Profitability Reports of our clients from December 2017
Monday, 08 of January 2018
World Macro Panorama,
GLOBAL MACRO PANORAMA
EURO ZONE: The European economy continues to show strong signs of recovery, as shown by the publication of the latest macroeconomic data; an interannual GDP growth of 2.6% exceeding market expectations, this behavior was supported by a better performance of industrial production.
The CPI for the month of November stood at 1.50% year-on-year, in line with market expectations, however, it moves away from the estimates announced by the Central Bank that expects a variation at the end of 2017 of 1.7%, the preliminary data for December will be published the first week of January and the consensus has an estimate of 1.4%. This moderation in prices is impacted by the weakness in consumption as the latest available data of retail sales (October) shows a monthly contraction of -1.1% (Previous 0.8%, expected -0.7%). The advanced indicators of activity continue to show expansionary rates, the services PMI stood at 56.5 while the manufacturer at 60.6.
Regarding monetary policy, as anticipated, at the last meeting no changes were announced, interest rates were maintained and the purchase plan was reduced as of January.
Despite the publication of positive data from the European economy, the main indices suffered monthly setbacks due to two main factors: on the one hand, the political uncertainty in the region and, on the other hand, the appreciation of the euro that ended the year with an increase of 14% penalizing quotations of European assets. The biggest declines were experienced by the Spanish Stock Exchange with a -1.64% monthly drop, followed by the CAC40 -1.12%. While the FTSE 100 advanced 4.93%. In the fixed income market, we highlight the stability in the risk premium in the last month, with the exception of Greece, which decreased by 133bps.
UNITED STATES: In the United States, we have two facts that guided the markets during the last month; On the one hand, the approval of the fiscal reform proposed by President Trump and on the other, the rise in interest rates by the FED. As for the reform led by the Republicans, we highlight the smoothing of fiscal policy that includes: reduction of corporate tax, incentives for the repatriation of extraterritorial profits of companies and for individuals will have a decrease in the tax rate that presupposes an upward effect on retail consumption.
The approval of the aforementioned reform boosted the stock market due to the fact that it presupposes an increase in profits, thus the main indices finished the month with important advances; the Dow Jones advanced + 1.84%, the Nasdaq + 0.48% to levels of 6,903.39 points, while the S & P500 registered a monthly rise of 0.98%; continuing with the upward trend of the previous months that had been supported by the good corporate results of the companies.
Regarding the increase of rates by the FED to the range of 1.25% to 1.50%, it is important to mention that the preceding announcements had anticipated three movements in the rates during 2017, for which the market already had broadly discounted the decision generating a smaller impact on the quotes. At the December meeting, the FED revised up its growth forecasts for 2018 to levels of 2.5%, with an unemployment rate close to 3.9% and an estimated inflation figure at the end of 2017 at levels of 1.7%.
Regarding the macro data, we have the publication of the monthly GPD (November) which was 0.4% in line with expectations, marked by the increase in fuel prices. The CPI had a variation of 3.2% in the third quarter (Previous and estimated 3.3%), affected by a moderation in consumer spending.
UNITED KINGDOM: We have mixed data during the month, on the one hand, the GDP of the third quarter was revised up to 1.7% from the preliminary 1.5%. However, the manufacturing PMI for the month of December stood at 56.3 (Previous 58.2) while the service PMI did it at levels of 54.2 (previously 53.8). Regarding the labor market, the unemployment rate stood at 4.3% (previously 4.3%, estimated at 4.2%), while the annual CPI continues exceeding the target at levels of 3.1% (previous and estimated 3%), in maximum levels since 2012, in November the prices that contributed to the increase were the transport, the leisure and culture and the hospitality industry.
In terms of monetary policy, the December meeting did not change the intervention rate and remains at 0.5% with unanimity in the votes of the members to maintain the rates despite the upward movements of inflation.
JAPAN: The economic growth of Japan returns to levels of 2.5%, after having had a very negative preliminary data (1.4%), the upward revision was due to the increase in investment and inventories, while the consumption did not change significant.
On the other hand, the industrial production index was 0.6% (previous and estimated 0.5%) for the month of November, mainly due to the increase in demand from abroad. The trade balance data also shows a better performance of exports with a surplus of 113,400 million yen.
Regarding monetary policy, the Bank of Japan at its December meeting decided to maintain its stable reference rate and its current stimulus program. Although the economy is already on a recovery path with favorable activity data, the decision was based on the inflation figure that remains far from its target of 2% (Current 0.9%).
CHINA: Inflation data and continuous liquidity injections by the Central Bank have been the main drivers of the stock markets in the country. The CPI for the month of November was 1.7% year-on-year, although the figure is lower than the previous month due to a sufficient supply in food, sectors such as accommodation, medical care, entertainment and fuels rebounded. On the other hand, the producer price index (PPI) increased by 5.8% in November (previously 6.9%).
Meanwhile, the Bank of China surprised with a rise in interest rates of 0.05%, without major impact on the markets.
At the end of the year, global indexes had important advances. In Europe despite the political uncertainty, the IBEX35 ended on 10,043.9 points with slight declines in recent days, but with an annual increase of + 7.4%, while the FTSE 100 INDEX ended at around 7687.7 points adding gains of 7.63% in the year. In Germany, the DAX had a positive performance advancing 12.51% in 2017 reaching 12,917 points.
The American markets maintained the bullish tone of the previous months and added profits at the end of the year above 20%, at the end of a year in which the profits reported by the companies were exceptionally favorable.
In Asia, the markets recorded significant advances, with an annual + 19.1% in the Nikkei225 at levels of 22,784.0, while the Hang Seng ended at around 29,863.7 points with gains of 36% during 2017.
For its part, the public debt of the Euro Zone has had a slight decrease during the last months in the long-term yields. While in the United States and the United Kingdom long-term yields increased, as a result, monetary policy decisions and expectations of further rate increases by the FED and the BOE.
In terms of the foreign exchange market, the Euro registered gains of over 14% per year against the dollar, a behavior that surprises markets with the latest movements of central banks. On the one hand, the rise in interest rates of the FED while the European Central Bank has kept the rates at minimum. However, other factors have weighed more on the weakness of the dollar as the continued uncertainty in the Trump mandate and the slow progress in inflation.
Regarding the raw materials market, oil advanced to 66.8 USD / Barrel, driven mainly by OPEC and other countries outside the group, to maintain production cuts until the end of 2018, as well as dynamism of the main economies has favored the demand of crude oil and the expectations for the next months. For its part, gold finished with gains of 2.2% benefited by the best prospects for global growth.