M&A in the UK - is Brexit opening a (relative) value opportunity?
Whether down to the potential for Brexit or a widening current account deficit the decline in sterling over the last 6m has been substantial. On a quarter-on-quarter basis the trade-weighted value of sterling has fallen by 7%, representing a move of more than 2 standard deviations away from the mean.
Read more...Was there a “plaza” accord after all?
Yesterday’s FOMC statement and Yellen’s press comments were unequivocally more dovish than the markets and we were expecting. Going into the meeting there was a reasonable case for preparing the markets for a rate increase in early summer, given declining unemployment and increasing US core CPI. As it turned out, external factors – perhaps a euphemism for undesirable moves in global markets and the US dollar – were in contrast almost overplayed. For us, “Peak fear” was last month’s story, so why bring it up now?
Read more...Corporate profits - Too early to call an upturn
In today’s world of rock star central bankers it can feel like every move in the markets is down to the nuances of monetary policy. Last week’s ECB meeting was a prime example – EUR down on a larger than expected QE package and then minutes later a complete reversal as ever-lower interest rates were downplayed during the press conference.
Read more...ECB - Using the bazooka
With survey data pointing to a marked slowdown in the eurozone manufacturing sector, Exhibit 1; forward inflation expectations at 1.4% significantly lower than at December’s meeting; and a cut in the ECB’s projections for economic growth from 1.7% to 1.4% for 2016, anything other than a forceful response would have been received very poorly by markets. This would in our view also have been tantamount to a policy error. But unlike December, this time markets got what they wished for – an increase in the size and composition of eurozone QE.
Read more...Yellen’s testimony - No change to the Fed’s view
If Fed chair Yellen’s speech today was an opportunity to communicate a more dovish outlook for US interest rates it has been passed up. Yellen highlighted the decline in the US unemployment rate to 4.9%, in-line with the Fed’s own longer-run estimate of a sustainable level and only talked of the uncertainty in regard to recent external factors and financial market movements – and notably to both the upside and downside. This gives little ammunition for bulls expecting a quick and wholesale reappraisal of the trajectory of US interest rates.
Read more...Rising credit stress in the banking sector add to investor concerns
Though we do not wish to draw any apocalyptic join-the-dots conclusions, we can now add a significant increase in credit stress within the global banking sector to the lengthening list of investor concerns . For example, since the start of the year the 5y credit default swap premium on Deutsche Bank has doubled to 200bps, Exhibit 1. It would not however be fair to highlight only a single institution; outside the eurozone, bank sector credit in the US and UK has also suffered significant spread widening, Exhibit 2.
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