Tensions mount in Spain

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In the face of large-scale demonstrations in Barcelona against an independent Catalonia, the stand-off continues between Spain’s prime minister Rajoy and Catalan president Puigdemont, and tensions keep rising. In the United States, employment numbers shrank for the first time in a decade.

The Amsterdam gauge had a good week and recorded a much better performance than major indices in Europe and the US. Ben Steinebach Head of Investment Strategy

Undaunted by demonstrations against independence for Catalonia, on Monday Carles Puigdemont said he will continue with his preparations for such an event. Mariano Rajoy gave an eight-day ultimatum to come clean on independence. However, these political tensions seemed to completely fade from the financial markets in the week that was. Spain’s bond yields shrank marginally and its equity prices rose beyond the European average.

Last Friday, most leading equity markets were hit by the news that US employment shrank by 33,000 jobs in September. Although a large proportion of the drop was down to the hurricanes that have buffeted the country, the markets had held out for a modest advance instead of this first decline in a decade. That said, global financial markets were back on fine form from Monday, and welcomed encouraging economic indicators in the eurozone. Good examples included industrial production figures in the EU, including those for Germany and the Netherlands, which added 3.8%, 4.7% and 3.9% respectively on their year-earlier readings. The United Kingdom, by contrast, reported a mere 1.6% increase. Meanwhile, the IMF bumped up its growth projections for most countries but warned that this is no time for countries to be complacent and urged them to continue their structural reforms.

Scrutiny of the September meeting of the FOMC reveals that concerns remain about persistently low inflation rates, although a majority of committee members still believe underpinning factors to be temporary. That said, any rate increases in December remain very much up in the air. In the Netherlands, nearly seven months of negotiations have resulted in an agreement on a four-party governing coalition, made up of the free-market VVD of prime minister Mark Rutte, the liberal D66 and two Christian parties. The agreement had no effect on the financial markets.

Good week for the AEX

The Amsterdam gauge had a good week and recorded a much better performance than major indices in Europe and the US. 

The AEX index put on 1% in the week and now stands at around 545. The index was powered by blue chips Unilever and ASML, together with ArcelorMittal and DSM, which all notched up price gains in excess of 3%. Losses were few, with the biggest recorded by Gemalto (-9%) and Altice (-4%).

On Tuesday, Takeaway issued its trading update. Although order growth rose by 40% in the third quarter, this fell somewhat short of ABN AMRO’s projections. Results were very good in highly profitable Holland, whereas Germany and other countries – particularly Belgium – disappointed a little. Philips reached agreement with US regulators on additional supervision of its defibrillator operations, with measures projected to eat into EBITA to the tune of EUR 80 million. The new Dutch governing coalition, known in the Netherlands as ‘Rutte III’, has committed to reducing carbon emissions – which may benefit the likes of SIF Holding and Vopak.

In the international arena, the US banking majors kicked off the results season. Earnings at JPMorgan and Citigroup came in ahead of expectations, but markets took a dim view of higher-than-expected provisions for non-performing loans and in credit-card divisions, and share prices tanked. Investment banking divisions reported sharp downturns in trading, but this had been expected.

Results at BlackRock and Samsung came in at the top end of expectations. EasyJet upped its full-year guidance and Credit Agricole expressed an interest in bagging Commerzbank. Wal-Mart is looking to achieve 40% online growth in the US in the financial year ahead, compared with 60% growth in the past couple of quarters. Honeywell announced a split into two publicly traded companies, while Pfizer is considering a sale or IPO for its consumer healthcare division.

Exciting week ahead

Next week will open the floodgates to third-quarter earnings releases, which will include a few interesting Dutch names. A slew of macroeconomic indicators is likewise due out. 

Slated to report in the Netherlands in the week to come: Akzo Nobel, ASML, Unilever, Philips Lighting and TomTom. Among international household names, the following companies will release third quarter results: Netflix, IBM, Goldman Sachs, Johnson & Johnson, Morgan Stanley, ICBC, AmeX, PPG, SAP, Manpower, Schlumberger, China Mobile, GE, Honeywell, Daimler and P&G.

Netflix will report its figures on Monday. The company is increasingly investing in creating its own films and series, and raising its prices to fund these efforts. Higher prices used to be a sensitive issue for Netflix, but seem to be becoming much less of one, demonstrating the company’s pricing power. Note that the third quarter is typically weak, although last year’s Olympic Games should make for a more favourable comparison. The markets are holding out for a strong quarter, while the company itself is predicting 750,000 new subscribers in the US and 3.65 million across the globe.

The news from the semiconductor industry has been very encouraging of late and growth has been coming in at the top end of already very high expectations. ASML, whose results are due out on Wesdnesday, should be a beneficiary. As always, the markets will be keen to see an update on its new EUV equipment, while the company also stands to gain from long-term developments in artificial intelligence (AI), as these will require ever greater computer power and therefore also ever better chips.

The markets expect Unilever to report organic revenue growth of 3.9% on Thursday (annualised). Growth should be largely derived from the emerging markets, while it may well have contracted in the developed markets. Results are also likely to show the strain of a strong euro.

Macroeconomic news will see further releases on September industrial production, this time from the US, China and Japan (although the latter will report on August). Many countries will also publish fresh data on inflation in September, with the US grasping the nettle this Friday afternoon, followed next week by China, the EU, the UK and Germany. This raft of figures might suggest the way future monetary policy winds will blow, the US figure being an exception as it is likely to be distorted by the hurricane effect. Consumer spending figures for September will come out for China, the UK and the Netherlands, while the latter and Belgium are also scheduled to publish data on consumer confidence in October. China, meanwhile, will release its first set of projections for third-quarter GDP as well as capital spending numbers for September. Lastly, new housing market figures for September will hit the US markets, while Germany (and the EU) are set for October’s ZEW index reading. This index reflects investor views on investment opportunities in the German – and European – economies.


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