Daily Agenda: BG and Shell Keep M&A Ball Rolling
BG and Shell announce merger; Bank of Japan holds rates steady; Shanghai index crosses 4,000.
The pace of major deals in the equity markets continues to pick up steam. Oil major Shell is buying BG Group in a £47 billion ($70 billion) transaction, the largest in the energy sector in at least a decade and the latest in a recent string of M&A transactions that also includes consumer staples and biotech sectors. Ultra-low interest rates are looking to be an incentive for highly capitalized companies facing diminished earnings expectations to buy growth, rather than achieve it organically through investment. With aluminum giant Alcoa unofficially kicking off earnings season with a quarterly announcement after equity markets close today, it is likely that market sentiment will be heavily focused on the prospects for more such deals in the coming three months.
Greek prime minister heads to Moscow. Greek Prime Minister Alexis Tsipras began a two-day state visit in Russia today, meeting with President Vladimir Putin. With a payment due to the International monetary tomorrow and cash reserves rapidly running out, the government in Athens appears to be using props like the visit to Moscow and reparations demands on Germany to attempt to wrestle some advantage at the debt negotiating table. Although the meetings today are expected to remain little more than political theater, any move by Athens to recognize Russian claims in Ukraine could create a schism with European Union leadership.
Shanghai index hits 4,000. For the first time in seven years, the Shanghai composite index crossed 4,000 in trading today. With the benchmark doubling over the past 12 months it appears that assurances from the People’s Bank of China of liquidity intervention have trumped concerns mover a slowdown in property markets and fixed investment.
Switzerland issues negative yield ten-year bonds. In an auction this morning, Switzerland became the first nation known to have issued ten-year debt securities with a yield below 0 percent. Nearly $400 million in bonds maturing in 2025 and 2049 were placed with the ten-year debt priced with a yield of –0.055 percent as deflationary fears and European Central Bank easing drive a sustained flight to safety in European markets.
Bank of Japan stays the course. As anticipated, the Bank of Japan made no shift in its massive stimulus program during today’s monthly announcement. The accompanying statement stressed that the bank sees continued recovery, albeit at a sluggish pace, and indicated a resolve to press ahead.
Portfolio Perspective: Bullish Signals for the Dollar — John Kosar, Asbury Research
Near-term metrics remain positive for the U.S. dollar. There is a positive one-month rate of change in the U.S. dollar index and a bullish chart pattern in dollar versus the Japanese yen, with an unmet target 7 percent above the market. More intermediate-term metrics remain solidly negative, however. This is largely because of long-term overhead resistance in the dollar unlikely to be broken without at least a one-to-two-month corrective decline beforehand. In addition, there is an emerging near-term bullish bias in base metals prices and in gold, all which have historically been inversely correlated to the dollar. Expect to see a meaningful dollar correction sometime this quarter.
John Kosar is the director of research at Schaumburg, Illinois–based financial information services provider Asbury Research.