Weekly View: Trick or Tweet
The Federal Reserve (Fed) delivered a mixed bag of tricks and treats last week. While the US central bank pleased markets by delivering the third consecutive rate cut as expected, it also signalled this was likely to be the last for a while. The Fed now intends to wait for the US consumer – who has stayed resilient so far – to falter before acting further on rates. The worry is that business investment, which fell the most in three years in Q3, will eventually hit the labour market and hurt consumption after it is too late for the Fed to act pre-emptively. However, good US jobs figures on Friday (which would have been higher, but for a strike at General Motors), mean investors seem relaxed about US equities for now, with the S&P 500 ending the week on a fresh high.
From the world’s multinational corporations to its governments and leaders, deal making is in the works. In an industry in much need of consolidation, automobile-maker giants Peugeot and Fiat Chrysler are moving towards a marriage. At the same time, another French industry giant – in this case in luxury – LVHM made a surprise offer for the struggling New York-based jeweller Tiffany’s. It appears that companies with cash on their balance sheets are in the market for new synergies. Meanwhile, Google confirmed its USD2.1bn acquisition of Fitbit on Friday to contend with Apple’s wearable-tech rise. We continue to like event-driven hedge fund strategies, which will benefit from a pickup in M&A activity.
The Q3 earnings season is nearly behind us. US companies have surprised on the upside, albeit from subdued expectations, while European companies disappointed. Of note is the relatively strong performance of some previously neglected value and cyclical stocks versus growth equivalents. We are neutral equities, but nevertheless cautiously optimistic on their near-term prospects as earnings momentum starts to improve (notably in emerging markets), trade noises turn more positive and global liquidity improves again, courtesy of central banks.