Heightened geopolitical concerns, emanating from the Catalonia crisis and stalled Brexit negotiations weighed on Europe’s stocks last week. Earnings reports were also largely mixed, failing to provide necessary impetus to stocks. Strong economic data from China and Abe’s resounding victory in snap elections powered Asia’s stocks over last week. A decline in prices of base metals bogged down Brazil’s stocks even as a corruption investigation threatened to derail president Michel Temer’s reforms push.
Europe’s Stocks Weighed Down by Catalonia Crisis, Brexit Negotiations
Stocks across Europe ended on a mixed note on Monday as investors remained focused on political developments across the region. The STOXX 600 ended nearly flat with nearly all sectors closing in the red, weighed down by events in Spain, Austria and the U.K. Political tensions emanating from the Catalan crisis led to Spain’s benchmark IBEX losing 0.8%. Tariff cuts weighed on utilities, the worst performers for the day.
The STOXX 600 lost 0.3% on Tuesday, with nearly all sectors closing in the red. Political events across the region continued to weigh on investor sentiment. Travel and leisure stocks were the worst sufferers, losing 0.6% following a decline in summer trading. Meanwhile, the IBEX managed to recoup all its early losses following encouraging developments on the Catalan crisis.
Earnings and economic reports guided Europe’s stocks on Wednesday with markets across the region closing in the green. The STOXX 600 gained 0.3% with nearly all sectors closing with gains. Media, auto and food and beverages stocks were among the leading performers for the day. Spain’s benchmark IBEX index ended in the red following news that Catalonia had not agreed to Spain’s government’s demand that it give up its claims to declare itself as an independent state.
The STOXX 600 declined more than 0.6% on Thursday, with only four sectors managing to finish in the green. The crisis in Catalonia underwent an escalation even as earnings results came in mixed, leading to the day’s losses. Catalonia’s refusal to drop its independence claims led Spain’s government to announce that it would suspend the region’s autonomy. This development led to the IBEX closing 0.7% lower.
Stocks across Europe closed mixed on Friday with earnings releases and political developments dominating proceedings. The STOXX 600 gained 0.2% but lost 0.4% over last week. Banks emerged as the best performers of the day, ending the session with gains of 1%. Strong earnings numbers helped shares of Volvo (VLVLY - Free Report) gain 7%. Shares of ArcelorMittal (MT - Free Report) gained more than 1% following a spike in prices of copper. Meanwhile, investors continued to monitor Brexit negotiations and events in Catalonia.
Data from China, Abe’s Victory Boosts Asia’s Stocks
Markets across Asia closed with gains on Monday, following strong gains on Wall Street and encouraging inflation data from China. The Nikkei 225 increased 0.5% to hit a new 21-year high. Gains for cosmetics retailers and steelmakers helped South Korea’s Kospi to finish 0.3% higher. Materials stocks led gains for Australia’s S&P/ASX 200 which increased by 0.6%. Despite the release of encouraging inflation data the Shanghai Composite and the Shenzhen Composite lost 0.4% and 1.5%, respectively.
The Nikkei 225 gained for the 11th successive session on Tuesday, ending the day 0.4% higher. However, shares across Asia ended the day nearly flat. South Korea’s Kospi increased by 0.2% even as steelmakers lost out on some of their early gains. Gains for materials stocks helped the S&P/ASX 200 increased by 0.7%. The Shanghai Composite declined by 0.2%, even as investors awaited the start of the Communist Party’s crucial meeting. However, the Shenzhen Composite increased 0.1%.
Asia’s investors remained focused on the outcome of 19th National Congress of the Communist Party of China on Wednesday even as stocks across the region closed mixed. The Nikkei 225 finished in the green for the 12th successive day, gaining 0.1%. The Kospi ended 0.1% lower even as gains made by auto stocks were negated by losses in blue chips. Utilities stocks were the leading gainers for the S&P/ASX 200, which closed the day in positive territory. The Shanghai Composite index added 0.3% even as the Shenzhen Composite declined by 0.4%.
Stocks across Asia closed mixed on Thursday even as a raft of economic reports from China occupied center stage. China’s third-quarter GDP met analyst estimates even as industrial production and retail sales exceeded forecasts. The Nikkei 225 gained for the 13th successive session, increasing by 0.4%. The Kospi lost 0.4% even as the S&P/ASX 200 increased by 0.1%. The Shanghai Composite and the Shenzhen Composite declined 0.4% and 0.8%, respectively. Hong Kong’s Hang Seng lost 1.9%.
Japan’s stocks received a major boost on Friday even as the rest of Asia’s stocks ended the day mixed. Prime minister Shinzo Abe’s coalition won a considerable majority in the snap election held last Sunday, boosting the dollar against the yen. The Nikkei advanced 1.2% even as South Korea’s Kospi closed the day nearly flat. The S&P/ASX 200 lost out on early gains to close the day 0.1% lower. Hong Kong’s Hang Seng moved 0.7%. Meanwhile, the Shenzhen Composite gained 0.3% even as the Shanghai Composite ended the day with gains.
Bovespa See-Saws Amid Temer Investigation, Base Metal Price Worries
Brazil’s benchmark Bovespa declined by 0.4% on Monday following losses suffered by the country’s largest bank Itaú Unibanco Holding SA (ITUB - Free Report) . Brazil’s stocks moved lower on Tuesday even as lawmakers began debating on whether or not president Michel Temer should be tried by the country’s Supreme Court. Such a move would significantly damage his reforms agenda which is why the Bovespa declined 1%.
