Investor sentiment in U.S. and European equity markets has been dominated by central bank policy for years. In the U.S., aggressive buyback programs also have played into this. In recent months, however, that dynamic has begun to shift as the pace of announcements of major mergers and acquisitions has picked up dramatically and spread beyond the health care and pharmaceutical sectors, which saw rapid consolidation last year. With the rate of institutional money flowing into structured credit funds continuing to remain strong, the corporate war chests for more buyouts suggest more deals are on the way in the near and intermediate term.
European data suggest more work ahead for ECB. March consumer inflation data for the euro zone, released today, continues to signal deflationary pressures despite a marginal improvement over February for the headline index at a contraction of 0.1 percent year-over-year versus a prior 0.3 percent drop. Core levels registered a gain of 0.6 percent versus March of last year, softer than February’s level. Separately, Eurostat released unemployment data for the unified currency region with the headline rate for February falling to 11.2 percent, an improvement that remained higher than consensus forecasts.
Philips sells lighting unit. Royal Philips today announced an agreement to sell a majority interest in its Lumileds lighting components unit to a group of investors as the Amsterdam–based conglomerate refocuses on its health care franchise. The deal is valued at $2.8 billion. The buyers, a consortium of private equity investors led by GO Scale Capital, outbid a rival team headed by KKR & Co.
German unemployment at an all-time low. At 6.4 percent, Germany’s headline unemployment rate reached a record low in March according to data issued by the Federal Labor Agency today. Workers in Italy are not faring as well: February figures released today showed a rise in the jobless 12.7 percent, higher than consensus forecasts.
Luxury fashion retail merger unveiled. In an all-stock merger that is to create the world’s largest online luxury store, today Italian online fashion retailer YOOX agreed to buy London–based rival Net-a-Porter from its Swiss parent holding company Compagnie Financiere Richemont. The combined company, to be called Yoox Net-a-Porter Group, had combined net revenues of roughly $1.3 billion in 2014 and will execute a secondary offering to raise capital for expansion, according to the announcement.
U.K. GDP improves. Final GDP data for the final three months of 2014 was released in the U.K. today, with the headline growth rate improving slightly to 0.6 percent quarter-over-quarter, bringing the rate for the total year to 3 percent and beating consensus expectations. Critically, the business investment component was revised higher after a lackluster showing for the third quarter of 2014.
U.S. housing and consumer confidence data on deck. Two significant economic data points will be released this morning in the U.S.: Case-Shiller home price index levels for January are expected to continue to improve modestly and extend the upward trend following year-over-year lows reached in November of last year. Separately, Conference Board consumer confidence data for March will be released with expectations for a marginal decline in the headline index after February’s sharp drop from the multi-year high reached in the first month of the year.
Portfolio Perspective: What Happens when Central Banks Run Out of Ammo? — Robert Savage, CCTrack Solutions
The search for another set of tools besides monetary policy is likely underway in Japan. Prime Minister Shinzo Abe and his room for more fiscal stimulus highlights the country’s debt-to-GDP problems. The Bank of Japan’s buying of Japanese Government Bonds has its own set of problems as they are bigger than the market — holding 40 percent of issuance.
The key issue for Japan, perhaps the U.S. and clearly Europe is what happens when the inventory and other cycles of the business world play out against a central bank limited in its response tool kit. The Bank of Japan seems to be approaching that limit. The foreign-exchange adjustment has already happened but perhaps that is what is most likely to be used going forward.
Robert Savage is the CEO of CCTrack Solutions, a New York–based hedge fund firm. CCTrack is backed by Citic Capital Holdings, which in turn is backed by the sovereign wealth funds of China and Qatar.
