Trump pulls plug on Paris climate agreement

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Solar panel and windmill

By withdrawing its support for the 2015 Paris climate accord, the United States is rendering itself increasingly isolated. On Thursday, equity markets found their way back up from two weeks of treading water, while bond markets barely stirred.

Quite a few states, including California, have already said they will continue their investment programmes as planned. Ben Steinebach Ben Steinebach Head of Investment Strategy

To date, the financial markets have mostly shrugged off President Trump, but a major international political vacuum of world leadership is now emerging. Much as it did when the Trans-Pacific Partnership (TPP) foundered, China – which wasn’t even among the TPP countries – is trying to step into the vacuum. It remains to be seen what the impact of the Trump administration’s decision will be on the US at large. Quite a few states, including California, have already said they will continue their investment programmes as planned. Besides, we could hardly expect a company such as Tesla to suddenly stop making electric cars and other carbon-reducing products.

Economic trends data released over the past couple of weeks have been encouraging and continue to point to ongoing economic growth at modest rates, with inflation remaining low. Reflecting this overall picture, purchasing manager sentiment in both the US and Europe appears to be stabilising at high levels. Eurozone inflation took a sharp turn for the worse in May, to 1.4% from 1.9%, driven in part by base effects and also by upward price pressures in April related to the Easter holidays. Meanwhile, technology trends – which include telecoms – would appear to be exerting a persistently downward effect on inflation. Across the globe, share prices have moved but little in the past two weeks, following sharp declines on 17 and 18 May in the wake of increasing political turmoil in the US. Since then, they have stabilised within a narrow trading range.

AEX speeds up towards end of the week

The Amsterdam index toddled along at a sedate pace all week, but throttled up on Friday. Macroeconomic data set the mood and Akzo Nobel saw an end to its takeover troubles. 

The AEX didn’t hit its stride until the end of the week, closing around 1% up. The Amsterdam gauge now stands at around 531. Its biggest gainers were Aegon (+3.2%), Philips (+2.6%), Aalberts Industries (+1.9%) and RELX (+1.8%). Among laggards, only SBM Offshore (-2.1%), ArcelorMittal (-2.0%) and Akzo (-1.8%) took losses in excess of 1%.

The week did see ASR release its quarterly figures, which proved solid with operating profits beating expectations. The Dutch insurer recorded fine results for its life business but it was the non-life end that surprised on the upside. ASR would appear to be gaining market share in this segment of the market.

ASR’s release aside, it was Akzo Nobel that hogged the headlines. At the beginning of the week, the Enterprise Section of the Court of Appeal in Amsterdam ruled in favour of the Dutch company and against its activist shareholder Elliott. PPG failed to extend the offer period for its final bid and by the end of the week the US company had decided not to launch a hostile takeover – for now at least. Akzo will be left alone for six months and will have to use this time to prove to its shareholders that it’s able to improve its profitability and create shareholder value as a stand-alone outfit.

Construction company BAM suffered some reputation damage in the week, as a parking garage under construction near Eindhoven Airport partially collapsed at the weekend.

In the international arena, British Airways’s reputation also took a hit, as computer failures caused major delays over the weekend. In the airline sector, Ryanair posted figures in keeping with expectations but signalled a cautious outlook in view of Brexit and the threat of terrorist attacks.

BMW faced production delays over parts not being shipped on time, stalling the manufacture of several of its models in Germany, China and South Africa.

Several US banking majors warned of reduced client trading activity in their investment banking divisions in the second quarter.

On the acquisition front, Linde and Praxair finally agreed to a USD 35 billion link-up to turn their combined company into the world’s biggest producer of industrial gases. Investors including Elliott Management put pressure on NXP Semiconductors to work on a better deal with Qualcomm, with the bid currently worth USD 110 per share.

Lastly, Amazon saw its share price briefly breach the USD 1,000 mark, even if it closed the week lower. Shares in Alphabet (Google) are also trading just below USD 1,000. Although this is not driven by any company-specific news, companies running online platforms and/or new media have nevertheless been enjoying a remarkable rally in the year to date.

ECB news to make headlines next week

The week ahead promises to be fairly quiet in terms of both macroeconomic and corporate news. The ECB may afford a glimpse of what monetary policies it has in store for the months ahead. 

We look forward to the ECB’s press conference scheduled for Thursday, at which its president Mario Draghi may suggest a tapering timeline for its asset purchase programme. Favourable trends and prospects for the European economy are preparing the ground, but we don’t think the ECB will embark on any tapering this side of 2018.

The week should see many countries release the latest figures for May purchasing manager sentiment in the services sector, generally at high levels. The European Union and Italy will release new figures on retail sales in April, while the US and Germany will publish industrial orders for the same month. The week’s other, harder indicators will include April industrial production figures for the Netherlands and France, and first-quarter GDP for the European Union and Japan. Export and import figures are due out for China, while inflation figures are slated for release for China, the Netherlands and the OECD at large. By the time you read this, key figures for the American labour market will be out in the public domain. We expect May employment to have grown by 180,000 jobs and unemployment to be unchanged at 4.4% of the workforce. We’re keenly interested to learn whether strong labour market conditions are percolating through to a more pronounced uptick in wages.

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