Short trading week, lots of news

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Most European stock exchanges were closed on Thursday 1 May and traders in Hong Kong and Singapore also had a day off. This did not mean that there was a shortage of news however.  

The earnings season is in full swing, with another clutch of companies releasing their first quarter results in the past week Jacqueline van der Neut Jacqueline van der Neut Investment Funds Specialist

Good news and bad news

The inflation news from the Eurozone was good, with inflation edging higher in April to 0.7% from 0.5% in March. The European Central Bank (ECB) assumes that inflation will start rising again later this year. Mario Draghi, the president of the ECB, has already indicated that the ECB is willing to take measures to counter the risk of prolonged low inflation. The ECB is holding a press conference next Thursday. Heartened by these favourable inflation figures for April, it is expected to keep its powder dry for the time being.

On Wednesday, the US also published its first-quarter GDP data, indicating that the US economy had grown by 0.1% over the first quarter. Though low growth had already been anticipated in view of the severe winter weather in the US, the first quarter figure was still disappointing and substantially undershot the forecast growth of 1.2%. In the fourth quarter of 2013 the US economy had still expanded by 2.6%.

This lower-than-expected growth figure did not prevent the Federal Reserve System of Central Banks (Fed) from reducing its bond purchasing programme by a further EUR 10 billion last Wednesday. This means that the Fed intends to buy USD 45 billion of bonds this month, as opposed to the USD 85 billion per month spent at the end of last year. Fed chair Janet Yellen is still keeping her options open, but is unlikely to deviate from the current course. At this rate, the support programme will be terminated no later than December of this year. It is less clear when the Fed will consider the economy strong enough to start raising interest rates. 

Solid first-quarter figures this week

The earnings season is in full swing, with another clutch of companies releasing their first quarter results in the past week. Royal Dutch Shell stole the show by producing its first positive surprise in a year’s time. Its share price gained 3% on Wednesday after the figures were published. Other companies that announced their results were TNT Express, TomTom, BP, Deutsche Bank and Randstad. Randstad published strong quarterly figures, with its operating profit up 34%. Employment agencies are a good indicator for economic growth. USG People also reported a strong quarter. The French bank BNP Paribas posted higher-than-expected profits, but its share price still lost more than 5% as the company may face higher penalties than the previously disclosed USD 1.1 billion dollars for violating US sanctions against countries like Iran and Sudan.

Mergers & Acquisitions

As in the previous week, sentiment on the stock exchange was dominated by M&A news.

The management of French group Alstom has expressed its willingness to start official talks with US conglomerate General Electric about the Americans taking over Almstom’s energy division. Evidently, the deal could have already been done and dusted if the French government hadn’t intervened over fears that the deal may cause a loss of jobs and know-how in France. It prefers a takeover by the German company Siemens.

M&A fever has also taken hold in the pharmaceuticals sector, where US pharmaceuticals giant Pfizer upped its bid to take over competitor Astra Zeneca. Pfizer initially offered almost USD 57 per share, but is now prepared to pay USD 61 per share. The management of AstraZeneca was not interested at first, but is now going to study Pfizer’s bid.

US pharmaceuticals company Allergan, best known as the maker of Botox, is a takeover target of its peer Valeant Pharmaceuticals, which has offered some 46 billion dollars. Allergan, for its part, is seeking to take over its competitor Shire, whose products include medicines against hereditary diseases and ADHD. Shire’s share price moved sharply higher on the London stock exchange on the back of the takeover rumours. A combination of Allergan and Shire would result in a pharmaceuticals group with an annual turnover over USD 11 billion. In making this move, Allergan also hopes to protect itself against the unwelcome advances of Valeant.

US company Mylan announced its interest in taking over Swedish pharmaceuticals company Meda for an amount of USD 4.8 billion. Credit rating agency Moody’s said on Tuesday that it expected the intensive takeover activity in the healthcare sector to continue for some time. Pharmaceutical companies are seeking to expand their scale through takeovers in order to cut costs and add new medicines to their product range.

Upcoming week

Another crop of figures lies ahead in the coming week. This afternoon all eyes are focused on the monthly unemployment figure from the United States, while both the Bank of England and the ECB are due to issue statements on Thursday. Also in the pipeline are the purchasing manager data from the Eurozone. On the corporate front, we can look forward to figures from the likes of Pfizer, DSM, ING, Siemens and UBS.


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