After sentiment took a turn for the worse over disappointing Chinese industrial figures on Thursday 23 January, turmoil in the financial markets persisted all week last week – but without overall prices worsening a lot further.
All in all, though, sentiment remained negative and investors were seen scurrying to safe-haven US Treasuries and German bunds.
Ben Steinebach Head of Investment Strategy
Equity prices were up and down around the lower levels reached earlier, with most markets ending on a slight net loss but America’s S&P 500 and France’s CAC 40 actually gaining ground on last Friday’s lows. All in all, though, sentiment remained negative and investors were seen scurrying to safe-haven US Treasuries and German bunds.
Investor sentiment is mainly being hit by worries about faltering economic growth in the emerging markets, as the gradual winding down of monetary stimulus in the United States might see capital flowing out of these countries and their currencies fall – a potential trend that’s already being compared to the currency crises of the 1990s. We understand the concerns, but wonder how solidly based they are. For one thing, many countries – Argentina, Ukraine and Thailand for instance – are facing a whole host of very different issues today that aren’t in any way related. Besides, most emerging countries are in a very different – and much better – place from where they were 15 or 20 years ago, in terms of both economic wealth and balance of payments. The Chinese authorities, in particular, look determined to tackle the issues in their financial sector and in lending, and have both the tools and the means to do so.
Positive economic scenario supported by economic data
Meanwhile, data released last week confirmed our sanguine take on the global economy, as the United States – and Europe to a lesser degree – rev up economic growth. US unemployment claims may have been up a notch at the end of January and data on the US housing market a tad less encouraging, but first estimates put economic growth in the fourth quarter of 2013 at 3.2% annualised on the back of robust private consumption in particular. Unemployment kept falling in Germany, and Spain also released solid economic growth figures. Meanwhile, in the United States the Federal Reserve continued its tapering exercise and took its bond purchases down by another USD 10 billion: next month’s total is now at USD 65 billion. Janet Yellen, the new Fed chair, is expected to continue this policy.
The European sentiment indicator – a combination of consumer and business confidence data – rose yet again, indicating that prospects for consumption and business investment are looking up further. The corporate results news was mixed last week: Royal Dutch/Shell, which had issued a profits warning two weeks earlier, released disappointing figures in both its upstream and downstream operations but charmed the markets with a dividend increase to USD 0.47 per share. Other oil majors also reported troubling times: Exxon Mobil and Chevron both saw operations and earnings fall back. At the other end of the spectrum, Dow Chemical posted excellent results, with positive surprises coming from other players such as pharmaceuticals companies Novartis and Pfizer as well as car maker Ford. Lastly, Philips saw its profits come in ahead of expectations despite a minor disappointment in its healthcare division. Its share price lost over 1% as the company referred to currency headwinds and called for caution in view of macroeconomic uncertainties.
Corporate results rule
Next week, we’ll be expecting to see a large batch of corporate results as well as key macroeconomic data. Global pharmaceuticals players Merck, GlaxoSmithKline and Astra Zenica will present their fourth-quarter results, with Swiss banks UBS and Credit Suisse due to take their turn next and Walt Disney then screening what the quarter has brought. Most notable names in the Dutch corporate results season next week are AKZO Nobel, KPN and Nutreco, with real estate companies Wereldhave, Unibail Rodamco and Eurocommercial Properties also on the roster. The week’s macroeconomic releases will include key US data – final PMI figures and January’s employment and jobless figures at the end of the week. On Thursday, the European Central Bank will give a press conference about monetary policies and the Bank of England will announce its interest-rate decision and any other policy measures if applicable.