Equity market rally continues

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Sentiment remains very upbeat in the global financial markets. Favourable economic indicators are playing a part, while markets also took heart from the rather more moderate tone President Trump struck in his first speech to Congress.

The vast bulk of fourth quarter company results are now behind us, but the remaining companies are scheduled to report in the weeks ahead. Ben Steinebach Ben Steinebach Head of Investment Strategy

Across the world, most leading indices set fresh records in the week that was. US indices hit all-time highs and many European indices recorded their best showings since their spring 2015 highs – which reflected the then newly launched ECB stimulus programme. Confidence indicators held sway in the week and painted a rosier-than-expected picture, consumer as well as business confidence in both the US and Europe. Among the harder gauges, US industrial output disappointed, but figures for household income and spending were encouraging. February inflation figures for the US and the eurozone came as a bit of a shock to the markets, as both ended up topping 2%. However, it is worth bearing in mind that food and energy dominated the February figures, particularly because these had touched record lows in February of 2016 (base effect).

On Tuesday, Donald Trump shared his budget plans with Congress. Although he remained very vague on how he intends to fund a steep increase in infrastructure and defence spending – especially against a backdrop of massive tax cuts – the markets were pleased with the tone of his address. For the first time since taking the helm, the President attempted to reassure the country’s allies by expressing support for NATO and by voicing a commitment to the rest of the world. The response in the financial markets was one of relief and the Dow Jones breached the 21,000 mark soon afterwards. Compared with Friday last, the Dow Jones and S&P 500 were clocking in 0.5-1% higher. Europe’s markets did a little better, recording an uptick of 1.5% for the Eurostoxx 600 and over 2% for several other stock markets, including those in France and Germany.

AEX closes above 500 mark

The AEX found its way back up in the week and closed above 500. The week’s winners – 5% up or more – were Gemalto, Galapagos, Vopak and Aegon, while Unibail Rodamco was the only stock that really fell. Like PostNL, Aalberts Industries, Ahold Delhaize and ASM International, Gemalto was among the Dutch listed companies to release results. These were in line with expectations and its outlook for 2017 remained unchanged, but its stock price enjoyed a very positive upward trend. PostNL’s release disappointed slightly and its outlook for the rest of the year had already been revised down a tad. That said, its proposed dividend came as an unexpectedly positive surprise.

Aalberts Industries posted figures roughly in line with expectations. Implementation of its 2015-18 strategy, the tentative shoots of which had become visible as early as the beginning of 2016, failed to proceed at the expected clip in the second half of 2016. Ahold Delhaize reported solid numbers. Its profit exceeded forecasts on the back of fine contributions by Ahold USA, Delhaize America and the Netherlands, while Belgium was in line with expectations. The retailer’s outlook matched projections while its dividend was higher than the markets had held out for. Finally, ASM International took the markets by surprise with a robust set of figures, with earnings, sales and orders all beating expectations – as did its outlook. The company also doubled it share buyback programme.

Among other Dutch and international corporate news, Apple’s CEO Tim Cook promised the imminent launch of growth-generating products other than iPhones. Meanwhile, Boskalis sold its stake in Fugro, the merger of the London Stock Exchange and Deutsche Boerse is likely off the table, and Royal Dutch/Shell was accused of corruption in Nigeria. In the United States, Caterpillar was raided by federal agents as part of a tax probe, while Snapchat’s IPO was a massive success and its share price closed 44% up on the issue price.

Eyes on US employment and ECB

Companies slated to announced their results in the week ahead include Corbion, TKH Groep, Intertek, Adidas, Deutsche Post, Boskalis, Linde, Aviva and Carrefour. The focus at Boskalis will be firmly on orders, the outlook for its core divisions and its new strategy – a highly topical issue as the company has recently sold its stake in Fugro and is now looking at a sizeable war chest for any acquisitions it might be eyeing.

The focus at Boskalis will be firmly on orders, the outlook for its core divisions and its new strategy – a highly topical issue as the company has recently sold its stake in Fugro and is now looking at a sizeable war chest for any acquisitions it might be eyeing. At Adidas, market watchers will be particularly interested in the company’s outlook for 2017. The markets themselves are looking out for decent growth: the sports company is two years into its 2020 programme and well on track to improve its margins. As well as presenting its results, Adidas has also planned an analysts’ day for mid-March.

Supermarkets retailer Carrefour is set to publish its corporate numbers in the week. Like Ahold Delhaize, it had already revealed its sales figures, though, so we know that the international business has done well and the French operations less so. Increased competition in its home markets is likely to remain a theme in 2017 as well. The week should be a quiet one in macroeconomic terms, although it will end on the highlight of the US monthly employment and unemployment figures, due out on Friday. These are bound to inform the decisions of the Federal Reserve, which is scheduled to meet the week after to discuss whether to raise interest rates again (which we do expect it to do). The US will also publish fresh data on labour productivity and wage costs in the fourth quarter of 2016 as well as on factory orders in January. In Asia, we look forward to Japan’s latest GDP projections for the fourth quarter of 2016 and China will release a set of figures for retail sales, industrial output, capital spending, imports and exports, as well as inflation. Europe will also produce fresh GDP figures, Germany will report on international trade and on its industrial orders in January. Lastly, the ECB’s monetary council is scheduled to meet on Thursday to discuss interest rate policies and its asset purchasing programme.

Ben Steinebachen and Ralph Wessels, Investment Strategy Knowledge Centre

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