Chinese Puzzles

Equity markets were, as predicted, boosted by the report in the weekend press that Pfizer had approached Astra Zeneca for a possible take over. The FTSE 100 climbing back at one stage to 6700, the S&P 500 once again within touching distance of its all time high of 1890.90, reached a few weeks ago. 

Deals in the pharmaceutical sector were rife on Tuesday morning as Glaxo agreed a $16bn deal with Novartis. Drug makers announced deals that totalled nearly $30bn. The slue of deals that continue to be declared leads one to believe that companies are either feeling more confident on the economic outlook or are wanting to take advantage of the cheap funding rates whilst they last. More than likely it is a combination of both those views. 

There has been an undoubted pick up in deal activity even before today’s pharma spike, which ultimately leads to speculation that this is another sign of stock market froth. BCA Research address this point in Tuesday’s daily insight, and conclude that despite recent headlines, M&A activity is still fairly subdued relative to past economic recoveries, and is far from levels that have corresponded to past equity peaks. 

There will be plenty for the markets to focus on in the next few days, as it is a busy week for earnings and macroeconomic reports. Over 150 companies in the S&P 500 report this week; in Europe over 50 companies in the Stoxx 600 report. 

On the macro front, China will get some focus as we see the result of the latest HSBC manufacturing flash Purchasing Managers Index first thing on Wednesday morning. Expectations are for a slightly higher number than the 48 announced in last months report, but to remain below 50; the number that analysts consider the difference between an expanding and contracting economy. 

President Obama starts an eight-day tour of Asia, at a time when tensions between Japan and China seem to be rising. A Chinese court ordered the seizure of a Japanese cargo ship over legal claims relating to the Second World War. This latest dispute comes on the back of the disagreement over a string of islands in the East China Sea.

Posted on April 23, 2014 .