As we power ahead, what next for the UK borrowers?

Takeaways:

  • UK economy picks up steam with GDP, employment growth and government borrowing performing strongly
  • Demand for credit from UK companies is on the up, with supply gaps being filled from the increasingly established alternative funders
  • Outlook appears robust for debt capital supply, with the potential UK EU referendum a key risk on the horizon

Growth up, employment up, the budget deficit down and inflation at record lows – the UK would appear to be in a strong and accelerating position, and can now add the title of fastest growing developed world economy in 2014 to the trophy case following the most recent update from the Office of Budget Responsibility.

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How will changing earnings forecasts shape the agenda?

Earnings: Dilemmas, divergence and disquiet…..

Takeaways: Last night the Fed played down the dollar’s impact on the US economy, but its rise is certainly the hottest topic on Wall Street. Janet Yellen’s dovish tone has taken Euro parity off the table for now, but policy divergences will keep the greenback strong. Meanwhile, European earnings expectations are moving rapidly higher, buoyed by the Euro’s fall, cheap oil and policy support. Private Equity is making hay, using this window to sell off assets at record rates – after all, Eurozone realities may bite again soon. It’s a good time to divest, although rising asset prices create an obvious flipside and currency volatility is complicating deals, even before the Fed really changes its tune. It is still a volatile world – enough to challenge earnings expectations again in 2015 – but uncertainty isn’t the only earnings concern. There is disquiet over sustainability. When the cost cutting and buybacks are done, can companies keep the earnings show on the road?

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Eyes down for a fresh look…

Takeaways: The Eurozone, UK and ‘emerging markets’ have something in common: the sharp juxtaposition of optimism and concern. In varying degrees; but the contrast between opportunity and threat highlights the complicated patchwork of growth and risk companies are navigating. Was it ever thus? Risk isn’t new, but perhaps there is more flying in from ‘leftfield’ and there are certainly greater forays into market unknowns – such as the great Fed unwind. Markets remain highly accommodative, but they still have the potential to twitch. Opportunities abound, but selectivity is still vital with smart divestment playing its part.  In these markets, companies can also expect greater interest in how they perceive the future. Time to take a fresh look at countries, markets and corporate portfolios…

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Feeling negative?

Takeaways: As negative yields spread, the divergence between Euro and dollar borrowing costs becomes more marked. Add the Euro at an 11-year low and it’s no wonder Mr Buffet – and a growing number of his US compatriots – are not only shopping in the European aisles, but borrowing in the Euromarket. Of course there’s a flipside. The ECB’s bond buying driving much of this yield decline comes from a position of weakness. However, there are brighter spots emerging across Europe and transactions aren’t just a bet on recovery; they can help to build resilience through increased market share, diversification, lower costs and innovation. Good reasons why the deal appetites we saw return in 2014 should continue to improve in 2015.

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Riding the cycles

Riding the cycles

Takeaways: With Hellenic worries on the back burner, equity markets have flirted with new highs. However, geopolitical machinations continue to provide reality checks and Greece will be back – soon. The commodities sector is obviously still coming to terms with new economic realities. M&A activity dipped in metals and mining again in 2014; but deals should be part of the restructuring armoury as the sector gears for recovery. Elsewhere, the imperative to transact remains strong and activity remains buoyant. The opportunities presented by diverging economies and monetary policies are also coming to fruition, as the euro and Eurozone yields fall and US companies arbitrage. Companies can make hay in this low yield environment; but there are signs of high yield disquiet – in words, rather than volumes. Continue reading

High noon at the O.K Brussels….

Takeways: At pixel time….Greece is offering an olive branch (of sorts) and markets are up. That said, investors didn’t seem perturbed by the breakdown of Monday’s talks. This isn’t 2011. The Eurozone economy is growing, banks are stronger, markets are flush with liquidity, backstops are in place and Greece’s debt is mainly ‘official’. With the right deal, the Eurozone (or parts thereof) could, conceivably, kick on to become the turnaround story of the decade….may-be…The argument against such sangfroid are that this particular olive branch (previously rejected) would just reset the countdown; the Eurozone still appears to have trouble ‘baked in’ and unwavering central bank support is intensifying riskier market behaviour. Greece’s travails shouldn’t topple the Eurozone and there is significant potential for growth; but GREXIT or not, European opportunities need careful picking.

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And Greece is the way we are feeling…

Takeways: No deal and still we wait on Greece’s fate.  Markets seem nonplussed. Is this faith in an 11th hour agreement or in sufficient mitigating factors? Both seem risky assumptions and no deal can ‘cure’ Greece overnight. Meanwhile, a tremendous amount of uncertainty remains elsewhere, not least in the volatile oil price and currency markets. The divergence theme we introduced last year is becoming a serious pain in the profits for US companies, as jobs figures shine. With sterling at a seven-year high against the Euro, currency remains high on UK corporate agenda’s too. Companies are recognising the need to adapt to this changeable world by looking at elements that they can control – like working capital – and using M&A to meet new strategic challenges.

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