Spanish markets plummet

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Unlike all other markets across the world, Spain saw its equity and bond markets plummet after the weekend, the sole explanation being the tense situation after the Catalan independence referendum.

Attitudes have hardened further as Madrid has shown no willingness to make any conciliatory move and Catalan president Carlos Puigdemont, just as stubbornly, is looking to go ahead with a unilateral declaration of independence Ben Steinebach Head of Investment Strategy

Even before the weekend got underway, the Madrid government had sent police forces to Catalonia to prevent escalation – but ended up fuelling the flames. Of the mere 40% of Catalans that turned out, 90% voted for independence. Attitudes have hardened further as Madrid has shown no willingness to make any conciliatory move and Catalan president Carlos Puigdemont, just as stubbornly, is looking to go ahead with a unilateral declaration of independence.

Spain’s 10-year yields added 0.1 percentage points to nearly 1.7% and the country’s leading equity index lost around 4% in the first three days of the week, recovering a little by Thursday. Only Italy’s markets followed the movements in Spain, if to a somewhat lesser degree. 

Other financial markets around the world were as upbeat as ever, with most equity markets – in both the US and the rest of Europe – advancing by around 1% on the previous Friday. Bond yields were slightly depressed. 

Equity prices were unfazed by disappointing economic figures, which included slower August retail sales in Europe (-0.5%) and only very subdued employment growth in the United States in September (135,000 jobs). This latter figure was revealed by pay check processor ADP and undoubtedly part-reflected the hurricanes that have wrought havoc in the US. Today (Friday) we’ll find out if the – rather more important – non-farm payrolls produce the same picture. 

It wasn’t all doom and gloom: encouraging economic data included improved purchasing manager sentiment in September, in both industry and services (final figures), more strongly so in Europe than in the US. In addition, August factory orders for Germany recorded an extraordinarily robust uptick, suggesting room for further industrial production increases in the next few months.

Europe mixed, AEX up

Europe’s equity markets produced a mixed picture, with Spain and Italy losing ground while the rest were up. The AEX added 0.9% despite a corporate news-lite week.

The Amsterdam gauge is at around 542, with ArcelorMittal, Altice and ABN AMRO the week’s biggest gainers at over 5% apiece. Gemalto (-4.3%) and Aegon (-5.2%) were the only stocks showing overall price losses. 

Corporate Holland may well be looking at lower company tax (known as VPB by its Dutch acronym), as the country’s putative new cabinet proposes cutting the corporate tax rate to 21% from 25%.

On Tuesday, Refresco received a fresh bid from PAI Partners, now at EUR 19.75 per share, and the board is weighing up the offer. The company is in the process of acquiring Cott, a deal that’s likely to unravel if Refresco itself is taken over.

In the international arena, Pepsico’s numbers were a mixed bag, while Monsanto’s came in ahead of expectations. Amazon was fined EUR 250 million by the EU for illegal tax benefits in Luxembourg, and the company was said to be testing a delivery service to rival the likes of UPC and FedEx. Tesla disappointed on the news that it sold a mere 260 Model 3s in the third quarter, falling well short of its guidance of 1,500. Incidentally, US car sales in general were way ahead of forecasts in September. And lastly, Siemens sold its final 17% stake in Osram Licht.

Markets gearing up for results season

Next week, the first batch of third-quarter company results will start trickling in. The macroeconomic agenda isn’t too full, with industrial production taking centre stage as many countries release their August figures.

Of course, this Friday afternoon all eyes will be trained on the September employment data in the States – not yet known at the time of writing but undoubtedly showing the effects of hurricanes Harvey and Irma. The coming week’s focus will be industrial production in August, figures on which are due out in many European countries (France, Italy, the Netherlands and the EU at large, as well as the UK). This data should corroborate the very upbeat mood among the sector’s businesses. 

China is to release fresh data on its international trade, providing insight into the domestic Chinese economy and the dynamics of intra-Asian trade. Also well worth watching will be the latest figures on September inflation in the US, France, Italy and Germany, particularly as these inform Federal Reserve and ECB policies. As for the US figures, it should be interesting to scrutinise the Federal Reserve’s September minutes more closely – due out on Wednesday. Lastly, preliminary projections on US consumer confidence in October will appear on Friday, courtesy of the University of Michigan.

The third-quarter results season is about to get underway and data released by Thomson Reuters reveal market forecasts for third-quarter earnings growth at 5.4% annualised for the Euro Stoxx 600, with revenues up by 2.3%. The figures for the S&P 500 have been pegged at 5.5% and 4.3% respectively. In line with tradition, US banking majors will kick off the new results season, with BlackRock scheduled to report on Wednesday, followed by JPMorgan Chase and Citigroup on Thursday, and Wells Fargo and Bank of America closing off the week. Friday will also see the likes of Samsung and LG Electronics nail their results colours to the mast. In recent weeks, several banking majors, including Citigroup, have intimated that interest income has come under some pressure and that trading volumes at the investment banking end are sharply down due to low market volatility. Markets have adjusted their projections accordingly and thus paved the way for positive surprises on the release of the actual results. Interest rate margins aren’t expected to have improved just yet, despite gradual rate increases by the US Federal Reserve.

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