Markets move back up as week progresses

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After coming under pressure across the world last week, the financial markets recorded a tentative recovery from Monday in the week that was. The formal start of Brexit on Wednesday, announced by Theresa May in a hand-delivered letter to Donald Tusk, left the markets unfazed.

In the absence of corporate news on quarterly figures, macroeconomic news will be the main determinant for the mood in the markets. Ben Steinebach Ben Steinebach Head of Investment Strategy

Whereas last week they were still in a bit of a dither over politics in the United States – where the survival of Obamacare should keep 24 million Americans in health insurance, but where Donald Trump will now have less budgetary room to make headway on tax-cutting plans – the financial markets soon forgot these wrinkles after the weekend, buoyed up by the release of a few sharply improved confidence indicators. Germany reported March business confidence (Ifo) smartly up on already high February levels, while in the United States the Conference Board index also showed a sizeable uptick in consumer confidence in March – by 9.5 points to 125.6, its highest level in 16 years.

In a separate development, oil prices recovered slightly from their steep falls in the first half of March. The financial markets took heart and prices on both the equity and bond markets moved ahead of last week’s performance. Against this backdrop, the formal announcement of the Brexit process was shrugged off by the financial markets. On Wednesday 29 March, UK prime minister Theresa May invoked Article 50 of the Lisbon Treaty, triggering the start of the negotiations that will see the United Kingdom leave the European Union. In both the United States and Europe, equity markets closed Wednesday between 0.5% and 1% higher than the previous Friday.

2018 – crunch time for the ECB

Until quite recently, market watchers generally assumed that the ECB would not start tapering asset purchases until sometime in 2018 and that any interest rate increases were still a very long way off. We now reckon there’s a real possibility that it will start dismantling the programme at the start of 2018 and complete this by the middle of the year. A first deposit rate increase may materialise as early as the second half of 2018.

We’ve pushed forward our expectations as economic growth is gaining traction more quickly and strongly than we’d envisaged previously and as downward pressures on inflation are letting up a little sooner. Also, we see technical reasons for earlier tapering, including upper limits per country being reached. This is making it ever more likely that eurozone capital markets rates will follow in the footsteps of their US counterparts and start moving up in 2018.

AEX rippling gently upwards

The AEX index had a balmy week and ended on a positive number. The Amsterdam gauge is at around 514. The week’s biggest winners included Galapagos (+5.7%), SBM Offshore (+4.6%) and Vopak (+3.0%). Its losers were headed by Randstad (¬-4.5%), followed by Unibail-Rodamco (-3.2%) and ArcelorMittal (-2.4%).

The Sunday Times reported that Unilever will be putting a ‘For sale’ sign on its spread division – which includes butter and margarines – at an asking price of EUR 7 billion. This proposed sale and change in strategy indirectly follows from the failed bid by Kraft-Heinz.

We’re in between results seasons, which typically means there’s little in the way of corporate news to set the agenda. This week was no different. Still, SIF Holding released annual results that were roughly in line with expectations. The manufacturer of large steel tubulars for offshore wind turbine foundations (monopiles) notched up better than expected volumes and margins. Boasting solid order books, the company said it should keep growing in the years ahead, except in the second half of 2018.

Making up for the dearth of corporate results, the week was brimming with news on the M&A front. In the chemicals industry, the EU gave Dow Chemical and DuPont the green light to merge, on condition that DuPont hive off large chunks of its pesticides division. Meanwhile, Syngenta’s CEO expressed an interest in specific activities that will be up for sale if the proposed merger between Bayer and Monsanto goes ahead. Lastly, workers’ representatives put strong objections in the way of the merger of Linde and Praxair to create the world’s largest manufacturer of industrial gases.

Another proposed merger that had been teetering on the brink – that between the London (LSE) and German (Deutsche Boerse) stock markets – suffered a major setback as the European Commission saw too great a monopoly. Meanwhile, Philips bagged Australia’s Pharmacy Sleep Services, a leader in research into and treatment of sleep problems. And Amazon emerged victorious from the battle to acquire Dubai-based online retailer Souq.com, gaining a significant foothold and market share in the Middle East.

In the ‘other news’ category, Halliburton predicted lower profit growth in the first quarter but better margins later in the year. The Financial Times reported that 24.6% of AKZO Nobel shareholders want the company to talk with PPG. Tencent revealed it has built a 5% stake in Tesla, making it the company’s fifth biggest shareholder. And finally, Samsung presented its Galaxy S8. The new device has a bigger screen and comes with a virtual assistant called Bixby. Bixby will be taking on the competition from Apple’s Siri and Google’s Google Assistant.

Macroeconomic news continues to dominate markets

This coming week will see the release of final data for purchasing manager sentiment in many countries. These should hardly move the markets, as they’re not likely to be much different from the provisional figures out last week (which were generally better in Europe than in the United States). February US factory orders and construction spend will be much more interesting. In January, the orders were noticeably up but weather conditions caused construction spending to dip and this can be expected to have moved back up in February.

In the European Union, new data are due out for the labour market– i.e. employment and unemployment – and for retail sales, which should show whether these ‘harder’ indicators are following the strong momentum on confidence gauges. New figures on manufacturing in Germany in February are scheduled for release by the end of the week: industrial orders, which had sharply fallen in January, and production, for which figures had been up in the same month. The United Kingdom and the Netherlands will also publish new industrial production data in the week. The news to watch will be from the United States and is due out on Friday: March labour market figures. The big question is whether February’s surge in jobs (235,000) continued into March.

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