Following the surges of the two previous weeks, last week all the leading stock markets were forced down again. This was caused chiefly by the pressure on commodities prices. Bond prices rose, however, and bond interest rates fell both in the United States and in Europe.
This week’s list of companies scheduled to publish their earnings is, if possible even longer
Ben Steinebach Head of Investment Strategy
Commodities prices are under considerable pressure, and are nearly as low now as they were in 2009. This is principally evident in energy prices, where supply has outstripped demand. Iran’s re-entry onto the global energy market and the self-sufficiency of the United States are factors here, having led to huge stockpiles. The slowdown in China’s economic growth is also responsible for the drop in the demand for metals and other construction materials. Another factor affecting the European markets was that the euro appears to have halted its slide against the dollar for now, while US companies are beginning to feel the effects of their currency’s earlier appreciation. This is visible primarily among internationally focused companies with strong links to commodities.
On the whole last week’s geopolitical and macro news was encouraging, though some disappointments still emerged. Greece’s parliament passed a law under which bankrupt banks should be liquidated mainly at the expense of shareholders and bond holders rather than the government. Another law was passed that should accelerate and clean up a wide range of administrative procedures. The United States released largely favourable data about the housing market, and the number of people on unemployment aid fell to the lowest level since November 1973. Only consumer confidence was slightly disappointing. In China and Europe, new figures about the sentiment among purchasing managers were published on Friday morning. China’s factory data was very disappointing, showing a drop from 49.7 in June to 48.2 in July (where 50 represents ‘neither expansion nor contraction’). Although Europe’s remained above that level, it has fallen slightly in July relative to June. Japan’s index offers a sharp contrast, climbing from 50.1 in June to 51.4 in July. Remarkably, Japan’s Nikkei Index was one of the very few stock indexes to end the week on a profit (+0.2%). The other leading indexes recorded losses ranging from 0.3% in Spain to 2% for the Dow Jones in the US.
A flood of diverse earnings
The reports of earnings began flooding in last week. Although some companies did better than projected and some did worse, on the whole – with some exceptions – the earnings were encouraging. The market responded very negatively to Apple’s reports. Despite turnover being an astonishing 35% up from the year before and profits increasing to more than USD 10 billion, the company’s earnings nevertheless fell short of the high expectations. Apple’s stock immediately lost 7%. General Electric, Morgan Stanley, American Express and VISA reported good earnings, while Amazon’s were nothing short of amazing. In Europe, Unilever, Roche, TomTom and real estate companies Unibail Rodamco and Wereldhave reported good and solid earnings, with Unibail outperforming Wereldhave slightly. Disappointments included US oil-related enterprises such as Halliburton and Schlumberger, making it remarkable that Dow Chemical in fact managed to record very respectable earnings. McDonalds also significantly underperformed, and particularly the announcement that the company is unable to maintain its generous dividend policy met with disappointment on the market. The earnings presented by RELX (formerly Reed Elsevier) were in line with the forecasts, while the figures published by Air France KLM were poor, the company having been hit hard by competing airlines from the Middle East. On Thursday the AEX closed on 496.35, 0.8% lower than the Friday before but still 40 points up from 7 July.
Companies again in the spotlight this week
This week is again busy. Undoubtedly, the considerable amount of macroeconomic news will – as it was last week – be overshadowed by a ceaseless flood of corporate earnings. In macroeconomic news, US consumer confidence should be interesting, with both the Conference Board Index and the final data of the University of Michigan being announced. The orders for durables (June) and the second estimate of the Gross Domestic Product (GDP) for Q2 will also be published. The policymaking committee of the Federal Reserve is also scheduled to meet, and we might perhaps glean a little more information about the timing of a first interest rate hike (which we still expect to come in September).
A flood of data is expected from Europe, for example the Economic Sentiment Indicator, which combines consumer confidence and business confidence in the European Union. Data will also be released about business confidence in Germany (Ifo) and the Netherlands and about consumer confidence in France (all for July). Data should also be announced about jobs and unemployment in Germany and Italy and about consumer prices in Germany, Italy and Belgium. This week’s list of companies scheduled to publish their earnings is, if possible even longer. Some of what I believe are the most important companies include Pfizer, Merck, Procter & Gamble, Chevron and ExxonMobil in the United States and – as the focus shifts away from the United States to Europe – LVMH, BP, Total, Siemens, Telefonica and in the banking sector BBVA, BNP Paribas, Banco Santander, Barclays and Deutsche Bank. In the Netherlands lastly we look forward to the earnings of Philips, TNT Express, KPN, Wolters Kluwer, Randstad, Arcelor Mittal, Altice, Aperam and – to finish with a bang – Royal Dutch Shell.