The Bovespa gained 0.5% on Wednesday even as investors remained wary of the impact of a corruption scandal which threatens to derail Temer’s market oriented reforms. Stocks in Brazil fell to their lowest level in one week on Thursday. Fears of a drop in global demand sent prices of base metals significantly lower, leading a 1.2% drop in the Bovespa. Shares of Vale SA (VALE - Free Report) declined for the third consecutive day. A rebound in the prices of base metals helped the Bovespa gain 0.8% on Friday.
Stocks in the News
SAP SE (SAP - Free Report) reported third-quarter 2017 IFRS earnings per share of €0.82 (95 cents), reflecting a surge of 35% on a year-over-year basis. This improvement was primarily attributable to growth in the cloud subscriptions as well as software license order entry. The bottom line, however, misses the Zacks Consensus Estimate of $1.14 per share.
Total IFRS revenues for the third quarter were €5,590 million ($6,497.3 million), up 4% year over year. Also, the figure marginally surpassed the Zacks Consensus Estimate of $6,470 million.
Fueled by continued strong momentum of the cloud business, Zacks Rank #2 (Buy) SAP raised its view for full-year 2017 non-IFRS total revenue projection from €23.3-€23.7 billion to €23.4-€23.8 billion at constant currency (cc). (Read: SAP SE Q3 Earnings Rise Y/Y, Revenues Top, View Up)
Taiwan Semiconductor Manufacturing Co. (TSM - Free Report) reported third-quarter 2017 earnings of 57 cents per ADR, which exceeded the Zacks Consensus Estimate by a penny. Further, it increased 35.7% sequentially but decreased 3.4% year over year.
Moreover, revenues decreased 3.2% year over year but increased 17.9% sequentially. The sequential increase was primarily driven by major mobile product launches and a healthy demand environment.
For fourth-quarter 2017, Zacks Rank #3 (Hold) Taiwan Semi expects revenues to be in the range of $9.10-$9.20 billion. Gross margin is anticipated to be between 48.0% and 50.0%, while operating margin is expected to be in the range of 37- 39%. (Read: Taiwan Semi Q3 Earnings Beat on Mobile Product Ramp Up)
Ericsson (ERIC - Free Report) lost money for the fourth straight quarter, as it posted non-IFRS loss of SEK 0.55 (6 cents) per share in third-quarter 2017 (excluding amortizations, write-downs of acquired intangible assets and restructuring charges). This is in stark contrast with earnings of SEK 0.34 recorded in the comparable quarter last year. Ericsson has a Zacks Rank #5 (Strong Sell)
Contracting product demand, lower software sales, and weak IT & Cloud business results pushed the company’s earnings into the red, as the Swedish firm reported a huge net loss of SEK 4.3 billion ($528.5 million), much wider than the loss of SEK 0.2 billion witnessed a year ago.
Net sales for the quarter fell 6% year over year to SEK 47.8 billion ($5.9 billion). However, the top line beat the Zacks Consensus Estimate of $5,789 million comfortably. (Read: Ericsson Posts Huge Q3 Loss, But Sees Improvement)
Fiat Chrysler Automobiles N.V. (FCAU - Free Report) has announced that it will recall 470,000 vehicles worldwide, per a Wall Street Journal report. The recall of sedans and SUVs will be done to correct fault-prone component that might hold back deployment of active head restraints in case of a crash.
The company came to know about the problem from the National Highway Traffic Safety Administration (NHTSA) investigation initiated in June 2017. According to the company, of the total vehicles recalled, 414,134 were sold in the United States. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GlaxoSmithKline plc (GSK - Free Report) announced that its vaccine Shingrix has been approved in Canada for the prevention of shingles (herpes zoster) in older patients (aged 50 years or older). This is the first regulatory approval for this key pipeline product of Glaxo which has blockbuster potential. Glaxo has a Zacks Rank #2. (Read: Glaxo's Shingles Vaccine Shingrix Gets Approval in Canada)
Bayer Aktiengesellschaft (BAYRY - Free Report) has inked a deal to sell selected Crop Science businesses to BASF for EUR 5.9 billion. Notably, the company intends to divest these assets as a part of its strategy to complete the planned acquisition of Monsanto Co. (MON - Free Report) . Bayer has a Zacks Rank #2.
The divestiture is subject to the closure of Monsanto deal and Bayer is working with the relevant authorities to end the acquisition by early next year. In fact, the company plans to utilize the net proceeds from the divestiture for partially refinancing the planned acquisition of Monsanto. (Read: Bayer to Sell Select Business Lines to Close Monsanto Buyout)
Performance of Leading Foreign Stocks
The table given below shows the price movements of 10 of the largest stocks listed on indexes worldwide, over the last five days and during the last six months.
Last 5 Day’s Performance
Next Week’s Outlook
Even though Europe’s markets had remained largely unscathed a week earlier, Catalonia and Brexit related tensions dragged stocks lower over last week. China’s strong economic performance and Abe’s electoral victory sent Asia’s stocks higher over the week. Markets in Europe are likely to struggle with these two factors over the course of this week as well. Stocks in Brazil are also likely to be weighed down by the Temer corruption crisis. However, Asia’s stocks remain largely unimpeded and are likely to notch up further gains over this week as well.
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