Trump tax reforms inching closer

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In a vote on Thursday evening, the US House of Representatives cleared a first version of the Republican tax plan, which still has a long road ahead of it before it’s passed into law. That same day, global equity markets finally slotted back into their upward groove, buoyed by reasonably good economic numbers.

AEX records net loss Ben Steinebach Head of Investment Strategy

The vote by the House of Representatives, in which the Republicans enjoy a comfortable majority, has brought President Trump’s tax plans just that little bit closer. At their heart are cuts in corporation and income taxes, as well as a reduction in the number of tax brackets. The plan also gets rid of compulsory health insurance (Obamacare), which should garner around USD 400 billion of the USD 1,400 billion required for the tax cuts. Once agreed, the plans will also need the approval of the Senate, where the Republican majority is slimmer and the number of critics greater, necessitating support by the Democrats. All of which means that it’ll be a while yet before Trump can sign off on the bill.

Financial markets took an upbeat view of the House vote, ending two weeks of price losses in the equity markets – something robust economic figures had been unable to do. Once again, the bulk of the week’s figures were in firmly positive territory, with two exceptions: industrial production in the eurozone (-0.6% on September) and two key US indices giving a first glimpse of the state of the US economy (in November): the Empire State Manufacturing Index and the Philadelphia Fed Index. Both fell unexpectedly. Most other economic indicators – including US industrial production, retail sales and economic growth figures in most European countries – again confirmed the sanguine economic picture.

AEX records net loss

Just like last week, prices moved south in the global equity markets in the week that was. This is not an altogether unexpected phenomenon after consistent upticks since the end of August, and may well be termed a healthy correction. 

On Thursday, US stock markets recouped losses incurred earlier in the week, with indices closing the week on minor net gains. Europe failed to follow suit despite slight price rises on Thursday, with most markets losing nearly 1% last Friday. The AEX tumbled even deeper and ended on a net loss of 1.5%, despite solid quarterly results from NN and Volker Wessels.

French cable company Altice accounted for the biggest of the week’s price swings and roundabouts in the AEX. It had made a name for itself by leverage-buying lots of companies and wringing massive synergies from the deals. But investors lost faith in its strategy following the release of extremely disappointing results on 2 November and its share price has nosedived by nearly 50% since.

Insurer NN Group (Nationale-Nederlanden) reported net results of EUR 734 million, over two-thirds up on the year-earlier figure and fuelled by investment gains, largely on the sale of government bonds. Its operating result added over one-third to EUR 431 million and includes a EUR 51 million contribution from Delta Lloyd, acquired earlier in the year. NN reports that Delta Lloyd’s integration is progressing on schedule and still expects to save an additional EUR 150 million on top of savings from ongoing cost-cutting programmes at both insurers. Solvency for the group at large works out at 204% according to European Solvency II standards – up by eight percentage points on the second quarter and slightly ahead of our own expectations.

Volker Wessels also reported fine figures, with EBITDA 10% up in the first nine months on the same period of 2016, to EUR 155 million, while margins improved to 3.9%. Its order book grew by EUR 814 million to EUR 8.3 billion on revenue of nearly EUR 4 billion in the first nine months. Improved profitability was supported by higher construction activity and rising house prices, while the company benefits from its strategy of focusing on smaller and medium-sized projects. Volker Wessels repeated its full-year guidance and expects both EBITDA and result from continuing operations to advance. It set its 2017 interim dividend at 28 eurocents per share, returning a total EUR 22.4 million to its shareholders.

In the international arena, the Dubai Airshow turned heads. At the show, Europe’s Airbus announced its biggest order ever, with investors Indigo Partners from the US ordering a total 430 planes to the tune of nearly USD 50 billion. Rival Boeing also enjoyed brisk sales activity, selling 40 of its Dreamliner 787s to Emirates Airlines and 175 Boeing 737 Max 8s to Fly Dubai. 

Qualcomm has rejected a USD 130 billion takeover bid from Broadcom, which would have made it the biggest acquisition in the technology sector on record. A whole host of regulators would have had to sign off on the deal, and the European Commission said it would not pronounce on it until 2018.

America’s Home Depot enjoyed an excellent quarter, its figures show. It continues to benefit from the ongoing recovery of the US housing market, and locked in extra sales in the aftermath of the hurricanes that have wreaked havoc on parts of the US. The DIY chain saw sales add nearly 8% to a record USD 25 billion, and the company estimates hurricane-related repair spending at USD 282 million. Its bottom line worked out at USD 2.2 billion, a 10% jump in net earnings annualised.

General Electric projected 2018 earnings per share at between USD 1.00 and 1.07, below its earlier guidance of USD 1.18. Going forward, the company will focus more on power, aviation and healthcare, and bid adieu to lighting and rail. GE is lowering its dividend for only the second time since last century’s Great Depression.

Calm corporate news week ahead

The results season has nearly drawn to an end, with only the lesser players still to release their results. Macroeconomic news should also be thin on the ground. 

The first PMIs for manufacturing for November will be out in many countries in the week. These should provide solid insight into whether this cyclical sector’s positive trends will continue towards the end of the year. In addition, the markets will be looking forward to fresh figures on consumer confidence (also for November), which are about to be released for the US and the eurozone, as well as for the Netherlands and Belgium. Business confidence figures for the same month will be released in Germany, France and Belgium, and most eyes will be trained on the Ifo index, whose October reading was its highest since the 1960s. Germany will also post fresh figures on October producer prices – those for September were revised up by 0.3% on August and by 3.1% on the year-earlier figure. On Wednesday, the US Federal Reserve’s Federal Open Market Committee (FOMC) will release its 1 November meeting minutes. And lastly, the United States will publish figures for durable goods orders and existing home sales, both for October. Markets in the United States (Wall Street) and Tokyo will be closed for Thanksgiving.


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