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What I Think I Learned Last Week: Europe, The Final Countdown

This week is a big week for the European Central Bank as Mario Draghi is expected to give Europe The Final Countdown regarding central bank bond purchases at Thursday’s ECB policy meeting.

Europe, The Final Countdown #2: in a move to end the Catalan secession crisis, Spain’s government will remove the entire Catalan government and call new regional elections within six months if Catalonia does not renounce its secession by 10:00 Thursday, said Prime Minister Mariano Rajoy at a press conference on Saturday.

Another Final Countdown: The Chairman of DANONE, the strategic French yogurt maker, is resigning under pressure from a US activist investor. This news will be difficult for the French public to digest.

Good news for US stocks last week as the S&P 500 had its 6th straight week of gains as the US Senate passed a budget resolution allowing for the tax cut plan to progress. The Dow Jones Industrial Average moved above 23,000 for the first time and its new high on Friday marked the most record highs for the index since 1995.

Not all is good with all stocks. Just look at consumer goods industry. Consumer giants UNILEVER, RECKITT BENCKISER and PROCTER & GAMBLE have all reported disappointingly sluggish sales. Unable to put his finger on the reason for lack of sales growth, PROCTER & GAMBLE’s Chief Financial Officer Jon Moeller said “I’ve heard theories but nothing to explain the broad slowdown.” The company went on to say that global spending on consumer staples, already weak so far in 2017, has slowed even more. The company estimated global industry growth at about 2.3% for the quarter, down from 2.5% the previous period.

Reports are coming out of Saudi Arabia that ARAMCO may refrain from going forward on its IPO. A long held belief has been that with the IPO on the horizon, the Saudis would do anything to keep oil prices up. That now is a major question for oil markets.

Meanwhile, Mexico has concluded its 2018 oil hedge plan at US$46 per barrel.

According to Paal Kibsgaard, Chairman and CEO of SCHLUMBERGER, said that falling inventories, financial discipline in the US shale fields, and a probable extension of OPEC production cuts are all setting the foundation for higher oil prices and that the market will move to undersupply in the medium term. We shall see.

Kim Dong-won, an analyst at KB Securities in Seoul, said “Globally, the AI war is being fought between five companies: GOOGLE, MICROSOFT, AMAZON, FACEBOOK and IBM. » I agree.

Speaking of IBM, it posted its 22nd consecutive quarter of revenue decline. However, this was better than expected, so the stock rose in the aftermath of the report. In fact, the stock increased more than it had since 2009.

IBM is not the only tech stock investors liked. According to EPFR Global Data, net fund flows of $1 billion went to the tech sector in the week ended Wednesday, with top recipients being in robotics, semiconductors and digital communications.

Where did the money come from? Looks like Japan. According to EPFR Global, investors withdrew a record $4.4 billion from Japanese equity funds. This is despite a rally that has seen the Nikkei 225 hitting levels last seen in 1996. There must have been some fear about another election surprise, but it looks like Abe wrapped it up and put a bow on it with a big win.

European Real Estate News (1): According to Knight Frank data, Germany is the third most popular country for property investment, behind the US and the UK.

European Real Estate News (2): Mario Draghi, in response to a question on whether the securities were overpriced in Europe, said: « Where we see some signs of valuations that tend to be stretched is in the [Eurozone] prime commercial real estate. »

And that is what I think I learned last week…