continued to improve in Europe. The ZEW index, a good gauge of sentiment among investors in Germany and Europe-wide, gained even more traction from already high levels it had previously achieved. In the US, a series of confidence indicators gave a rather mixed picture, but industrial output recorded a convincing performance: having notched up a 4% rise in March, it even improved on this by adding a further 1% in April.

AEX dips into negative territory

Amsterdam dipped in the week, as US political risks grew and prices nosedived on Wednesday and Thursday. The little corporate news there was didn’t point one way or the other. 

The AEX index had a poor week, losing around 1.5% and is now at around 525. Only eight of the country’s blue chips recorded gains, with NN (+0.8%) and Wolters Kluwer (+0.6%) leading the pack. The losers were headed up by Altice (-6.3%), with Philips (-4.8%), ABN AMRO (-4.5%), Aalberts Industries (-4.5%) and Aegon (-3.4%) in tow.

In the Netherlands, Flow Traders released disappointing results this week, as operating results were at their lowest since the third quarter of 2014. Although its numbers in the US weren’t exactly stellar, Europe was mainly to blame for the company’s lacklustre performance. NN’s results were a mixed bag. Profit before tax was ahead of expectations and new policy business was solid, but its Solvency II capital ratio was at or slightly below below expectations. Delta Lloyd, which is being acquired by NN, released its update at the same time, reporting a stable capital ratio but slightly disappointing new business.

SIF, which manufactures offshore foundations, posted an excellent set of figures, with a sharp increase in profitability and a major annualised uptick in steel consumption. Incidentally, both in Scotland and in France the courts this week cleared the way for offshore wind farms. SIF particularly stands to gain from France’s wind farms as these’ll be using monopiles.

On Friday, Euronext surprised the markets with better-than-expected numbers for both revenues and operating profit, as it benefited from a reviving Dutch market for initial public offerings (IPOs). The markets were also pleased to see Euronext stick by its dividend policy, while at the same time guaranteeing a floor of EUR 1.42.

The week saw a new episode in the story of PPG’s takeover bid for Akzo. In a case due to be heard on Monday, the Enterprise Section of the Court of Appeal in Amsterdam has granted speaking time to several protesting shareholders, including activist shareholder Elliot. PPG will also be heard. The court is meant to rule on whether Akzo’s supervisory board has overstepped its remit by not talking to PGG after three consecutive bids.

In the international arena, the week saw disappointing results from the likes of RWE, EasyJet and Vodafone. Vodafone is looking to return more cash to its shareholders, which was welcomed by investors. Both Staples and Cisco Systems produced figures in line with expectations but were less sanguine about the quarter ahead than investors had hoped. Wal-Mart and Alibaba, by contrast, exceeded expectations, while Danone is looking to achieve enhanced medium-term margin targets by cutting costs and generating synergies from its acquisition of WhiteWave Foods.

In other news, Deutsche Bank announced a September IPO for its asset management business; Ford will lay off 10% of its workforce to make more profit; Amazon is investigating the option of operating drugstore activities; Facebook was fined EUR 110 million by the EU for providing incorrect information when it took over WhatsApp; and Walt Disney said it was being blackmailed by hackers, who threaten to put an unreleased feature film online if Disney doesn’t come up with the ransom. Disney is refusing to pay.

Another news-lite week ahead

With many stock markets closed on Thursday for Ascension Day, not a lot of news is slated for the week ahead. The results season has all but dried up, but a few business confidence figures are due out. 

A trickle of companies is on the roster to report in the week to come: Tata Motors, HP, Tiffany, PVH (owned by Calvin Klein and Tommy Hilfiger among others) and Medtronic. The main macroeconomic news will be May manufacturing confidence for Germany (Ifo), France, Italy and Belgium, the latter typically considered a good gauge for the rest of Europe. In addition, some provisional forecasts for purchasing manager sentiment in May for many countries will hit the markets. Other confidence indicators include those for consumer confidence – for May as well – in Germany, Italy and the US (the latter from the University of Michigan). Among some of the ‘harder’ economic indicators we’ll be looking out for are April industrial orders about to be released for the US (durable goods orders here, in fact), Italy and the Netherlands. Germany is awaiting a revised estimate of its economic growth in the first quarter (the provisional one having come in at 0.6%). And lastly, the US will publish fresh figures for April new house sales. These were up by 4.4% in March and we’ll be waiting to see if there’s any further advance.

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