Although equity markets saw fresh record highs, most ended the week down. Bond yields generally fell, gold prices rose and the US dollar regained some strength. Equity markets across the world were locking in higher levels in the week, with US markets touching all-time highs and Europe setting year-to-date records. Markets kicked ahead so hard that sentiment had become ultra-sanguine – and so investors took profits before the week was out, pushing most markets into negative territory on balance. Meanwhile, the markets were looking ahead to a speech by President Trump scheduled for next week.
After a very busy week indeed, there’s enough still scheduled for the week ahead.
Ben Steinebach Head of Investment Strategy
In the bond markets, yields came down in the United States and Germany, while they were slightly up in the periphery of the eurozone due to rising political tensions. The downturn in other yields reflected the fact that inflation expectations haven’t risen any further.
As US bond yields moved down, the price of gold breached USD 1250 per troy ounce once more and the US dollar picked up a little relative to the euro. ABN AMRO adjusted its euro-dollar view in the week: we are no longer assuming parity and are now looking for an end-of-year exchange rate of 1.10.
Macroeconomically, Europe’s attention was firmly on the hows and whens of the ECB’s asset purchase programme going forward. Meanwhile, projections for fourth-quarter economic growth in the eurozone were revised down very slightly.
The corporate results season is almost over. In Europe, the Eurostoxx 600 ended up recording an over 3% fall in profits for the fourth quarter while revenues were more than 2% up. In the United States, these same figures for the S&P500 worked out at +5% and +4% respectively. The quarterly fall in European profits came as a surprise.
AEX breaches 500 mark
The AEX index tested and broke through the 500 barrier several times in the week, but closed the week below 500. Corporate releases were a mixed bag. The AEX index ended the week lower, at 495. The week’s winners were rather more defensive players such as KPN, Wolters Kluwer and RELX. The last two also reported their results: Wolters Kluwer returned fine annual figures and organic revenue growth of 3%, and its prospects for 2017 were also positive. The story was much the same at RELX: solid annual results in line with expectations, organic revenue growth at 4% and a new share buy-back programme.
Aside from cyclicals such as ArcelorMittal and Boskalis, financial services companies were squeezed in the week, e.g. NN, ING and ABN AMRO. Among financial sector players, results releases were coming thick and fast from the country’s insurers. Aegon reported slightly better-than-expected fourth-quarter results, but its Solvency II capital ratio dipped below expectations. By contrast, ASR posted both better results and a stronger-than-expected solvency ratio, while at Delta Lloyd both results and capital ratio disappointed.
Lastly, GrandVision produced a crop of reasonable results more or less in line with expectations. At BAM, the numbers were strong but the company’s forecasts for 2017 fell short of market consensus.
The week’s calendar: plenty busy
After a very busy week indeed, there’s enough still scheduled for the week ahead. In the macroeconomic arena, the week ahead will see the release of the final figures for business confidence in the manufacturing industry (on Wednesday). Markets expect the US gauge – the ISM Manufacturing Index – to remain unchanged at 56. Final confidence figures for services sector producers are slated for release on Friday. In addition to business confidence, the calendar also flags consumer confidence figures for the eurozone. Other features include retail sales in Germany as well as January 2016 personal income and personal expenditure in the United States. The markets are putting both at an 0.3% increase.
The results season is drawing to a close and it’s mostly European players that are yet to report. The United States is still waiting for the likes of Priceline.com, Berkshire Hathaway, Salesforce.com and discount retailer Target, while Europe should see the following list open their books to the outside world: Anheuser-Busch InBev, Adecco, Continental and GDF Suez. Dutch names include PostNL, Aalberts Industries, Ahold Delhaize and ASM International.
The markets are looking for earnings per share (EPS) at USD 12.98 for Priceline, owner of Booking.com – ahead of the range predicted by the company itself (USD 12.20-12.80). Previously, Priceline had forecast 20-25% growth in overnight stays, but data from its rivals have shown a rather mixed picture in the year to date. The biggest risk to its share price is for Priceline to sound more cautious about the first quarter than are the markets – these are holding out for first-quarter WPA of USD 10.55.
Markets are awaiting brewer Anheuser’s results release with some trepidation and market forecasts have been downgraded by some 6-7% since the third quarter. The company might surprise by producing cost synergies sooner than expected.
Ahold Delhaize is to present its results after releasing very solid sales figures in mid-January. The market is likely to be looking out for management forecasts on post-merger synergies to be locked in as early as 2017.
Ralph Wessels, Investment Strategy Knowledge Centre