Aurelia Butler

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The investment bank notes that M&A activity remains below long-term averages but has shown modest improvement from the lows experienced in early 2023. This uptick is partly attributed to growing confidence that the Federal Reserve may achieve a softer economic landing.Further, the increasing likelihood of interest rate cuts starting in late 2024 and continuing into 2025 has fueled optimism among investors that deal activity could rise as financing conditions become more favorable.In most mergers, the acquiring company typically offers a premium over the target company’s current stock price. While the majority of the price difference (or spread) between the offering price and the current price closes quickly following the announcement, a portion of the premium usually remains, hinging on the successful completion of the merger.According to Wells Fargo, most Merger Arbitrage strategies aim to capture this post-announcement spread.”The primary drivers of these strategies include the size of the residual premium, the time it takes to complete the merger, and the risk that a merger may not be finalized,” strategists said.“Current premiums and the length of time required to close a deal have remained in-line with longer-term averages, yet deal activity has been slow to recover,” they added.They suggest that the current high-interest rate environment, coupled with corporate leaders’ lack of confidence and sluggish economic growth, could be factors contributing to the slow pace of deal activity.”We continue to look for green shoots, and a more accommodative financing environment may be enough to spawn greater levels of activity in the coming quarters,” the note concludes.Fed Chair Jerome Powell signaled on Friday that interest rate cuts are on the horizon, though he refrained from specifying the timing or scale of the reductions.“The time has come for policy to adjust,” Powell stated during his keynote address at the Fed’s annual Jackson Hole conference in Wyoming.“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”As markets looked for clues on future monetary policy, Powell reviewed the factors that led to the Fed’s 11 rate hikes between March 2022 and July 2023. He also acknowledged progress in curbing inflation, indicating the Fed can now give equal attention to maintaining full employment. More

“In June the ECB initiated the easing cycle with a 25bp cut. Our current baseline has the ECB cutting rates twice more in 2024, with 25bp cuts in September and December, and a terminal rate in a landing zone of 2.00-2.50% later in 2025 or early in 2026,” the analysts said. To facilitate quicker and more substantial rate cuts, the ECB needs to navigate several critical conditions.Firstly, the ECB’s ability to cut rates rapidly hinges on its perception of medium-term inflation risks. The ECB is particularly concerned with the possibility of inflation undershooting its 2% target in the medium term. This concern is influenced by various factors, including the risk of a hard-landing for the economy and the stability of inflation expectations. Analysts at Deutsche Bank Research note that while the risk of a hard-landing has increased, it is not yet a foregone conclusion. Weaker labor market conditions and potential fiscal tightening could heighten these risks. Currently, there is some evidence of a softening labor market, with a composite employment PMI falling below 50, yet this has not yet translated into significant job losses or reduced wage pressures. The ECB will need to see clearer indications that labor market weakness is affecting wage growth. Moreover, fiscal policy expectations, including the withdrawal of energy shielding measures and the reactivation of fiscal rules, could further dampen economic recovery, influencing the ECB’s decisions.The ECB’s stance on inflation being transitory or persistent is another crucial factor. The bank initially hiked rates rapidly in response to unexpected inflation, and to reverse course as quickly as it hiked would require a belief that inflation is now transitory. Given that inflation remains above target and there is no immediate sign of a dramatic decrease in inflation metrics, the ECB is unlikely to cut rates as swiftly as it raised them. Deutsche Bank Research flags that current inflation expectations, though slightly lower, are still above levels that would typically prompt significant easing. Without a significant drop in these expectations, the ECB may be hesitant to accelerate rate cuts.The concept of the neutral rate also plays a significant role in the ECB’s policy decisions. When the ECB initially hiked rates in 2022, it aimed to return to a neutral level of about 1.50-2.00%. With current rates at 3.75%, reducing to a neutral level implies further cuts. Analysts suggest that if the ECB identifies the neutral rate as being around 2.00-2.50%, it could justify more rapid rate reductions, particularly if inflation risks diminish. The bank’s previous experience with rapid hikes when rates were far from neutral suggests that it could also cut rates quickly if necessary.Lastly, the current policy stance could be considered counterproductively restrictive, which might prompt faster rate cuts. If financial conditions were to tighten sharply or if credit conditions deteriorated significantly, the ECB might respond more aggressively. However, recent data indicate that financial conditions are not currently tightening in a way that would necessitate immediate action. Analysts at Deutsche Bank observe that while real interest rates have been rising, there is no clear evidence that the current policy stance is excessively restrictive.Deutsche Bank Research suggests that while the market currently anticipates modest rate cuts in September and December, there is room for a more aggressive approach if downside risks become more pronounced. The ECB will remain attentive to evolving data and broader economic conditions. Any shift towards weaker inflation and growth could prompt faster rate reductions. More

Silicon Valley Bank’s (SVB) collapse last year was one of the largest in U.S. banking history and left its joint venture with Shanghai Pudong Development Bank (SPD) – SPD Silicon Valley – in the lurch after no buyers emerged to acquire SVB’s stake.In a statement on Friday, the National Financial Regulatory Administration’s Shanghai branch said it had agreed the bank could adjust its shareholder ratios so that SPD holds 100% of the shares and to adjust down the bank’s registered capital to the equivalent of 1 billion yuan ($141 million) from 2 billion. ($1 = 7.0900 Chinese yuan renminbi) More

BRASILIA (Reuters) – Brazil’s government forecast economic growth of 2.6% and inflation of 3.3% for 2025 in its draft budget proposal for the coming year, which was submitted to Congress late Friday. The proposal projects that the central government — comprising the Treasury, central bank, and social security— will end next year with a zero primary deficit, in line with the official goal of a result equivalent to 0% of gross domestic product (GDP). More

