Stock markets move up a step

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Across the world, stock markets had a good week. The results season is ticking on and the overall picture hasn’t changed much over the week. Yields generally came down and the US dollar regained some of the ground it had lost. In macroeconomic terms, it wasn’t a particularly full calendar.

The AEX had a good week and beat many of its European siblings. But it wasn’t corporate news that gave the Amsterdam index a leg-up. Ben Steinebach Ben Steinebach Head of Investment Strategy

Whereas concerns about President Trump had caused slightly tentative equity market movements at the start of the week, things took a turn for the better when he announced a tax reform plan to be launched in the next few weeks. Across Asia, America and Europe, indices shot up in response. Asia made the most headway, followed by the United States and then Europe. In the US, the S&P500 finally breached the psychological barrier of 2,300 while the greenback also clawed back some losses and added one per cent against the euro.

Macroeconomically, it was a fairly quiet week. China had good news for the markets, with both imports and exports growing much more than market watchers had predicted. Germany returned a bit of a mixed bag: trade balance figures disappointed somewhat and so did industrial production in December, which fell rather unexpectedly. However, factory orders kicked ahead much more smartly than forecast, particularly those from outside Germany. Note that the last two pieces of data may be volatile.

In the bond markets, yields generally fell – Greece being the one exception recording a rise, as concerns are back about the country’s debt mountain. To some extent, this is due to the IMF and Europe taking different views on how to address Greek debt problems.

In America, the results season is nearing its end, with over 70% of S&P500 companies having now reported and the general picture not changing much in the week. Corporate earnings have turned out better than expected, while revenues came in largely in line with expectations. Technology and healthcare notched up good results, while telecoms and utilities disappointed. Strikingly, though, corporate outlooks have turned: whereas these were mainly upbeat two weeks ago, more companies have now downgraded their prospects on balance.

Meanwhile, Europe is about midway through its results season and the overall picture is a tad more moderate than in the US. That said, European revenues have exceeded expectations, but profits are in line or only slightly ahead.

Good week for the AEX

The AEX had a good week and beat many of its European siblings. But it wasn’t corporate news that gave the Amsterdam index a leg-up.

It was a good week for the AEX index, which added over one per cent and is now at around 490. SBM Offshore’s figures came in more or less in line with expectations while TomTom’s were mixed, as its car business notched up a very solid performance but its consumer activities showed weaknesses.

Once again, the week’s AEX winners were rather more defensive players such as Heineken, Unilever, Wolters Kluwer, RELX and Unibail-Rodamco, all of which gained over three per cent in the week. In fact, the rather more cyclical ASML also made it to this same list, as it benefited from strong sentiment in the technology sector. Market losses were few among AEX companies; SBM Offshore was the odd one out, with results in line with forecasts but its share price moving south. Other losers included NN and Randstad. By Friday morning, though, the AEX was right back at 490, in part because steelmaker Arcelor Mittal produced better results than expected.

Results season not quite over

The results season may have peaked but quite a few companies are waiting in the wings to report their results. The macroeconomic calendar is fairly full too.

In macroeconomic terms, we’ll start off the week by looking back, as provisional economic growth figures for the fourth quarter are due out for Japan, Germany and the eurozone. All three are predicted to see their economy advance by 0.5%. In Germany, we’ll also be looking out for investor sentiment as gauged by the ZEW index.

Later in the week, the US is scheduled to release its key retail sales, which the markets assume will come in at a modest 0.1% growth for January. US inflation, industrial production and SME confidence numbers are likewise due out.

The week ahead should see companies aplenty publish their results, with a mostly European roster including Credit Suisse, Devon Energy, Danone, Schneider Electric, Pepsico, Cisco Systems, IFF, Nestlé, Davita and Allianz. Many Dutch companies will also feature, e.g. Randstad, Heineken, DSM, AKZO, Aegon, Vopak and Arcadis.

ABN AMRO expects AKZO to return lower revenues and operating results (EBITDA) at EUR 406 million, but to stay on course to achieve its medium-term objectives. DSM should see its profits improve significantly, to EUR 318 million, making us slightly more sanguine than the consensus forecast. Its Nutrition division looks likely have done particularly well and our (and the market’s) focus will be mostly on the management outlook for the full year. ABN AMRO is predicting a minor improvement in Aegon’s underlying profit before tax to EUR 526 million. The Dutch insurer is also likely to edge up its Solvency 2 capital ratio to 160%.

Lastly, on Valentine’s Day we expect Randstad to report a fourth-quarter organic revenue growth along the same lines as in the third quarter. We’re pegging this at 3.5%, with operating profit adding 2%, putting us in line with consensus forecasts. We also expect the company to report that its integration of recent acquisitions is proceeding smoothly.

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