The equity markets managed to lock in fresh gains in the week; the US dollar moved sideways despite Janet Yellen’s testimony; and yields were slightly up. The week’s slew of corporate figures was reasonably positive.
By now, most companies have reported their quarterly figures, but a few are on the roster to do so next week.
Ben Steinebach Head of Investment Strategy
The financial markets were most interested in Fed Chair Janet Yellen’s two-day testimony before Congress on the state of the US economy. On Tuesday and Wednesday, she made it plain that the US Federal Reserve shouldn’t wait too long before cutting back its supportive monetary policies. In March the Federal Open Markets Committee will decide whether the US economy is strong enough to handle a fresh interest rate rise. Wednesday also saw the release of US inflation figures for January, with core inflation ending up a little higher than the December showing, at 2.3%. These figures fed into expectations that the Fed will increase rates in March.
The equity markets took a sanguine view of Yellen’s comments, especially as she proved encouraging of government stimulus of the US economy. Both the S&P500 and the Dow Jones recorded fresh all-time highs, while Europe’s markets also kicked ahead to their highest levels of the year. Japan’s Nikkei was unable to sustain its good start and closed the week a little lower.
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.
Growing expectations of an imminent increase in interest rates did not add strength to the US dollar: although it surged at the time of Yellen’s remarks, the greenback lost its momentum as the week wore on. Ten-year yields in both Europe and the United States hardly moved despite all the news from their central banks, and yield spreads between the two continents remained fairly even.
The week saw mainly European companies on the corporate results calendar, and the overall picture in Europe has been a tad more moderate than in the United States. Corporate earnings were roughly in line with forecasts or a trifle higher, but revenues did beat expectations. In the United States, about two-thirds of companies have notched up better revenues while about half reported higher earnings.
AEX on course to hit 500
The AEX index once again locked in higher levels and would now appear to be on course to hit 500. That said, corporate results weren’t robust enough to breach the 500 mark just yet.
The AEX got off to an excellent start in the week and quickly topped 490. After Yellen’s first day before Congress it pushed ahead to 497 on Wednesday, but the 500-point on the horizon faded a little on Thursday and the index lost more momentum on Friday. AEX companies presenting their quarterly figures included Randstad, Akzo Nobel, DSM, ABN AMRO, Heineken, NN Group, Aegon and Vopak. Released on Tuesday, Randstad’s results were fine indeed, with the company beating expectations in most areas and the equity market rewarding its shares with an advance of over 4%. On Wednesday, both DSM and Akzo Nobel posted decent results but no equity market rewards were forthcoming: in fact, Akzo Nobel saw its share price lose 3% on its results being published. DSM was notable mostly for the robust figures turned in by its Performance Materials division. Brewer Heineken posted results a little ahead of expectations, as its growth in Asia is moving apace and both Latin America and Europe are also chugging along nicely. Thursday saw NN Group disappoint and its lower-than-expected solvency triggered a steep fall of over 7%, even if the company has announced a higher dividend payment than the markets had been looking for. On the final day of trading in the Dutch market, Vopak posted weak results and lost over 8% of its value. Aegon’s figures, by contrast, were fair, with slightly improved profits and solvency in line with expectations.
Results season continues
By now, most companies have reported their quarterly figures, but a few are on the roster to do so next week. Macroeconomic news will be thinner.
The macroeconomic calendar holds out PMIs for Europe, the United States and Japan. The consensus is that these will be stable compared with month-earlier figures. European inflation numbers are due in on Wednesday, which is also when the minutes of the latest FOMC meeting will be released. American consumer confidence will be published on Friday. And, of course, we’ll have to wait and see what plans President Trump will launch in the week and how financial markets will respond.
In Europe, it’s show time for a couple of companies. In the Netherlands, Grandvision releases its results on Monday and BAM on Tuesday. On Wednesday, it’ll be the turn of Wolters Kluwer and for Germany’s Bayer and Fresenius. Telecoms players Telefonica and Orange are due to publish their results on Thursday, with BASF and Fugro opening their books to the markets on Friday. The US calendar is much less busy, featuring only Allergan, Wal-Mart and Mobileye. Lastly, China’s Baidu will present its results on Friday.