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Daily Agenda: Fed Watchers Take the Longer View of Rate Liftoff

Analysts stress slow pace of rate hikes regardless of initial increase; Deutsche Bank announces massive writedowns; AB InBev and SABMiller enage shareholders with dueling statements.

In the run up to the release of minutes from the September Federal Open Market Committee meeting this afternoon, analysts and strategists at multiple firms have reiterated that the timing of the Federal Reserve rate hike may ultimately be less important than the pace of further increases. With expectations now for a very long and shallow ascent, multiple banks have lowered yield targets for benchmark Treasuries in 2016 and beyond. Meanwhile, today’s announcement by the Bank of England left benchmark rates unchanged at historic lows, as had been widely anticipated, a reminder that growth recovery remains fragile in other developed world economies as the Fed plots its course.

Deutsche Bank announces writedowns with dividend in peril. Shares of Deutsche Bank fell sharply in after-market trading after the Frankfurt, Germany-based bank announced a writedown that management expects to result in a $7 billion loss for the third quarter. The charges primarily stem from regulatory issues and stand as the first major test of new co-CEO John Cryan since his ascension in July. As the bank considers moves to boost capital, many analysts anticipate that the quarterly dividend will be suspended.

Exports slip in Germany. German trade data for August released on Thursday by Statistiches Bundesamt Deutschland was significantly softer than consensus forecasts, with exports down by 5.02 percent for the month while imports contracted 3.1 percent from July levels. Although exports remained positive from a year-over-year perspective, the monthly measure was the worst in over five years and is particularly worrying given that it reflects thesituation before Volkswagen’s emissions scandal hit automotive shipments.

Volkswagen safety record under scrutiny. As Wolfsburg, Germany-based automotive stalwart Volkswagen continues to cooperate with investigations into emissions software for its diesel vehicles, industry analysts have raised new questions about the company’s safety reporting in the U.S. According to data provided to U.S. government agencies, Volkswagen has reported far fewer deaths and injuries than other major car company operating in the U.S., stirring the interest of regulators and lawmakers.

Brewer mega-merger rhetoric heats up. In public statements Thursday, management at Leuven, Belgium-based Anheuser-Busch InBev accused the board of London’s SABMiller of rejecting the proposed $100 billion merger without “meaningfully engaging” in discussions and despite interest among SAB shareholders. SABMiller’s board issued a statement yesterday saying that the offer, a 44 percent premium to the company’s market capitalization prior to the announcement, substantially undervalued the company.

Blackstone to buy out real estate firm. New York–based alternative asset giant Blackstone Group today announced an agreement to purchase REIT BioMed Realty Trust in an $8 billion transaction that represents a nearly 25 percent premium for BioMed shareholders to prices before deal discussions began. BioMed is a niche San Diego commercial property operator focused on biotech tenants.

Dell, EMC in discussions. Multiple media outlets reported today that Round Rock, Texas–based computer maker Dell is in serious discussions with EMC management over a potential merger in whole or part of the companies’ operations. EMC leadership has been embroiled in a debate with activist hedge fund firm Elliot Management Corp., which has demanded moves that would boost EMC shareholder value. In 2014, Hopkinton, Massachusetts–based EMC held advanced merger discussions with Hewlett-Packard, headquartered in Palo Alto, California.

Portfolio Perspectives: As Earnings Season Begins, Long-Term Trends Remain Bullish

The U.S. shows the clearest and strongest patterns at higher time frames. Europe also shows intact bullish patterns, while recent volatility in Asia has significantly degraded patterns there. We think there is little value in over-analyzing these patterns or in speculating which will carry the day; these are big picture context and the resolution of these patterns will involve forces playing out over multiple quarters. For now, realizing that these bull-market patterns are intact is the first step for analysis.

Adam Grimes is chief investment officer for Waverly Advisors in Pittsford, New York.

Earnings season is about to begin. While there are a lot of things for equity investors to worry about, earnings season shouldn’t be one of them. Our analysis of corporate cash flows indicate that this earnings season should look like those of the last few years, with earnings beating lowered expectations. We arrive at this conclusion by analyzing money flows at corporate tax time, which is the 15th of the last month of a quarter. In the money market, people refer to days such as these as high-volume days.

Brian Reynolds is the chief market strategist for New Albion Partners in New York.

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