Market participants are set to receive a small batch of updates on Belgian industrial production and inflation, as the holidays near and the year winds to a close.
The fresh figures are slated for release Monday, with trading in Belgium then on hiatus for much of the week:
Monday, December 23
- Industrial Production Index (Oct)
- Consumer Price Index (Dec)
Tuesday, December 24
- Brussels Stock Exchange – Christmas Eve
Early close at 14:05
Wednesday, December 25
- Brussels Stock Exchange – Christmas Day
Thursday, December 26
- Brussels Stock Exchange – Boxing Day
Incoming Data
Investors at the start to the week ahead will receive an update on Belgium’s industrial sector, after the country’s production index fell 1.8% month-over-month in September and rose close to 6.0% on an annual basis – its strongest showing since June 2019.
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Also, on the menu, Monday will be a fresh reading of consumer prices for December after the prior month registered a downtick in overall inflation to 0.39% from 0.48% from October.
Statbel, Belgium’s statistical office, noted that the most material price increases in November from the prior month were for travels abroad (+4.8%), alcoholic beverages (+2.1%) and vehicle purchases (+0.5%), while significant price declines were noted for stays in holiday villages (-6.3%), personal care products (-2.7%) and airplane tickets (-2.4%).
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Slowdown
Meanwhile, growth in Belgium’s economy is expected to cool in the fourth quarter of 2019.
According to the National Bank of Belgium (NBB), the pace of economic growth in the country will likely face a general deceleration in business investment and private consumption, as well as continued pressure from net exports (-US$25,088bn in 2018).
Belgium’s top trading partners in terms of exports have been Germany, France, the Netherlands, the UK, and Italy – each of which has suffered from the general malaise of stubbornly low inflation across the Euro Area, as well as uncertainties over the UK’s departure from the EU, global trade concerns and geopolitical discord.
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Meanwhile, while the rate of Belgium’s gross domestic product (GDP) growth is anticipated to ease to 0.2% in Q4’19 from 0.4% in the prior quarter, the NBB also suggests the estimate could be skewed somewhat by divergent signals from its nowcasting models.
However, the central bank did highlight that although headline business confidence and demand expectations have recently partly recovered, and financing conditions remain favorable, capacity utilization has declined, and the global outlook has worsened.
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Indeed, the International Monetary Fund (IMF), for example, had lowered its global growth outlook to 3.0% for 2019, its lowest level since 2008–09 and a 0.3% downgrade from its April 2019 WEO.
The Washington, D.C.-based organization underscored how manufacturing activity has “weakened substantially” – to levels not seen since the global financial crisis – while increasing trade and geopolitical tensions have promoted greater uncertainty over the future of the global trading system and international cooperation more generally, “taking a toll on business confidence, investment decisions, and global trade.”
The IMF continued that while increased monetary policy accommodation has “cushioned” the impact of these tensions on financial market sentiment and activity, its overall outlook “remains precarious.”
According to the IMF, the annual rate of GDP in Belgium for 2019 and 2020 is expected to slow to 1.2% and 1.3%, respectively, from 1.4% in 2018, while consumer prices are set to drop to 1.5% and 1.3% from 2.3% over the same periods.
Headwinds on the Horizon
Furthermore, Belgium faces the lingering headwinds of a potential ‘no-deal Brexit’ in 2020, as well as mounting corporate and household debt.
Fitch Ratings analysts Federico Barriga Salazar and Alex Muscatelli recently noted that the UK accounts for around 6.5% of Belgian goods exports, and substantial shares of both inward and outward foreign direct investment.
Fitch, which has assigned an investment-grade, ‘AA-’ sovereign credit rating to Belgium, pointed out that bank lending to the nation’s private sector has grown at a “significant pace, in line with strong house price and investment dynamics.” Since the start of 2018, average growth in lending to non-financial corporations has been 6.8%, and while annual growth in household lending has slowed from its double-digit levels in Q4’18, it had still averaged 5.2% over the first seven months of 2019.
Salazar and Muscatelli added that the risks from rising household debt have been somewhat offset by household wealth, which is “very high” in Belgium, with a net position of 233.5% of GDP in Q1’19.
Market Impacts
Against this backdrop, while Belgium’s corporate and household indebtedness remains elevated, risk appetite among equity investors also appears to have taken flight.
Despite warnings of a likely slowdown in Belgian economic growth, investors in the country’s equities have generally seen a stellar rise in the performance of some of its stocks – as evidenced by the value of the iShares MSCI Belgium ETF (NYSEARCA: EWK), which has among its top holdings Anheuser-Busch Inbev (NYSE: BUD), insurance company KBC Group (OTCMKTS: KBCSY) and biopharma firm Galápagos (NASDAQ: GLPG).
Year-to-date in 2019, the ETF had gained nearly 24.1% compared to Belgium’s BEL 20 index, which has increased by almost 22.7% over the same period. EWK has also soared roughly 26.6% from its latest 52-week trough set in late December 2018.
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Healthy Pharma Sector Supports Exports to the U.S.
Meanwhile, shares of certain Belgian pharmaceutical companies have been recently outperforming the EWK ETF, as well as the broader BEL 20 index, which may be good news for the country’s export dollars.
Among the country’s 15 top-trading partners, the U.S., which ranked fifth in 2018, received around US$8.2bn worth of Belgian-domiciled pharmaceutical products – the most of any exported item from Belgium in that year.
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The activity, combined with a large cross-border alliance between Galápagos and California-headquartered biotech firm Gilead Sciences (NASDAQ: GILD), seems to bode well for the Belgian pharma sector.
Galápagos’s stock, for example, has witnessed a stratospheric increase of 131.5% year-to-date in 2019, underpinned in large part by its agreement with Gilead, which in mid-July paid an upfront license fee to Galápagos of US$3.95bn, as well as made an equity investment in the Belgian company of US$1.1bn.
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Onno van de Stolpe, CEO of Galápagos, said “this deal gives us the financial strength – and the independence – to greatly expand our research engine and build a broader pipeline of new mode of action medicines.”
Unsurprisingly, the agreement with Gilead – which recently reported that it held 25.10% of Galápagos stock – also largely contributed to Galápagos’s strong balance sheet in Q3’19.
Bart Filius, COO, and CFO, said that as Galápagos continues its expansion to support its“broad pipeline,” as well as build a commercial structure for the potential launch in Europe of filgotinib (intended for the treatment of rheumatoid arthritis and Crohn’s disease) in 2020, the firm’s financial guidance for full-year 2019 operational cash burn between €320m and €340m was unchanged, excluding the impact from its agreement with Gilead.
Investors will likely be paying close attention to Belgium’s pharma sector for further developments, as well as the nation’s rates of inflation and industrial production in the week ahead – this as Belgium’s GDP growth slows amid exposure to a generally sluggish European landscape.
In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of the U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more.
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