Daily Agenda: Markets Open Calmly in Wake of Paris Attacks
Equities rise modestly in Europe; Marriott to acquire Starwood in largest hotel merger ever; Japan officially enters recession.
After a series of deadly terrorist attacks in Paris Friday, the French government continues its search for other operatives, accomplices and cells, with over 20 suspects now in custody. Reports that at least one of the Paris terrorists entered Europe among Syrian refugees creates a new political dimension to the crisis of migrants fleeing the Middle East. In the immediate wake of the attacks, an incoming Polish Minister of European Affairs scheduled to be inaugurated today declared that his nation would renege on accepting thousands of displaced Syrians, as the prior administration had promised. Despite the political ramifications of the attacks, financial markets were largely unfazed, with European equities and bonds opening normally and U.S. Treasury securities dipping in early trading, suggesting no flight to security on the part of investors.
Hotel mega-merger. On Monday, Marriott International announced that it has entered an agreement to acquire Starwood Hotels & Resorts Worldwide for more than $12 billion in a deal that will create the world’s largest hotel operator with over 5,500 locations. The proposed transaction will consist of 0.92 shares of Marriott stock and $2 in cash for each share of Starwood.
Japan enters recession. Gross-domestic-product figures for the third quarter released Monday by the Japanese cabinet office revealed that the economy shrank by 0.8 percent versus the prior three months. While private consumption expanded for the period, both inventories and investment weakened as sluggish global demand demoralized business leaders.
IMF to add Chinese currency to SDR. The International Monetary Fund on Friday announced that senior staff members had recommended the inclusion of the Chinese renminbi in the Special Drawing Rights currency basket, a move widely anticipated by analysts. The move comes on the heels of further moves to decrease capital controls by Beijing in recent months.
Eurozone inflation rises modestly. Consumer-price-index measures for the common currency zone in October rose by a wider margin than anticipated with headline CPI up 0.1 percent year-over-year and core levels excluding food and energy rising by 1.1 percent versus the same month in 2014. price action in European sovereign debt markets indicates that many investors anticipate an expansion of quantitative easing at the next European Central Bank policy meeting in December.
Berkshire cuts Goldman stake. In a regulatory filing Monday, Berkshire Hathaway revealed a 13 percent reduction in its position in Goldman Sachs Group over the course of the third quarter. After selling more than 1.5 million shares, Warren Buffett’s Omaha, Nebraska-based conglomerate retains 11 million shares of the investment bank.
Portfolio perspective: Question for the Week Ahead
Will it be terror or China that derails the rally? Short Answer: No, but oil might. The debt-deflation overhang in commodities and emerging markets is ongoing. The October countertrend rally in risk assets —commodities, equities and emerging markets — unwound a bit last week on the back of weaker European Union and China data. The G20 this week will focus on how to restart growth in 2016 even in the face of China reform and U.S. FOMC lift-off. On cue, the oil market added the third leg of fear to politicians as we trade back towards the years’ low as the U.S. inventory rises and Saudi oil-pumping continues. The new factor for the week is ISIS, as the response to the Paris attacks will bring another layer of concerns about EU migration policy, EU and U.S. roles in Syria and the cost of further hits to EU confidence. There is a multi-headed hydra effect from more bombing in Syria and Iraq leading to more terrorism in the West. But most expect this course of affairs to continue and to not matter as much as the big three concerns that the IMF highlighted last week. But the IMF work on oil and the hit it takes to the global economy is perhaps a larger study for the week ahead. The role of oil at $40 bbl again maybe the one factor that matters most this week.
Robert Savage is the chief executive officer of CCTrack Solutions in New York.