The FTSE 100 suffered most on a day when equity markets paused for breath after failing to push on at the end of last week. The FTSE 100 appears to continue to struggle to get through its historic high, once again retreating just as it reaches the summit. The catalyst on Monday was Tesco's third profit warning in a year as it announced that it had to restate its last reported profits by a further £250 million. The new chief executive is having a baptism of fire, but one would like to hope that he would use this latest event to clear the decks and start to develop a strategy to return Tesco to a more reassured footing. One has to wonder with sales of over £1bn a year if Tesco's who have been long considered a predator, may itself soon become vulnerable.
Investment bankers across the globe must be enjoying a lucrative spell, if becoming a little distant from their families. Corporate activity continues apace as the total value of deals in the calendar year now totals $1.25tn, with three months of the year still to go. SAP’s $8 billion bid last week seems to spur on two other German giants on Monday. Merck, the German pharmaceutical company, has offered $17bn for life science group Sigma-Aldridge, and Siemens offered $8bn for Dresser-Rand, a US maker of oil kit that had already been attracting the attention of suitors.
As the dust settles on the listing of Alibaba last week, equity investors continue to be offered opportunities to reinvest the cash they are receiving from the stream of mergers and takeovers. This week alone will see another $5bn of new equity listings. .
It is often considered a warning signal that euphoria is entering into equity markets when corporate activity picks up, but one has to put this current spell into context. For several years post the fallout from the 2007 credit crunch initial public offerings and corporate activity dried up, and so there must be a certain element of catch up going on. Whilst a corporate can fund deals at these historic low rates and banks can find suitable takers for the resulting debt one has to assume the recent spate of swapping debt for equity could continue for a while yet.