After the price rises on the global equity markets and higher bond yields in the first week of the year, this past week saw markets consolidate. The macroeconomic news was generally positive, but the risks of more protectionist trade policies under President Trump increased.
The macroeconomic news was generally positive, but the risks of more protectionist trade policies under President Trump increased.
Ben Steinebach Head of Investment Strategy
Over the past couple of weeks, we have repeatedly noted how a range of confidence indicators are suggesting a favourable economic outlook, but how this had yet to show up clearly in ‘harder’ indicators such as those for output and spending. As the past week finally showed, this would appear to be gradually changing. Both in the United States and in Europe, output data came in somewhat ahead of expectations and also ahead of the figures recorded in previous months. In fact, this also held true for US employment numbers released last Friday. Admittedly, at 156,000 jobs December jobs creation fell short of expectation, but a proportion had actually materialised in November, figures for which had been restated upward.
In Europe, encouraging figures were published for industrial production growth in November. Both in the broader European Union and in Germany and the Netherlands, the figures slightly beat expectations, taking year-on-year growth to around 3%. Something similar is happening with the year-on-year showings for retail sales, even if Germany’s disappointed a little relative to October. In addition, German international trade did well, with exports and imports both on the rise, the former rather more robustly than the latter.
December trade figures for China disappointed slightly but failed to dent the improving trend. Rather more protectionist policies from the incoming US president Trump may constitute a risk. His first press conference since his election didn’t show any moderation in the rhetoric and we’ll have to wait and see what policies he’ll actually pursue when in office. The bond markets saw minor yield falls in the week, somewhat more so in the eurozone periphery than elsewhere. Share prices generally edged down and here too, falls in Europe and Asia were steeper than in the United States.
AEX more or less unchanged
Like many other stock markets across the world, the AEX had an unruffled week and closed pretty much where it had begun. Corporate news should start rolling in from next week.
The index lost some 0.4% in the week that was. The results season is only just getting under way today, while last week’s news had provided little direction. In the Netherlands, Takeaway.com issued a robust trading update for the fourth quarter, reporting strong – and better than expected – order growth. Wereldhave announced fresh restructuring but stopped shy of changing its annual forecast. That said, the timing of its message, just a few weeks before the release of its quarterly results, is distinctly odd. Lastly, construction company VolkerWessels is investigating a potential Amsterdam IPO.
Among Dutch financial services stocks, Rabobank announced the issue of new certificates to bolster its capital ratio, while the Dutch state sold EUR 450 million in ASR shares and cut its holding in the insurer to 5.1% from 63.7%. President-elect Trump’s protectionist election rhetoric continues to make waves across corporate America. The auto industry is feeling this keenly, and a lot of news hit the markets: Fiat Chrysler is to invest USD 1 billion to build Jeeps in the United States; Toyota said it would invest USD 10 billion in the US in the next five years, while BMW stuck to its guns about investing in Mexico. At the same time, Fiat’s CEO suggested that Trump might like a merger between Fiat and General Motors (GM), and the latter surprised the markets with favourable 2017 forecasts and a buy-back programme. Auto industry news turned sour later in the week when Fiat was alleged to be in breach of environmental legislation and its share price plunged on market fears of another Volkswagen-type scandal. Volkswagen itself confirmed it will pay USD 4.3 billion in fines for cheating pollution emissions tests in the US.
Outside the auto industry, Amazon also announced its plans to create over 100,000 jobs in the US, while its Chinese rival Alibaba easily trumped this by holding out a promise of 1 million new jobs.
Other news included McDonald’s selling 80% of its operations in China and Hong Kong; Richemont reporting better-than-expected holiday sales on the back of rising demand for luxury jewellery in the US and recovery in China; and the Wall Street Journal noting that Apple is planning to make TV shows and films and to offer these via its music platform.
Results season truly getting under way
In the week ahead, the financial markets will have their eyes trained on fourth-quarter results, while the macroeconomic data calendar also looks compelling. A whole bunch of different macroeconomic figures are due out in the United States, where, incidentally, markets will be closed on Monday for Martin Luther King Jr. Day. The Empire State Manufacturing Index and the Philadelphia Fed Index are of particular interest as a first gauge of the state of the January economy in the New York and Philadelphia areas. In addition, the US Federal Reserve will release its Beige Book on the past six weeks’ economic conditions in each Fed district. The week should also bring data on housing starts, industrial output and inflation, all of which for December.
In Europe, meanwhile, final inflation figures are due out for the eurozone, Germany, Italy and the European Union (released two weeks ago, Germany’s provisional number of 1.7% year-on-year caused some market concern.) In addition, the ZEW indicator of economic sentiment should reveal the mood of investors in the German – and European – economy for January, while new retail sales figures are slated to be published in the United Kingdom. Thursday’s ECB press conference will tell the markets what interest rate policy its committee has agreed on – we expect no surprises. Lastly, towards the end of the week China will publish its latest figures for retail sales, industrial output and capital spending in December, as well as GDP growth in the fourth quarter of 2016.
In the corporate arena, the United States will continue to hog the limelight, with Morgan Stanley, Goldman Sachs, Netflix, General Electric, Schlumberger and American Express the most important players to release their company results. Among AEX stocks, ASML will kick off as usual and report its results on Wednesday.