Theresa May offers clarity; world awaits Donald Trump’s first actions

Blog -

USA Presidential inauguration

In the run-up to the inauguration of America’s 45th president, equity markets across the world lost some of their shine even if the economic picture continued to improve. Meanwhile, bond markets also saw prices lose some ground.

But even without ‘the hand of Trump’, the economic outlook remains quite sanguine, with most releases of the past week flagging a robust performance. Ben Steinebach Ben Steinebach Head of Investment Strategy

The world is anxiously awaiting the new president’s first concrete policy measures. To date, it has heard only vague ideas and not much in the way of coherent plans. That said, virtually all leading forecasters – including the IMF and OECD – are holding out for somewhat higher US economic growth because of the incoming president. But even without ‘the hand of Trump’, the economic outlook remains quite sanguine, with most releases of the past week flagging a robust performance. This was certainly true in the United States, where industrial production grew a little faster in December than had been expected and where retails sales recorded an 0.6% upturn in the same month – slightly below expectations, perhaps, but still pointing to highly satisfactory consumption growth. Europe also posted positive indicators in the shape of the ZEW index for both the EU and Germany. Lastly, China enjoyed a whole series of strong indicators, even if some fell a tad beneath the sometimes very high expectations. The fourth quarter of 2016 saw the Chinese economy grow by yet another 6.7-6.8% and December retail sales increased by nearly 11%. 

And of course, UK prime minister Theresa May drew attention with her speech on Brexit as she saw it. She adopted a hard and clear position which will see the UK foregoing free access to the common market to control immigration. She also promised the UK parliament a final say on any deal. The currency markets were obviously not expecting this much clarity and sterling added 1.5% relative to the euro and even over 2.5% against the dollar. By contrast, the UK equity markets took a battering and closed Thursday 1.75% lower than the previous Friday. Most of the world’s other markets also lost ground but managed to keep the damage limited to between 0.5% and 1%. Only the Chinese markets notched up slight gains.

Deflation: ‘so 2016’ (and before)

Bond markets across the world were all about – the return of – inflation in the past week. In the United States, inflation climbed to 2.1% in December from 1.6% in November. A large part of this was down to base effects in December 2015 (because of low oil prices) and this should be even more marked in January. US Federal Reserve Chair Janet Yellen observed that the state of the US economy – including inflation – now justifies a series of 2017 rate increases to prevent ‘nasty surprises’ in the future, i.e. out-of-control inflation. 

The eurozone and the United Kingdom also reported increased inflation in the week. For the latter, a significant proportion of the uptick was caused by the depreciation of sterling, while the eurozone – up to 1.1% in December from 0.6% in November – is largely facing similar effects to those seen in the United States. With German inflation nudging 1.7%, Bundesbank president Jens Weidmann noted that interest rates in the Eurozone are lagging inflation in his own country. ECB president Mario Draghi has urged the Germans to be patient, as they too should benefit from a recovery in the rest of the eurozone. Meanwhile, deflation would appear to have become a bugbear of the recent past – i.e. 2016 and before – and less relevant to 2017. Possibly also because of this, bond yields added around 10 basis points in the week.

AEX loses ground but beats its rivals

The AEX index lost some ground in the week but generally did better than other equity markets, on the back of robust results reported by a few Dutch companies. The AEX index fell by some 0.6% and is trading at around 485. Still, Amsterdam’s stock market gauge did better than many other global indices, in part because two of its relative heavyweights – the fourth and fifth biggest stocks ASML and Ahold Delhaize – reported solid results. ASML beat expectations, while its outlook for the first quarter of 2017 matched that of the market. Fourth-quarter orders improved on an already strong third quarter, and the company is expecting to operate at full capacity by 2018 thanks to its new EUV equipment. Its share price rose.

Ahold Delhaize reported slightly better-than-expected sales in the fourth quarter, reiterated its forecast for the full year and saw its shares rewarded by investors with a tidy price gain.

Europe’s results season has yet to get properly under way, but America’s is in full swing. The week saw US banking majors release their results, which were mostly ahead of expectations. However, after the sharp financial sector price gains in the aftermath of the Trump victory, the sector lagged the market in the week.

Aside from corporate releases, the Dutch construction and engineering industry enjoyed a spate of good news: Boskalis landed a fresh dredging order – in Oman, this time – taking its order portfolio back to normal levels. And Heijmans teamed up with an international consortium to secure a EUR 1 billion construction contract for the ZuidasDok project in Amsterdam. This order should help Heijmans regain some of its corporate confidence.

Other news included TomTom bagging a German company and boosting its driverless cars position. Taiwanese majority shareholder Fubon pulled out of a putative bid for Delta Lloyd at the last minute and Nationale Nederlanden grabbed this opportunity. And Flow Traders reported December trading volumes well ahead of the figures for the rest of 2016. In other good news, Netflix announced that it notched up many more subscriptions in the fourth quarter than had been expected. Lastly, there are rumours that Nestlé is eyeing competitor Mead Johnson. The company declined to comment.

Results season gathers momentum

The results season looks set to power ahead next week, but things will turn a little calmer on the macroeconomic front. The focus in the macroeconomic arena will be on purchasing managers’ sentiment for January and whether their upbeat mood in 2016 will last into 2017. Eyes will also be trained on Germany’s Ifo index as well as consumer confidence in Germany, the EU and the United States. The US is also scheduled to release the latest figures for home sales, durable goods orders and fourth-quarter GDP. This latter figure is also due out for the United Kingdom. 

Next week’s agenda is filled to overflowing with corporate releases by the likes of McDonald’s, Halliburton, SAP, eBay, AT&T, Novartis, Intel, Microsoft, Ford, Starbucks and Google. In the Netherlands, Philips, Philips Lighting and Unilever will do the honours. We expect Unilever to report improved performance in the fourth quarter compared with its negative volume growth in the third. Philips Lighting might surprise again with better margins, while the markets are particularly looking forward to news on Philips’s health technology orders. We’re not getting our hopes up after the cautious note sounded by its CEO Van Houten earlier this week.


Read more about

Join the discussion

ABN AMRO would like to know your opinion, so below this article you can react to this article via Disqus. By doing so, you agree to the conditions for reacting to articles on our website.

More blogs