Markets continue flat and mixed

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There was no absence of news in the week just past but equity markets again failed to shift much, while the overall picture was somewhat mixed. Meanwhile, long-term yields moved slightly down and business confidence remains robust across the world.

We’re past the mid-point of the results season Ben Steinebach Ben Steinebach Head of Investment Strategy

Equity markets showed pretty much the same face to the world as they did last week: mixed and fairly flat. The Dow Jones was up, inching above the 22,000 mark for the first time, but both the S&P 500 and NASDAQ lost ground. In Europe, the EuroStox600 barely moved, with Spain and Italy recording gains, Germany moving down a tad and France remaining unchanged. The picture was similarly mixed in Asia, where Hong Kong notched up the biggest rise (of over 2%).

We’re past the mid-point of the results season. Out of the 392 S&P500 companies whose results are now in, some 77% beat earnings forecasts and 67% revenue expectations (Bloomberg data), adding up to a slight deterioration in the past week but still ahead of the average. The same numbers worked out at 57% and 58% for the EuroStoxx600, a slight improvement in the week just past and also better than the average results season.

In the bond markets, yields were down as prices went up. At 2.2%, US 10-year yields lost only a few basis points, but Germany saw a drop of over 10 basis points to 0.46%. Oil may have had a very volatile week but prices closed virtually unchanged, whereas the US dollar continued to lose ground: the dollar/euro rate is now at nearly 1.19.

In politics, chaos continues to engulf the White House, while business confidence took centre stage in the macroeconomic arena. In China, several business confidence indicators suggested a mixed picture: one of them fell and disappointed, yet another was up and beat expectations – but all of them are still signalling growth. In the eurozone, business confidence remained at very comfortable levels, while the US saw both ISM Manufacturing and ISM Non-manufacturing fall, the former slightly and the latter hard, though both disappointed. Wednesday’s ADP employment report turned out lower, but had been revised up sharply in the previous month. And at 2.30 pm CET today, American non-farm payrolls will be released. These were not out by the time of writing, but the markets are looking for 180,000 additional jobs in July.

AEX also flat again

Corporate figures and macroeconomic news failed to inspire the AEX this week and the Amsterdam gauge went down 0.2% to 525.

Heineken started the week off on the right foot, beating forecasts for organic volume growth, revenue, operating profit and net earnings growth – although it refrained from changing its full-year guidance. On Tuesday, DSM followed suit and revealed a strong second quarter. Unlike Heineken, the chemicals company raised its projections for full 2017, as second-quarter operating profit (EBITDA) far exceeded expectations by advancing 15% annualised. DSM’s robust performance was driven by its Nutrition and Materials divisions recording growing margins. GrandVision’s figures, by contrast, lacked lustre: organic revenue growth, revenue and adjusted EBITDA all disappointed. The Dutch optical retail store operator is holding out for an improved performance in the third quarter. 

On Wednesday, ING posted a better-than-expected – if slightly mixed – set of results, with commission income up but costs coming in higher than had been expected. Figures for Takeaway.com were a mixed bag, too: operating losses were higher than expected and orders growth slowed down a tad, although various leading statistics – such as the number of restaurants that have joined the platform – continue to look good. 

Fugro’s half-year release on Thursday was a massive disappointment. Its revenue made the grade all right, but operating result dipped 22% below forecast and net debt was likewise much higher than had been expected. Its share price took a battering on the news and closed the week on losses of over 14%.

Of course, Dutch companies weren’t alone in reporting results, with eyes mostly trained on Apple in the international arena. Its release enjoyed a positive welcome on the back of the guidance it issued for September, which signalled that there should be no delays in the launch of its new iPhone 8. China remains an area for concern, but the good news was that Apple has been doing well in virtually all its markets – e.g. services, Macs, iPads, watches – and doesn’t just depend on the iPhone.

Results season slowing down

The week ahead will still see us mid-results season, even if it has now peaked. Quite a few companies are lined up to present their numbers, while the week should be relatively calm in macroeconomic terms.

A selection of the list of companies reporting in the week ahead: PostNL on Monday and IFF and Priceline on Tuesday. Wednesday will see Ahold Delhaize, SBM Offshore, Symrise, Munich Re and Twenty-First Century Fox report, while Aegon, Refresco, Adecco, KBC, Prudential and China Mobile are due out on Thursday. Friday features Noble Group among others.

Expectations are running high for Priceline, partly based on solid trends in the sector. The company itself has provided a cautious guidance on earnings per share at USD 13.30-14.00 in the second quarter, but consensus projections put the figure at USD 14.17. Hotel room stays are expected to have shot up by between 23% and 24%.

Ahold Delhaize’s figures are bound to highlight falling food prices and growing competition in the United States. The US Census Bureau has put the drop in food prices in the second quarter at 0.2%. In the teeth of a profits warning from a rival company and increased competition, Ahold has stuck to its guidance on operational margins and expected synergies. The markets are holding out for second-quarter sales of EUR 16 billion, flat organic sales growth and operating income at EUR 577 million.

ABN AMRO expects Aegon to report stable underlying profits at EUR 538 million, though markets watchers’ key concerns will be the insurer’s Solvency 2 ratio in the Netherlands and its plan of action to address this.

At the macroeconomic end, many countries are slated to release their industrial production (IP) and trade balance (TB) figures in the week ahead. Germany will kick off on Monday with the former and release the latter on Tuesday. Trade data are also due out on Tuesday for France and China, with growth forecast to be in the double digits year on year. America’s National Federation of Independent Business (NFIB) will report on business optimism among smaller companies on Tuesday, with a marginal increase predicted, from 103.6 to 103.8. IP numbers are scheduled for release in Italy on Wednesday and in France and the UK (expected at 0.0% month-on-month) on Thursday. Thursday should also see TB figures posted for Italy and machine orders for Japan (expected at +3.7% month-on-month). Friday will wrap up with US inflation figures for July, as the markets predict a rise to 1.8% from 1.6% year-on-year, with core inflation at 1.7%. The markets will keep a very close eye on these figures, which are a key concern for the US Federal Reserve and help determine future interest rate policies.

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