This week the blog is written by Jacqueline van der Neut in absence of Ben Steinebach. Never a dull moment this past week. Volatility increased in both equity and bond markets, as many companies issued their quarterly results. Additionally, geopolitical tensions (Ukraine, Gaza, economic sanctions against Russia) dominated the news. The financial markets were startled by Argentina’s default. and by the Portuguese bank Esprito Sancto posting a 5 billion loss. Add to this positive macro-economic data from the United States and it's a recipe for massive profit taking. Equity markets plummeted on Thursday, and today as well, financial market sentiment is at a low ebb.
Volatility increased in both equity and bond markets, as many companies issued their quarterly results
Ben Steinebach Head of Investment Strategy
Political tensions loom over markets
This week, EU countries agreed on a further round of economic sanctions against Russia for destabilising Ukraine. The sanctions will come into effect today. Specifically, Russian banks are denied access to European capital markets, where they borrowed almost eight billion euros last year. The European economy will suffer from the sanctions as well, as European companies have big stakes in Russian businesses. Especially Shell, BP, and automobile manufacturer Volkswagen are deeply invested. Some companies issuing their second quarter data, such as BP (which has a shareholding in Russia’s Rosneft) and Adidas, mentioned the sanctions and the possible negative influences they might have on their results. Needless to say, the Russian economy will be hit by the sanctions, too. ABN AMRO Group Economics has lowered its growth forecast for Russia from 1.0% down to 0.5%. And next year's forecast has been revised downwards by half a percentage point, to 1.5%. Meanwhile, the situation in the Middle-East, especially Gaza, does not show any signs of improvement. All in all, these factors combined to dampen investor sentiment.
US posts unexpectedly high growth figure
Last Wednesday, the US Department of Trade announced a 4% growth figure q-o-q for the US economy in the second quarter. Economists were expecting 3%, so this news came as a pleasant surprise. Still, the data was received with mixed feelings amongst investors; high growth figures fuel fears that US interest rates will tick up sooner. This afternoon, we are expecting another important indicator on the status of the US economy, as US unemployment data is released. Payroll company ADP presented data earlier this week, which was roughly in line with expectations and seems to imply a further decline in unemployment. If that trend is confirmed by today's figures, US interest rates fears would intensify, adding to the pressure on equities and bonds.
Not only quarterly results
This week quarterly results were not the only news. Computer chip manufacturer ASML's stock soared by as much as 14% last Wednesday after it announced that the test phase of its new EUV technology is running ahead of schedule, dispelling worries about this issue which had been holding the stock back in the past few weeks. In addition, real estate company Corio made the news when its French counterpart Klépierre posted a bid. Investors in Corio receive 1.14 Klépierre shares for each Corio share they own. That comes down to 41.44 euros per Corio share, based on the closing price of 28 July, which is a 15.6% premium. Klépierre's two major shareholders, Simon Property Group and BNP Paribas, support the transaction. Pension asset manager APG, Corio's largest shareholder, is in favour of the deal as well.
In the earnings season, it was the week of the oil companies: BP, Shell, Total and Exxon Mobil presented their quarterly results. Shell booked solid returns due to higher energy prices and higher production volumes. Total's performance was disappointing however, and BP's solid results were clouded by negative news from Russia and the Permanent Court of Arbitration in the Hague, which ordered Russia to pay $50 billion for seizing the assets of oil company Yukos. Key parts of Yukos are now in the hands of state-owned oil company Rosneft, in which BP has a 19.75% stake. Exxon Mobil posted mixed results: profits were good, but production was significantly lower than expected.
Key data next week
The earnings season is not over just yet. Next week as well, results will roll in from many companies, including PostNL, DSM, ING, Nestlé, and insurance companies Allianz and Zurich Insurance Group.
The most important macro-economic news for the upcoming week, as discussed above, will be the US unemployment figure. In addition, next week all eyes will be on the European Central Bank, which will be publishing its interest rate decision and a policy document.