The week from the 5th to the 9th February 2018 saw volumes traded on the STOXX 600 58.6% above the twelve month average, as volatility rose to a new one year high on Friday (Source: VSTOXX measure of volatility). In what is the 9th worst week since the financial crisis for the STOXX 600, share prices fell widely, with the index down 5.0% as 57% of constituents lost 4% or more. The decline was part of a global retreat from equities, as concerns around stock valuations and rising inflation, mount. Rising bond yields also make equities a relatively less attractive asset class, with the US 10 year government bond yield reaching its highest level since January 2014, at 2.9%. Indices were down widely, with the Swiss Market the worst performing, down 5.8%, whilst the OMXC20 was the best performer, losing 1.1%. In terms of sector performance, the telco sector was the worst performing, down 6.4% (down 11% over the last year), whilst stocks in consumer services were down 3.3% (best performing sector).
Euro down against the dollar
Having risen by 20.5% between the end of December 2016 and the 25 th January 2018, the Euro has weakened against dollar in recent times, losing 1.5% over last week. This recent decline has largely been driven by rising inflation concerns in the US, which has seen expectations of rate rises increase. Mario Meanwhile, in Europe, Mario Draghi stated last week that it was too early to give a date for the end of QE and highlighted that the struggle to get inflation towards the 2% target was still ongoing. When taking into account the weaker currency, the STOXX 600, down 6.5% in dollar terms underperformed the MSCI World (-5.6%).
3 of the 10 worst performers through the week were Pharmaceuticals, led lower by Orion, the worst performing stock on the index, on a downward revenue guidance. Lonza was another badly performing Pharma company, also driven lower by its FY18 guidance.
Bank of England looking to raise rates faster than expectations
The Bank of England left interest rates unchanged at 0.5% in its first MPC meeting of 2018. Governor Mark Carney hinted at earlier and higher rate hikes than currently expected by the market, on inflationary concerns. Last week also saw the release of other macro data, with the UK’s trade deficit at £13.6bn, its fourth highest reading over the last ten years. This widening deficit was driven by higher imports from outside the EU, and less exports to the EU. The pound was down 2.2% against the dollar over the week, whilst the FTSE 100 lost 4.7% and is now down 1.9% over the last 12 months.
Capita recovered from its 50% drop in the previous week when the outsourcing company announced a major operational shake-up, warned on profits and cancelled its dividend and gained 20.3%.
TDC surged 17.5% after the Danish telecoms company rejected a takeover approach from Macquarie and three Danish pension funds.
AMS jumped 17.5% after the Austrian chipmaker announced a sharp rise in profits and a series of new contracts showing signs of diversifying its business away from Apple.
Belgium’s Umicore soared 8.1% after it raised €892m through an equity placement which it will partly use to fund new investments in its rechargeable battery materials business.
Orkla gained 3.8% after Norwegian consumer goods firm’s fourth-quarter earnings beat forecasts.
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Nasdaq Advisory Services European Team Alexander Free
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