European markets closed lower, retreating from gains made last week. The volume of trading was lower than usual, given the closing of the North American Stock Exchange, reason why the movements ended up having a greater weight. Most of the sectors traded in the negative, with the losses being led by car manufacturers and pharmacists. Daimler fell 2.08%, after news that it may have used software to tamper with gas emissions. Reckitt Benckiser reported quarterly results and raised forecasts for 2018. Investors, however, attached great importance to moderate potential in terms of operating margin growth, so their shares fell more than 7% . In the banking sector, Deutsche Bank stood out positively (2.11%) after Bank of America Merrill Lynch raised its outlook for the stock and target price.
Most European stock markets ended up with almost all sectors showing gains. The London market was an exception, with the main FTSE 100 index showing a slight loss (-0.03%). The session was essentially based on the reaction of investors to some published results. Billiton recorded a devaluation of more than 4%, penalizing its sector. The mining company reported a semiannual profit amounted to 4050 M.USD and EBITDA to 11240 M.USD. Both numbers fell short of the 4340 M.USD and 11580 M.USD estimated by analysts. On the positive side, the proposed dividend is $ 0.55 per share, more than the $ 0.48 anticipated on average by analysts. In the banking sector, HSBC was another title that conditioned the performance of the British index (-3.35%), after presenting its results. The bank reported an adjusted annual profit of 20 990 M.USD that surpassed analystsâ forecasts for a net profit of 19,670 M.USD. Contrary to analystsâ anticipation, HSBC did not announce a stock buyback program, relegating that announcement âwhen appropriate.â In 2016, the bank bought a total of 5500 M.USD in its own shares. In Paris, Edenred rose more than 6%, after having reported strong results, with EBITDA and profit for 2017 surpassing the estimates.
Considered the largest retailer in the world, Walmart reported a adjusted EPS of 1.33 USD, which fell short of the estimated 1.37 USD. Revenues amounted to 136 300 M.USD, which exceeded forecasts of 134 900. But what displeased investors was the evolution of WalMartâs efforts to compete with Amazon in the e-commerce market. WalMartâs online business growth rate of 23% is small compared to the 40% recorded by Amazon. WalMart shares fell by 10.20%, the biggest daily drop since January 1988.
One day after the minutes of the last FED meeting were published, the US market was trading higher, with attention focused on the economic indicators reported and the interventions of some Fed members. The number of weekly applications for unemployment benefits decreased by 7,000 to 222,000, thus reaching the 2nd lowest level since the end of the 2007-2009 recession. The forecast was for 230,000. On the other hand, the advanced indicators of the economy registered an increase of 1% during the month of January, compared to the estimates of 0.70%.
Last Friday US market traded bullishly, though on a weekly basis it was headed for losses. Hewlett-Packard shares rose about 10 percent after having reported quarterly results and future prospects that pleased investors. In terms of the debt market, 10-year TO yields, which peaked at the beginning of the week in the last 4 years, were now down to around 2,875%.
In the macroeconomic context, the day was marked by the presence of ECB President Mario Draghi in the European Parliament. In his first dialogue this year with MEPs, and about a week away from the next monetary policy meeting, the ECB President said that the ECB should remain persistent and patient in attributing stimulus to the economy, even in the face of current momentum which makes the Central Bank more confident in terms of prospects for inflation levels. In fact, Draghi argued that inflation remains dependent on monetary stimuli. In addition, Mario Draghi mentioned that ECB measures have placed the Eurozone economy on a âsolid growth path, driven by domestic endogenous dynamics and therefore more resilient to a potential slowdown in global demand.â However, he added that âinflation has to show more convincing signs of a sustained path of adjustment.â
The indexes are still in consolidation. A breakout from this consolidation zone will set in motion and a trend for the weeks, until then we may expect to sell the highs and buy the lows.
The question that todayâs session raises is whether European indices will fully reflect the Wall Street losses or considering its recent underperformance this indentation will be limited. The year 2018 teaches that complacency can be a dangerous feeling.
