Europe breathes sigh of relief at Dutch election result

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Elections Holland

The outcome of the Dutch elections – and more specifically the fact that Geert Wilders’ populist party PVV did not overtake the VVD liberals – was received with relief in the financial markets and in Europe’s capitals. The continent’s bond markets saw part of early-week gains lost and equity prices picked up momentum.

De AEX-index boekte afgelopen week een kleine winst en noteert rond de 516 punten. We zitten tussen de cijferseizoenen in en er is weinig richtinggevend bedrijvennieuws. Ben Steinebach Ben Steinebach Head of Investment Strategy

Bond yields in the United States also fell back as the week progressed, after moving sharply up at the beginning of the week on the back of robust employment growth in February (235,000 jobs). This made the year’s first rate move by the US Federal Reserve almost inevitable, with the fed funds rate pushed to a range of 0.75-1.0%. The markets took heart from Fed chair Janet Yellen’s intimations that there’d be no change to the year’s planned number of hikes, and bond yields fell.

The equity markets also proved quite cheery in the week that was. In the early part, US prices came down a little but then recovered to close Thursday a net 0.5% higher than the previous Friday. The upturn was even greater in Europe, helped along by the relief over the Dutch election outcome. Macroeconomic indicators released in the week painted a mixed picture. Confidence indicators continued strong, even if they did not rise further in most cases – e.g. the Philadelphia Fed and Empire State Manufacturing indices in the United States and the ZEW index in Europe.

Showings on rather ‘harder’ indicators such as production, trade and spending were less clear-cut. Admittedly, January industrial production in the European Union was up, but not enough to make up for lost ground in December 2016. That said, Asian production and trade indicators were pretty robust.

In the United States, meanwhile, President Trump afforded the world a first glimpse of where he intends to put his money: his first proposed budget saw defence and border protection spending sharply up, paid for by cutting development aid among other things. Congress, including some Republican members, have already criticised the plans.

AEX locks in minor gains

The AEX index made modest progress and ended the week around the 516 mark. The market is now firmly between results seasons and there was little in the way of corporate news to set the agenda. The week’s biggest winner was ArcelorMittal (+8%), followed by Galapagos (4%), Unibail Rodamco (+2.6%), NN (+2.4%) and Philips (+2%). The laggards didn’t lose as badly: Boskalis (-2%), Altice (-1.6%), DSM (-1.6%), Vopak (-1.5%) and Ahold Delhaize (-1.4%).

Takeaway.com revealed earnings in line with expectations, having already released a trading update in January. Flow Traders reported February trade volumes, which recorded a further decline on the preceding month. In the global arena, the USD 15 billion takeover of Mobileye by Intel set tongues wagging, as this gives Intel better access to driverless cars. Other corporate news was thin on the ground.

Results season draws to a close

The week ahead should be relatively news-lite, as aside from a couple of companies with different financial years, the results season is over. No dramatic news is expected to emerge in the macroeconomic arena either.

A few Western companies are slated to report on their financial year results, while Asia’s results season is still in full swing. The markets are looking for Nike to report earnings per share (EPS) at USD 0.53 and are hoping management will set out provisional targets for next year. Developments in North America will take centre stage, as these are a major driver for the sports company’s long-term prospects as competition hots up. To date, figures released by Adidas and Under Armour have painted a mixed picture.

Expectations for FedEx aren’t exactly high, as management have already indicated a surge in costs. The markets are holding out for a WPA at USD 2.62 and margin pressures in all three divisions – Ground, Freight and Express – and there’s a distinct possibility of the company backpedalling on its outlook for the year. That said, the focus will likely be on the TNT integration and synergies.

China’s Tencent will also report quarterly figures in the week. The markets are assuming a solid quarter for this new media company, with robust revenue growth of 44% annualised forecast on the back of strong momentum in the games Tencent offers on smartphones. The takings from ads and payments are likewise expected to be solid, while the quarter ahead should continue to benefit from online smartphone games.In terms of macroeconomic news, the week won’t be chock-a-block – although it should hold some interesting moments. It will kick off with a G20 meeting of finance ministers and central bank presidents in Germany’s Baden Baden in the run-up to the summer’s main summit in Hamburg. Meanwhile, Chancellor Angela Merkel is paying her first visit to President Trump.

In terms of economic indicators, the end of the week will see the release of initial, provisional data for March purchasing manager sentiment in many countries. Earlier in the week, business confidence figures are scheduled to come out in France and Belgium, with the latter typically seen as something of a proxy for confidence in the European Union (EU). Meanwhile, the EU, Germany and the Netherlands are set to publish fresh numbers on consumer confidence in March, and a bag of selected figures are due out for the US housing market in February, fourth-quarter 2016 GDP in France and the Netherlands, inflation in Germany and the United Kingdom, and February retail sales for the UK. Lastly, the week will also bring the latest figures for US durable goods orders.

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