More Mergers and Acquisition; Standard Life & Aberdeen

More Mergers and Acquisition; Standard Life & Aberdeen | PSA Group and GM | Deutsche Bank Under Pressure

Mon, Mar 6, 2017

Today is all about mergers and acquisition and this what driving the sentiment. However, European markets are poised to open lower ahead of a busy week which is full of macro events and economic data. After giving her speech on Friday, Janet Yellen’s message will be the last important message coming from the Fed committee until they announce their decision next week. The one report which matters the most for the Fed between now and the time when they will make a decision on a rate hike is the US NFP data which is due on Friday. The forecast is for 190K for jobs and no change in the employment rate is expected. The number which will gain a lot of attention will be the average hourly earnings which is forecast to come in at 0.3%.

On the oil front, the oil market could also see some further volatility on the back of the annual weeklong CERA conference where several OPEC ministers may comment in relation to extending the timeline of their production cut.

Over in Europe, Mario Draghi will be speaking on Thursday and the prediction is that he may not flinch in terms of his original plan when it comes to quantitative easing. The headline inflation which the ECB has used as an excuse to keep the QE going has improved and reached the ECB target of 2% in February. We are also going to get the industrial output data for Germany, France and Italy this week with some of these numbers potentially increasing the pressure on the ECB, but we do anticipate that the bank will keep the QE until the end of this year as the underlying price pressure is still reticent.

Over in the UK, investors are going to look at Phillip Hammond’s upcoming budget. We have heard promises that extra money will be put aside to ward off the effects of Brexit and this will be a key area of focus. The government will have to stay away from borrowing to fund their spending bill especially if it is serious about balancing its budget in the next parliament.

In terms of equity news, Deutsche Bank is going to remain on traders’ dashboards as they try to make sense of company's future. The bank will offer 8 billion euro’s worth of shares and reduce its costs to 22 billion euros by 2018. At the same time, the bank is going to cut its stake in asset management units by focusing more on its core business.

Other major news which came out over the weekend was the takeover of Aberdeen Investment by Standard Life. The firm is currently in talks to buy Aberdeen Investment and the offer is very much in line with Friday's market value of 3.77 billion pounds. The industry has changed remarkably and passive investment managers are a lot cheaper than active managers and it is time to save the ship. The synergy could help in reducing the cost by nearly 200 million pounds a year which is a substantial number.

PSA group is also making a lot of noise this morning after the group has confirmed that it is buying the General Motors Co. Opel unit. The value of the transaction is 2.2 billion euro. This is going to give PSA group a lot more competitive edge in competing not only in their core market, but also in other non-core markets. In these kind of mergers, it is the cost saving which gets a lot of attention among investors and it is expected that this transaction will help to generate a saving of 1.7 billion euro by 2026. BNP Paribas is on the front line financing and the bank will buy 50 percent of this business with a value of 450 million euros. The transaction is a good decision for GM as the firm was losing money and also failed to meet breakeven in 2016and lost nearly $9 billion since 2009.

For the oil market, all eyes are on Libya where production has been impacted heightened tensions between militants and the armed forces. The country has reduced production by 50K b/d. This might come as music to the ears of OPEC and the production could be under further threat if the situation continues to escalate. Despite all of this, we have crude oil trading lower on global growth concernsn. The near term support is at 51.87 and resistance is at 53.87

Naeem Aslam

Chief Market Analyst

Think Markets UK Ltd

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