Across the world, the financial markets continued in good cheer in the first week of the year, with leading equity indices rising across the board even if US and European bond prices diverged.
The AEX index started the new year on a slight gain of 0.65% and moved pretty much in step with other stock markets in Europe.
Ben Steinebach Head of Investment Strategy
The week’s economic news was generally in line with price trends: most countries released gauges of purchasing managers’ sentiment and these indices were positive without exception. In fact, manufacturing sector PMIs everywhere touched levels comfortably ahead of 50, the borderline between growth and contraction, although there was a sprinkling of – minor – falls. In the European Union, the Economic Sentiment Indicator (ESI) for business and consumer confidence rose to 107.8 in December, from 106.6 in November. These encouraging confidence indicator showings suggest that harder gauges for manufacturing and spending will soon follow suit. Hopefully, this won’t give rise to any early sense of economic overheating and prompt central banks to pull in the monetary reins (too) soon. We don’t really expect matters to take such a turn and take heart from trends in November 2016 industrial orders for Germany, as published on Friday morning: down by 2.5% on October, when these had recorded a 5% uptick. European retail sales were on a similar path and recorded a 0.4% fall in November compared with a month-earlier rise of 1.4%, although the year-on-year increase was still at 2.3%. Both economic and equity markets scenarios would appear to remain favourable for now.
Bond markets respond to European inflation data
For years, central banks across the world have been pursuing policies to sidestep the threat of deflation and to get inflation close to their 2% target levels. The United States is now nearing this goal and a similar trend would seem to be emerging in Europe. December saw consumer prices in the EU add over 1% on November, which was even a bit ahead of the projected increase and pushed the year-on-year uptick to 0.9%, compared to 0.6% in November and -0.2% in April of 2016. Germany recorded similar-sized month-on-month changes, but its inflation upturn pushed as much as 1.7% compared with December 2015. In fact, this is quite comparable to inflation numbers for the United States: 1.6% in November 2016 as compared with November 2015. Ten-year US Treasury yields are now at 2.36% after a 12 basis-point fall in the week, while the figure for the eurozone (Germany) – where the ECB is still engaged in asset purchases – is currently still at 0.25%, reflecting a 17 basis-point increase on the previous week and recorded in most euro countries. The divergence in developments between the US and eurozone bond markets is at least partly explained by the latter playing inflation catch-up.
AEX starts on modest gain
The AEX index started the new year on a slight gain of 0.65% and moved pretty much in step with other stock markets in Europe. Corporate news was thin on the ground in this first week of trading. Although there was little in the way of corporate news and the results season doesn’t really start until next week, Sligro kicked off the week with a fourth-quarter revenue update that proved less subdued than expected. Meanwhile, TomTom’s key rival HERE acquired a new partner in the shape of Intel in the week. TomTom enjoys solid market positions, but HERE has been making major inroads lately. The week beginning on 9 January will also see the start of the world’s most important consumer electronics show for both companies: at the Las Vegas CES driverless cars are likely to take centre stage, while artificial intelligence (AI) and robotics should also command a great deal of attention. Both fields have featured in theme-based reports ABN AMRO has previously published.
Although Monsanto reported much steeper profits than had been projected, it stopped short of upping its annual profits forecast. Meanwhile, Samsung started the week by saying growth in its core markets is likely to contract this year, but did post better-than-expected profits figures later in the week – and the same was true for its profits outlook. Apple also had good news to report: App store spending has surged by 40% in 2016.
Trump’s threatening tweets caused ripples in the car manufacturing industry, prompting a variety of responses. Ford cancelled an investment in Mexico and will now shift part of its production to the United States. Toyota was also told to build its plant in the US rather than Mexico, while General Motors said that most of its Cruze models will be manufactured in the US.
Lastly, global retailers are still having a rough time as online competition keeps hotting up. Macy’s will cut its workforce even deeper and issued a profits warning. Holiday sales at UK clothes retailer Next fell short of expectations and it issued a disappointing profits forecast, while US retailer Sears is on the verge of closing over 150 outlets.
Next week: gradual start to the results season
The week ahead will see the first trickle of corporate results for the fourth quarter of 2016. The week’s macroeconomic news will involve ‘harder’ indicators such as industrial production and (once again) inflation. A gaggle of US financial services providers will kick off the results season: Blackrock, JP Morgan, Wells Fargo and Bank of America. The ECB’s monetary policy council is scheduled to meet and noises may emerge on the take of Europe’s central bank on the most recent inflation trends. Spain and France are slated to release their latest inflation figures (for December), both having reported November figures – at 0.7% and 0.9% respectively – that came close to the European average. In the European Union, both Germany and the United Kingdom will report fresh data on industrial output in November. In October, these had still been relatively solid for Germany (0.3% compared with September), weak for the broader EU (-0.1%) and decidedly poor for the United Kingdom (-0.9%). All in all, we’re looking at a relatively news-lite week ahead, but are bracing for fireworks from the United States this afternoon: December employment and joblessness figures are due out at 14.30 hours CET. By the time you read this, you’ll have found out whether expectations – of 180,000 new jobs and unemployment at 4.7% of the labour force – have been met.