Trump splits the Republicans

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Trump splits Republicans

It all started at last week’s G20 meeting of finance ministers and central bank presidents: views about free trade and the climate agreement diverged so much between the Americans and other members that no unequivocal message could be sent out in the final communiqué. Next, President Trump came under fire from the FBI, which is investigating Trump’s own knowledge of Republican links with the Russians during the election campaign. Lastly, a brawl broke out between Trump and members of his own party in Congress over replacing Obamacare – which by now enjoys great popularity with the American people – with a healthcare plan of the Republicans’ own making.

All these goings-on are causing investor uncertainty and have helped put a squeeze on equity prices. Ben Steinebach Ben Steinebach Head of Investment Strategy

Detractors on the right of the party feel ‘Trump care’ still includes too much government influence on the healthcare system, while those on the left reckon the plans are too harsh. The proposed changes are due for a vote today and it remains to be seen whether Trump and party leader Paul Ryan can win over enough of their party’s representatives to get it passed. All these goings-on are causing investor uncertainty and have helped put a squeeze on equity prices. In the United States, these fell by between 1% and 1.5% on the previous Friday, a little more than in Europe (around -0.5%, with Southern Europe even recording slight increases).

Yield curves flat on fixed-income markets

Declines were subdued in Germany and the Netherlands but Southern Europe saw falls more comparable to those in the United States. Pressure on oil prices may be a factor here, as it limits the upward inflation pressures the markets had feared. Lower yields are flattening the yield curve, especially in the United States, where short-term rates are seeing upward pressure from expectations of further fed funds rate hikes by the US Federal Reserve. In the past week, several FOMC members suggested interest rates will be raised twice more in the year, while others left open the possibility of a third hike.

AEX loses ground

The AEX index lost ground and is now trading at around 512. The week’s biggest loser was Gemalto (-20%), which issued a profits warning. However, financial players such as Aegon, ING, ABN AMRO and NN accounted for most of the negative sentiment as yields fell and the yield curve flattened, making the industry’s earnings model more challenging. ING also came in for a clobbering on the news that it has almost certainly aided Russian money-laundering practices and is probably facing hefty fines. The week’s winner was AKZO Nobel (+5.3%), followed by ASML (+2.8%) and RELX (+2.3%). AKZO benefited from US company PPG improving its bid to EUR 90 per share. The Dutch chemicals company again turned down the offer and is refusing to talk to PPG. Many major shareholders feel that AKZO should come to the negotiating table, while PPG might still consider a hostile bid.

The Sunday Times reported that Unilever will be putting a ‘For sale’ sign on its spread division – which includes butter and margarines – at an asking price of EUR 7 billion. This proposed sale and change in strategy indirectly follows from the failed bid by Kraft-Heinz.

Basic-Fit posted results more or less in line with expectations and reiterated its outlook, but did increase its target for new fitness clubs it hopes to open. Boskalis’s rival, unlisted Van Oord, reported sharply lower results in all its divisions, confirming very difficult market conditions and a challenging outlook.

Making do with macroeconomic news

Wednesday looks likely to be the week’s most important date, as UK Prime Minister Theresa May will send a letter to European Council’s President Tusk in which she activates Article 50 of the Lisbon Treaty. Brexit negotiations can finally get under way, a full nine months after the United Kingdom’s leave vote.

Although the week’s macroeconomic calendar is in no way filled to overflowing, it does hold out a few choice tidbits. Aside from fresh confidence indicator showings, we can look forward to harder indicators such as February retail sales in Germany and Japan, and the broader consumer spending measures of France and the United Kingdom. Also due out in the week is the latest news on Japan’s industrial production as well as unemployment and employment in Japan and Germany for the month of February. The week might likewise shed some light on the pace of inflation: after accelerating in many countries in February, will the preliminary numbers for March show it to have slowed back down? After all, the baseline for the February reading was a record low in February 2016, whereas in March 2016 it was slightly up again. Inflation figures are slated to be released in Japan, the broader European Union, Germany and Belgium.

In terms of business confidence, we are particularly interested in Germany’s Ifo, the most high-profile indicator, and, to a lesser extent, in the same showing for the Netherlands. Incidentally, fresh provisional figures for purchasing manager sentiment, out in Europe this morning, looked encouraging, locking in further gains at high levels. Lastly, new data are expected on March consumer confidence in the United States, the United Kingdom and Germany.


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