Financial markets throttle back

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Across the world, equity prices remained robust but, on the whole, investors eased back on the throttle a bit in the week just past. Market prices inching up and yields edging down took the sting out of the worst start of the year ever for bonds.

In the face of a slew of corporate numbers and macroeconomic data, the AEX index stayed pretty flat compared with the previous week. Ben Steinebach Ben Steinebach Head of Investment Strategy

The markets were inundated with macroeconomic news in the week, most of which was again encouraging. Purchasing manager sentiment is still solidly upbeat and PMIs remained comfortably ahead of the 50 mark that lies between growth and contraction. Some slight falls relative to December levels were recorded in places, but nothing unusual for this stage in the business cycle. Meanwhile, we’re increasingly seeing signs that global trade has been outpacing expectations in the past few months, as evidenced by major international airports’ handling volumes. At long last, inflation in many countries is now rising to levels close to central bank targets – mainly on the back of higher energy and food prices, admittedly, with core inflation in fact a tad down, but enough for the fear of deflation to dissipate somewhat. The results of the FOMC meeting failed to move the markets, as the Federal Reserve’s analysis corroborated the view that the economy is improving further. The absence of further rate hikes was in line with expectations.

New depths were plumbed in US politics with a travel ban for targeted groups of foreigners, and Peter Navarro, Donald Trump’s key trade advisor, calling the euro – or rather the Deutsche Mark, as he provokingly referred to it – grossly undervalued. The travel ban got corporate America – e.g. the technology sector in Silicon Valley – spooked and riled, as it needs highly educated people. On balance, equities lost some ground – between 0.5% and 1% in the United States and generally by a little more in Europe.

AEX index shows little direction despite wave of corporate results

In the face of a slew of corporate numbers and macroeconomic data, the AEX index stayed pretty flat compared with the previous week. The results season is still in full flow and prospects generally appear to be somewhat ahead of expectations.

The AEX index edged down by -0.3% in the week to 485, outpacing most of its European counterparts. The Amsterdam stock market barometer benefited from solid performances by blue chips such as Royal Dutch/Shell and ING, but was mainly driven by defensive players such as Wolters Kluwer, RELX (formerly Elsevier) and Heineken, which together with ABN AMRO pulled most of the weight. The index’s biggest losers were Vopak, SBM Offshore, KPN, ArcelorMittal and NN. KPN also lost ground despite results in line with expectations and stable trends. Its earnings growth remains an issue, though. Vopak was the biggest loser of the lot, as Iran is bringing on stream new capacity that is highly competitive with Vopak terminals in the United Arab Emirates.

We’re currently at the zenith of the corporate results season. In the United States, Apple and Facebook both reported results ahead of expectations in the week, but Amazon’s numbers were a bit of a mixed bag while its outlook disappointed slightly. The overall picture arising from the corporate results already out there is not all that different from last week, with companies releasing better-than-expected numbers. The good news is that more US companies are upgrading rather than lowering their outlooks. This positive ratio is particularly due to the fact that fewer companies are slashing their forecasts than in previous quarters. The results season still has a fair way to go, but it would only be the third time in the US since the end of 2011 if this ratio remained positive.

Busy week ahead

In a still very busy results season, the week ahead will again see many companies release their fourth-quarter results, while the macroeconomic agenda is nice and full as well. A selection of the long list of names slated to post their results: BNP Paribas, Coca-Cola, Ryanair, BP, ABB, Sanofi, Klepierre, Allergan, Walt Disney, Gilead Sciences, Total, Sanofi, L’Oreal and Syngenta. In the Netherlands, the likes of TomTom, SBM Offshore and Arcelor Mittal are on the roster.

Our take on SBM Offshore is roughly in line with the consensus outlook of EUR 2.1 billion in revenue and an operational profit (EBITDA) of EUR 730 million, making the markets a tad more upbeat than the company itself. We see SBM Offshore gaining confidence in the future, as it is pitching for more projects. In addition, its solid cash flows help create confidence in its dividend policies.

For Arcelor Mittal, the markets are looking for fourth-quarter operational results of USD 1.56 billion and expect more information about the productivity enhancement programme that got under way last year and will run until 2020.

In the international arena, Coca-Cola is expected to report falls in both profit and revenues in the wake of recent acquisitions and disposals. At Walt Disney, the focus will be on ESPN, its paid sports channel, and the question of whether it has been able to stem the decline in subscriptions of the past three years. Lastly, Sanofi’s results are due out. The consensus opinion is that the French pharmaceutical company will notch up earnings per share of EUR 5.65 on the back of results growth in multiple sclerosis, vaccinations and rare diseases, while results from diabetes are expected to fall. The markets will particularly be interested in the company’s outlook for 2017.

In macroeconomic terms, the week ahead is looking normal and pleasantly busy. December industrial order receipts in Germany are likely to draw market watchers’ attention, as will industrial production for the same month. This latter figure should also be released for France and Italy towards the end of the week. Lots of figures are due out in China, including exports, imports and the trade balance in January; PMI for services in January, as measured by Caixin (which surveys smaller private companies); and the most recent inflation data for January. The United Kingdom will release a second forecast for GDP in the fourth quarter of 2016. The first one, published two weeks ago, saw GDP growing by 0.5% relative to the previous quarter. Lastly, in the United States we are looking forward to fresh consumer confidence figures for February (as measured by Michigan University) as well as the Labor Market Conditions Index for January. This latter gauge should offer more insight into US jobs and unemployment trends than the Friday jobs report (not yet out at the time of writing). Federal Reserve Chair Yellen is known to set great store by this broader index.

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