The equity markets recorded minor losses for the larger part of the week and it wasn’t until Friday that sentiment turned, enabling many stock markets to end the week just about in the black. Other investment categories were facing a totally different set of conditions: both the United States and Germany saw ten-year yields rise by 0.1 percentage points to 2.6% for US Treasuries and to 0.44% for Bunds, prompted in part by next week’s interest rate move by the US Federal Reserve.
It was a calm week on the equity markets, but not so for all other markets: yields were up, while oil and gold lost ground.
Ben Steinebach Head of Investment Strategy
Oil prices slumped by around 7% in the week, taking WTI crude back to below USD 50 a barrel. Higher yields also helped to push down gold prices, which closed the week below USD 1,200 per troy ounce.
There were a fair number of macroeconomic releases in the week but these failed to make much of a dent in stock market sentiment. China unexpectedly returned a trade deficit in the wake of steeply higher imports and a minor fall in exports. The ECB kept interest rates unchanged, but nudged up its economic growth and inflation outlook for this year and next.
Friday afternoon’s US jobs report was not yet out at the time of writing, but 200,000 new jobs are expected to have been created in February and wages to have risen by an annualised 2.8%. The earlier ADP employment report was released on Wednesday and recorded a 298,000 jobs uptick, amply beating forecasts of 187,000 jobs.
Akzo lifts AEX higher
The AEX added over 1.5%, with Akzo Nobel notching up the biggest rise – 15% – on the back of a takeover attempt by US company PPG for a consideration of EUR 83 per share. While it rejected the bid, Akzo Nobel now finds itself forced to review its corporate strategy and perhaps sell off some of its parts, such as its Specialty Chemicals division. Rumour has it that PPG is working towards a second bid.
The week’s other winners included financial services companies, such as ING, ABN AMRO and Aegon. These benefited from higher yields, which spell good news for their margins. The week turned out a little less rosy for Shell, SBM Offshore, Vopak and ArcelorMittal, all of which recorded price losses. The energy and basic materials sectors came under pressure from declining oil prices.
TKH Group reported better-than-expected annual results on the back of the particularly strong momentum at the end of the year and at last a clear recovery in tire-making equipment. Boskalis reported numbers in line with expectations. Its outlook for 2017 envisages lower profits and depressed margins in all its divisions. That said, the company will leverage its strong balance sheet to further its growth in the Offshore division by hitting the acquisition trail.
Other Dutch corporate news included TomTom. Volvo, a trendsetter in driverless cars, has picked TomTom to provide its self-drive satnav. Meanwhile, Heijmans sold off its most profitable operations, Germany’s Oevermann, for a consideration of EUR 60 million. Although an obviously good move for its balance sheet in the short term, the sale has long-term implications for corporate earnings. Lastly, Royal Dutch/Shell sold its tar sand operations in Canada for USD 7.25 billion, as part of its overall disposal programme.
Next week looks nice and busy, with key rate decision
On Wednesday evening, US Federal Reserve chair Janet Yellen will announced the interest rate decision of the Federal Open Markets Committee, which the markets are forecasting as a raise by a quarter of a percentage point. This consensus has grown firmer in the past few weeks, as macroeconomic data have been encouraging. Equally important will be the noises the Fed makes on future movements in interest rates.
Earlier that day, US retail sales and inflation figures will be released. The markets are predicting flat month-on-month retail sales in February and are pegging annualised inflation at 2.7%. Their focus will be on core inflation (expected at 2.2%) and whether or not it’s remained stable.
Meanwhile, China is also set to release its retail sales and industrial production figures on Tuesday, with the eurozone following suit with the latter set of numbers on the same day. For the final bit of macroeconomic news on Tuesday, Germany will reveal investor sentiment in the shape of the ZEW index. In the United Kingdom, the Bank of England will decide on interest rates on Thursday and on Friday we’ll hear about US month-on-month industrial production growth in February, which the markets are putting at 0.2%.
Next week, a couple of companies in the Western markets are still scheduled to release their figures, including RWE, Prudential, E.ON, Lanxess, Symrise, Münich Re, Oracle, Tiffany and Adobe. On its analysts’ day in January of this year, chemicals company Symrise reiterated its strategy and medium-term targets. This alleviated some of investors’ concerns over its aim to lock in above-average growth and improved margins – though these were brought back to the fore when rival Givaudan posted disappointing numbers.
Software player Oracle is set to report results for the third quarter of its financial year. The markets are looking for revenues of USD 9.5 billion and earnings per share of USD 0.62. Increasingly focusing on cloud operations, Oracle bagged Netsuite last year as part of this drive, and the acquisition may put some pressure on the outlook for the fourth quarter, even ignoring seasonal effects. Lastly, America’s famous luxury jewellers Tiffany reported its results: falling sales numbers in November and December of 2016 explain market assumptions of a 1.1% drop in sales. The company itself is forecasting EPS to contract by around 5% for full 2016. Management changes, jingoist noises from the new administration and the travel ban imposed on selected countries are not exactly conducive to 2017 sentiment.
Ben Steinebachen and Ralph Wessels, Investment Strategy Knowledge Centre
Ralph Wessels Investment Strategy Knowledge Centre