Takeaways: Last week’s engineered fall in the Renminbi was actually pretty modest, certainly in the context of the currency’s recent appreciation. More significant is what the move signalled – or more pertinently the market interpretation of those signals in the context of the un-virtuous circle of weak Chinese demand, falling commodities prices, a stronger dollar and increasingly stressed ‘emerging markets’. It’s a fragile situation that shouldn’t stall markets, but will make them more discerning as we move into pivotal month.
Takeaways: M&A activity usually winds down in summer, but July brought another US$500b+ of deals and August has started in the same vein. Why so active? In low growth markets, M&A – or more precisely a robust approach to capital allocation – is looking like one of the best ways for companies to outperform their peers. In this context, uncertainty in China (& elsewhere) and poor earnings are deal incentives. The Fed’s potential move in September provides a further hurry up…although in this we find a caveat. Debt markets are already beginning to look less accommodating. Not too much at investment grade, but more so lower down the scale. Plenty to reasons still to do deals; but will there be enough fuel to continue this record breaking momentum?
Takeaways: A major commodity index dipped to its lowest since the financial crisis level on Monday. The reasons are self-evident, with major commodity price deflators – strong dollar, uncertain Chinese demand and oversupply – continuing to plague markets. The fall obviously has broad consequences and this week we’re focusing on the impact on capital investment and how this feeds into the on-going capex conundrum. We don’t doubt that buybacks and short-termism have played their part, but that’s only part of a story that includes deeper structural and cyclical narratives.
Takeaway: Of course Greece isn’t out of the woods. We remain convinced that the only sustainable way forward is through debt reconstruction. It’s not off the table, but it’s not on it either. So, whilst this debate remains parked on a hostess trolley in Brussels, we’re going to ask a few questions to help take stock of the broader picture. Altogether, it looks like a continued rebound with that clichéd phase: “challenges ahead”. This is why we’re really focused on capital allocation as a key differentiator. And – as recent transactions show – many companies are too.
Takeaways: A deal at last for Greece! After marathon talks which lasted over 17 hours, an agreement was announced on Sunday night to keep the Greeks in the Euro. ‘Deal’ in this case being an agreement to enter talks on a new bailout linked to a range of new pre-conditions. This effectively leaves Greece borrowing another €86bn on a debt to GDP that’s already around 175% without an explicit promise of debt restructuring.
Takeaways: With an unexpectedly strong victory for the ‘No’ campaign in the Greek referendum we are sailing ever deeper into uncharted waters – and that brings a level of uncertainty that could rein-in the confidence shown by companies and investors alike in the first half of the year.
Takeaways: Efforts to limit direct exposure means Greece is increasingly morphing into a political, rather than a financial crisis; but that can quickly change if companies and markets freeze or the political crisis extends elsewhere. The ECB’s move today to extend QE asset eligibility was necessary in any case…and possibly pre-emptive.