WASHINGTON (Reuters) -The SpaceX Falcon 9 vehicle may return to flight operations while the overall investigation of the anomaly during a recent Starlink mission remains open, the U.S. Federal Aviation Administration said on Friday.SpaceX made the return to flight request for the workhorse vehicle on Thursday and the FAA gave approval on Friday. The agency said flights may resume “provided all other license requirements are met.”On Wednesday, the FAA grounded the Falcon 9 after failing an attempt to land back on Earth during a routine Starlink mission, forcing the company’s second grounding this year.SpaceX’s Falcon 9 successfully launched a batch of Starlink internet satellites into orbit early Wednesday from Florida. The rocket’s reusable first stage booster returned to Earth and attempted to land on a sea-faring barge as usual, but toppled into the ocean after a fiery touchdown.Groundings of Falcon 9, a rocket that much of the Western world relies on to put satellites and humans in space, are rare. The rocket was previously grounded in July for the first time since 2016, following a second-stage failure in space that doomed a batch of Starlink satellites.After the July grounding, SpaceX returned Falcon 9 to flight 15 days later, after the FAA granted the company’s request for an expedited return to flight.Falcon 9 is also due to launch two NASA astronauts in late September on a Crew Dragon spacecraft that will bring home next year the two astronauts who have been stuck on the International Space Station after riding Boeing (NYSE:BA)’s troubled Starliner spacecraft.SpaceX has built a sizable fleet of reusable Falcon boosters since the rocket’s first launch in 2010 that has allowed the company to vastly outpace its rivals in launch frequency.Another Starlink mission was poised for launch shortly after Wednesday’s flight, from SpaceX’s other launch site in southern California, but the company called that mission off after the landing failure. More

NEW YORK/LONDON (Reuters) -Global stocks edged higher in choppy trading on Friday, making it the fourth consecutive month of gains despite a bout of heavy selling in early August, buoyed by U.S. economic data that has helped the dollar snap a weeks-long losing streak.The U.S. personal consumption expenditures (PCE) price index – which is the Federal Reserve’s preferred inflation measure – rose 0.2% in July, according to Commerce Department data released on Friday. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.5% last month, the report showed. The data sets the stage for the Fed to likely begin easing monetary policy from September.The Dow Jones Industrial Average finished up 0.55% to 41,563.08, reaching the second consecutive record high close. Benchmark S&P 500 gained 1.01% to 5,648.40 and the Nasdaq Composite gained 1.13% to 17,713.62. For the month, the Dow finished up 1.8%, S&P 500 added 2.3%, and the Nasdaq gained 0.6%.Europe’s Stoxx index closed up 0.09% after touching a record intraday high while Britain’s FTSE 100 eased 0.04%. MSCI’s world share index rose 0.77%, making it a 2.40% monthly gain.The stunning recovery from an early August sell-off reminiscent of October 1987’s “Black Monday” came as traders priced a so-called Goldilocks scenario, in which the U.S. economy keeps growing but not so much as to prevent interest rate cuts. Money markets are confidently pricing the Fed’s first 25 basis point cut of this cycle at its September meeting, with a 33% chance of a jumbo 50 bp reduction. The U.S. economy grew faster than initially thought in the second quarter of this year because of strong consumer spending, and corporate profits, a report on Thursday showed.”The last few days we’ve started out a little stronger and then drifted during the day and in many cases closed either break even or slightly positive or slightly negative,” said Tom Plumb, chief executive and portfolio manager at Plumb Funds.”I think that is a sign of a cycle where you start to see people transition to a different environment and it’s not positive for the past leaders,” he added, referring to the so-called “Magnificent 7″ tech stocks that were at the forefront of this year’s stock market rally. Government bonds rallied in early August after a weaker-than-expected U.S. jobs report and a surprise Bank of Japan rate hike wreaked chaos in currency carry trades and drove heavy selling of risky assets. The yield on benchmark U.S. 10-year notes, which moves inversely to prices, rose 4.2 basis points on Friday to 3.909%. The 2-year note yield, which typically moves in step with interest rate expectations, rose 2.4 basis points to 3.9165%.”As we’re starting to lay out what our expectations are for an environment with lower interest rates, at least lower short term rates… we’re already starting to see a change in the shape of the yield curve, which impacts the bond market but also the stock market,” Plumb added.EURO FLATThe dollar steadied near a one-week high versus a basket of other major currencies, on track to snap a five-week losing streak although still heading for around a 2.5% monthly loss. Against the yen, the dollar stood at 146.14, set to lose more than 2.5% for the month, as pressure eased on the Japanese currency on the prospect of narrowing interest rate differentials.Core inflation in Japan’s capital Tokyo accelerated for a fourth straight month in August, data showed on Friday, with the 2.4% price increase signalling further BoJ rate hikes ahead. The euro was down 0.2% at $1.105, having declined on Thursday after softer-than-expected German inflation data increased bets on further European Central Bank rate cuts. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.48% and ended the month 2% higher. Japan’s Nikkei, following its early August collapse, was down 1.16% for the month after rising 0.74% on Friday. Oil prices fell. Brent crude futures for October delivery, which expire on Friday, settled 1.43% at $78.80 a barrel, marking a decline of 0.3% for the week and 2.4% for the month. U.S. West Texas Intermediate crude futures settled down 3.11% to $73.55, a drop of 1.7% in the week and a 3.6% decline in August.Gold prices weakened but looking at a 2.8% monthly gain. Spot gold lost 0.74% to $2,502.44 an ounce. U.S. gold futures settled 1.3% lower at $2,527.6 [GOL/] More