The testimony of the new President of the FED forced investors to reshape their perspectives on the monetary policy of the FED. Jerome Powell, defended not only the dynamism of the American economy but also his conviction that inflation will reach (in the long term) 2%. Generally, the periods during which investors reformulate their outlook are volatile.
The Trump Administrationâs decision to introduce customs barriers to steel and aluminum should weigh heavily on the stocks of manufacturers of these metals (such as ArcelorMittal and ThyssenKrupp and car manufacturers, heavy users of these raw materials in their production processes). The specter of retaliation for these measures has already materialized in the EU Swedenâs proposal analogous barriers. On the positive side, the decline in yields in the US and its probable contagion to European sovereign rates should mitigate the losses that utilities and telecommunications should suffer due to the external environment. From a technical point of view it can not be ruled out that after the first negative impact the indices could start an intraday recovery.
The buyer impulse was also fueled by fast money which considered excessive losses from previous sessions. In the debt market, yields continue to retreat, with 10-year interest rates approaching 2.80%.
At the current stage, investors are concerned about the protectionist rhetoric of the Trump Administration that could trigger reactions in Europe and China.
Historically, trade wars have no winners, but only defeated. In the 1930s, one of the reasons for the prolongation of the Great Depression was the decision of several countries to repeatedly promote the depreciation of their currencies in order to increase the competitiveness of their exports. This other form of trade war was driven by a continuous recession of these economies and by the general impoverishment of populations. At the current stage, the barometers to gauge investor sentiment on this issue are the metal producer sectors and the automobile, as the latter appears to be the next to be targeted by President Trumpâs protectionist policy.
The trade deficit deteriorated in January, having reached the maximum of the last 10 years (56 600 M.USD). The trade balance deficit was higher than estimated due to the 1.30% drop in exports, which is explained by the lower sales of aircraft and their components to foreign countries. Imports remained virtually unchanged. Interestingly, steel imports, which are at the heart of the recent controversy over tariffs, have remained broadly unchanged.
European stock markets ended the session with valuations, albeit contained. On one hand, there was pressure on the tariffs on imports of steel and aluminum imposed by President Donald Trump, and this theme was rekindled after President Trump said that in addition to CandĂĄ and Mexico, US trading partners who have a fair competitive position could also be exempt from such taxes. On the other hand, markets were favored by the US employment report, as well as reports that North Korean leader Kim Jong Un offered to stop nuclear and missile tests and the US president agreed to a meeting of two leaders that may happen before May.
European markets started the week on an upward trend, with the exception of the London stock exchange that closed slightly lower. In the business context, the highlight is the news about the merger of two of the largest companies in the German energy sector: EON will buy Innogy, RWEâs renewable energy company, thus becoming owner of the retail and energy transport units of both companies, while RWE will keep the renewables business as well as part of EON. The business is valued at 22 000 M. âŹ. In this way, the utilities sector led the gains: RWE rose 9.29% and E.ON gained 5.54%. On the other hand, Britainâs GKN initially reacted positively to the fact that Melrose has increased its offer by the company to a value around 11240 M.USD. However, it later reversed this trend, ending up with a loss of over 2%. The uncertainty associated with US customs duties, which could trigger a trade war, continues to influence and condition the behavior of financial markets.
The European technology sector recovered almost all of the losses suffered in February, while the Nasdaq has already reached new highs. However, the US technology sector accounts for 25% of that countryâs market, while in Europe the weight of the technology sector stands at a mere 6%. If we compare the technological sector to an engine and its weight to its power, it is easy to see why the American market performs better than the European one.
In Frankfurt, Adidas shares jumped 11.58 percent after the sporting goods company announced a significant stock buyback program, boosting prospects for 2018 and boosting its profit forecast for 2020, given the rapid growth of online trading.
Despite continued fears about global trade, European markets have soared, boosted by economic data and published business results. Most sectors traded higher, despite the relative underperformance of telecommunications companies and producers of raw materials.
The growing tension between the UK (supported by a number of European countries) and Russia may begin to negatively affect the stocks of companies with heavy exposure to this this country. The European sectors most exposed to the Russian economy are oil, automotive, beverages and luxury goods.