M&A activities drove equities, focus shifts to earnings

25 October, 2016

Equity markets began the week on a positive note with M&A activities, positive earnings, and better than expected manufacturing data from the Eurozone and U.S. all boosting appetite to risk.

The merger between AT&T and Time Warner was the biggest announced deal, but both companies’ stocks trader lower on Monday as Democratic and Republican presidential candidates expressed concerns. The aim of transforming the second largest U.S. telecom company to a media and entertainment conglomerate hinges on the Federal Communications Commission’s approval which seems to be a very complicated process.

U.S. regulators are not the only ones seeming tough on M&A activities, but also in Europe where Syngenta shares fell more than 9% yesterday after the EU commission said that Chinese ChemChina has not offered concessions over its $43 billion bid, which will likely delay the process up to five months according to the Commission’s spokesman.

Equity bulls would need positive earnings to resume this week and for the tech sector to take the lead from the financials with the two largest publicly traded companies, Apple and Alphabet to announce results.

Currency markets resumed their range bound trading on Tuesday, with the dollar remaining at 9-month high, and 1.7% far from its 13-year peak. The Euro traded slightly lower as traders ignored positive PMI reports yesterday which showed that the Eurozone economy had expanded at the strongest pace this year, as it seems monetary policy divergence remains the number one factor impacting currency moves. Markets are increasing their bets on a December Fed rate hike, and the closer we get to the FOMC’s December meeting, the higher the probability will go, and this is likely to continue supporting the dollar. Markets are currently pricing a 74% chance for a December hike.

Of course a stronger dollar is not good news for oil prices, however this wasn’t the main driver of crude. Comments from Iraq’s oil minister that his country should be exempted from the output curbs, brings the question who else would request the same? We think oil prices will remain volatile in the next couple of weeks but within limited ranges until we get more clarity on November 30 when OPEC delivers its plan.  

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