Global Weekly: Stocks tick up

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This week we saw equity markets going up. Developed markets rose more than emerging markets. Asian stock markets reopened after almost a week of closure because of the Chinese Lunar holiday. Sectors that performed well globally this week were industrials, consumer discretionary and energy. Real estate, utilities and communication services lagged.

President Trump said this week that the deadline for talks with China about trade tariffs was not as rigid as it had seemed. If there is enough progress, he will ignore his 1 March deadline to more than double tariffs on USD 200 billion of Chinese goods. Instead, he is apparently considering a 60-day postponement to give negotiators more time.

DSM, an international chemicals company, published better than expected results this week. Both the nutrition and materials divisions reported margins that were better than expected. In addition, DSM announced a EUR 1-billion share buyback programme, which was unexpected. After the announcement of the results, DSM’s stock price increased sharply.

Schneider Electric published results that were in-line with expectations and their guidance was better than expected. They reported 6.6% organic growth. Growth in the last quarter weakened, however, especially in their industrial automation segment. Schneider Electric also announced that they will review assets generating EUR 2 billion in sales over the next three years. After the announcement, Schneider Electric’s share price increased sharply.

Bonds: emerging markets fare better than developed

Bond yields could remain low for the coming week(s) as several (geo-)political factors remain stuck on investor agendas and are gnawing at investor confidence. Ten-year Bund yields could trade between zero and 30 basis points in the near-term, depending on risk appetite. Factors that might change the general picture in the short term would be a positive outcome to the trade dispute between China and the US or the avoidance of a hard Brexit.

Bond markets are not expecting any more monetary policy activity from the Fed or from the European Central Bank in the coming month. The key focus for the direction of yields will therefore be the trade dispute and Brexit.

While there are rumours of early elections in Italy, the current minority government in Spain, which lost a vote on the most recent 2019 budget bill, will certainly announce snap elections before the next European parliamentary elections at the end of May. Bond markets have not overreacted on these results, given the country’s sound economic health and the fact that none of the three leading parties support populism.

While emerging-markets economies have fared quite well since the start of the year, developed markets are struggling with the same topics as last year, e.g. Brexit, the ‘yellow vest’ protests in France and the deteriorating outlook for growth in Italy and Germany. Compared to advanced economies, emerging markets performed strongly in January. Local bonds were able to attract more investors, as aggregated inflation data remained contained. And this was despite the excessive foreign-exchange volatility seen in 2018. It indicates that many emerging-market countries are able to manage an increase in inflation caused by a weaker currency.

An additional argument that supports our position in local-currency emerging-markets bonds is that real yields are still attractive compared to past levels. This means that the local central banks have sufficient ammunition to support their economies when the global slowdown continues.