Markets pausing for breath again

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This past week, the world’s financial markets turned less bullish than we’d become accustomed to, and Thursday saw most of them lose ground on news of delays in the US’s tax plans.

Also AEX takes a step back Ben Steinebach Head of Investment Strategy

The macroeconomic news, by contrast, was generally encouraging. It started on Friday 3 November with the release of October employment figures by the United States Department of Labor. Granted, a 261,000 increase in jobs was a tad below the 310,000 the markets had been holding out for, but the figures for the preceding two months were revised up by a total 90,000, implying a net upturn of over 40,000 more than previously thought. October purchasing manager sentiment in the services sector got just a little bit worse in the eurozone, but the index is still comfortably high at 55.0. 

In fact, many other countries including the US, the UK and Japan, recorded advances in their PMIs. The week’s biggest surprise on the upside was reported by Germany, which saw September industrial orders add 1% on August whereas it had been bracing for a 1.1% fall. The uptick has taken orders 9.5% up on the year-earlier figure, while production itself remains over 3.5% higher than in September 2016, despite the 1.6% drop in September 2017. In the Netherlands, production rose by 1.4% on August and by 5.2% on September 2016. September retail sales also provided evidence that the eurozone economy is ticking over nicely, rising by 0.7% on August, with numbers for the preceding two months revised upward.

China released its latest data on foreign trade: October exports advanced 6.9% on the year-earlier figure and imports were 17.2% up, a sure sign of the strength of the domestic economy.

On Thursday, the markets were caught on the hop by news that the proposed US corporate tax cut to 20% from 35% – one of the most notable elements of President Trump’s tax plans – will not take effect until 2019. Bond markets, which had been looking a little friendlier than equity markets for the better part of the week, suddenly found themselves losing ground on this Thursday news. 

AEX takes a step back

The Amsterdam gauge retreated in the past week, a healthy correction long overdue after weeks of euphoria. The mood was also affected by the possibility of delayed tax reforms in the US. 

Taking a step back and losing 1% in the week, the AEX now stands at around 550. Meanwhile, we’re moving towards the end of the results season, and the scores are: of the S&P 500 companies that have now reported their results, 77% beat earnings expectations and 67% were ahead of revenue forecasts, with the same figures coming in at 54% and 47% for the EuroStoxx 600. A slightly mixed picture overall, then, with Europe a bit of a disappointment. 

In the Netherlands, PostNL produced a mixed bag of results: its mail division exceeded expectations and its parcel division did slightly better, while its international operations lagged slightly behind projections and faced fierce competition. Meanwhile, Vopak’s results fell short as profit recovery in the Netherlands was wiped out by losses in the Asian region, and the company lowered its full-year guidance. Also mixed were Ahold-Delhaize’s numbers, with sales disappointing but earnings exceeding expectations. The retailer is enjoying rising food prices and its management displayed confidence. SBM Offshore’s prices nosedived on the news that the company is talking to the US Department of Justice about the corruption scandal in Brazil, and that the company is taking much larger-than-expected provisions because of it. Later in the week, SBM issued a robust trading update. The main news in Aegon’s numbers was that its capital ratio turned out much better than had been expected, but the underlying picture was otherwise mixed. Aperam’s figures disappointed, as did those for Refresco and construction company BAM. ArcelorMittal posted solid results and struck a more positive tone on its outlook, with Europe, Africa and Brazil doing particularly well.

Berkshire Hathaway’s results were held back by hurricane-inflicted losses at the insurance end of the business. The numbers at Walt Disney didn’t quite make the grade either and the company proved cautious about 2018. Adidas’s results were mixed, but the markets acted disappointed. BMW’s as well as Siemens’ figures dipped below expectations, while’s came in ahead of projections even if the markets had hoped for more encouraging guidance. Moller-Maersk was a major disappointment, with its container division doing particularly badly, and the company issued a profits warning for full 2017. Adecco reported organic revenue growth of 6% and other figures in line with expectations. The figures for Snap, Snapchat’s parent company, disappointed in terms of both results and app user numbers.

Broadcom pushed the semiconductor industry further into the limelight by revealing it has serious plans to take over Qualcomm and launching a bid totalling USD 130 billion including Qualcomm’s proposed takeover of NXP. Also on the takeover front, Walt Disney revealed an interest in 21st Century Fox’s film studios, while there have been delays in the Time Warner and AT&T tie-up.

At the tail end of the results season

After weeks awash with corporate results, the end of the season is now drawing near while the macroeconomic agenda is nicely full for the week ahead. 

In the Netherlands, NN Group is due to report its results while internationally reporting names include Alstom, RWE, Home Depot, Henkel, Infineon, Vodafone, China Steel, Cisco Systems, Target, Tencent, Vivendi, Applied Materials, Wal-Mart, KBC and Sodexo. ABN AMRO expects Dutch insurance company NN to report an improved Solvency 2 capital ratio of 202%, up on its mid-2017 showing of 196%. We also think its operating result before tax from ongoing business will come in at EUR 384 million and are holding out for a combined ratio of 99.3% (a profitability measure with a percentage below 100% indicates profitability). But regardless of its actual numbers, the markets will be more excited to see what comes out of NN’s analysts’ day at the end of this month. 

As usual, Wal-Mart will be doing the unofficial honours in the week ahead by bringing up the rear in the US results season. The US discount retailer has managed to turn the tide by pulling out all the online stops: it has grown its online business no less than 40% and is expected to make online sales to the tune of USD 11.5 billion in the US this year and USD 17.5 billion worldwide. This growth percentage is unlikely to be sustained, but management was very upbeat at last month’s analysts’ day and confidently stand by their strategy. Wal-Mart expects to grow its earnings per share by 5% next year and invest at the same time, by keeping a tight rein on its costs and buying back shares. 

Next week’s macroeconomic calendar will be dominated by figures for inflation, industrial production and fresh gross domestic product (GDP) forecasts in many countries. The US, UK, EU, Germany, France, Italy and Spain are all slated to report October consumer price trends, which typically inform central bank policies. Germany issued its latest industrial output figures last week and next week it’s the turn of the US and China (numbers for October) as well as the eurozone and Japan (for September). New projections for third-quarter GDP are expected to be released for China, Japan and the EU (including the Netherlands). The US, China and the UK are slated to report the latest retail sales figures, while Germany and the EU are looking out for the new ZEW index for November, capturing investors’ willingness to invest in these areas. Lastly, China should have compelling data on foreign direct investment, while the US is set to release oil inventories details. Philly Fed numbers for November will provide a first glimpse into how robust economic activity is in the Philadelphia region.


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