There used to be a bon-mot which said that when General Motors sneezes, America catches a cold. Now it appears to be that when the Fed puts its hand in its pocket in search of a handkerchief, European equities die of pneumonia.
Monday saw US equity markets as good as unchanged – the Dow was off by only 8.01 points or 0.05%, the S&P by 4.28 points or 0.21% and the Nasdaq by 3.78 points or 0.08% while European markets took yet another substantial drubbing.
All the while it was the UK equity market, the one which is supposed to be spooked by the uncertainty of the Brexit referendum, which looked best as it lost a mere 0.32% as opposed to its big European peers, which had a horrid day.
The CaC was off 0.66%, the Dax 0.74% and the MIB, already very much the sick man of Europe, took another pounding in shedding 487.27 points or 2.74%. As at close of business last night the MIB had lost 19.11% year to date and 27.15% over the past 12 months. In a word, European equity markets are horrid.
One would have expected something better on the back of Bayer’s bold US$62bn move on Monsanto but the markets’ response was akin to that of The Hitchhikers’ Guide to the Galaxy’s Marvin, the paranoid android, and his famous line: “I think you ought to know I feel depressed.” Or maybe, “Incredible… it’s even worse than I thought it would be”.
Bayer opened down 3.22% and closed down 5.19% at €84.82, its worst level since September 2013. Doubters would point to the decline in the share price from over €145 in April last year to the pre-announcement level of €89.54 as at Friday night and would be prone to claim that a failing management is looking to cover its unimpressive tracks with the white noise of a merger, which might, one way or the other, struggle to get regulatory approval.
Anyhow, it was broadly felt by industry specialists that its US$122 per share offer would go nowhere – Barron’s referred to it as “An offer you can refuse” – and that at anything below US$149 per share, based on the multiple applied in the ChemChina/Syngenta deal, it doesn’t make sense.
That is 20% higher than the offer on the table and one which might be outside of Bayer’s reach.
The debt ratings implications of even higher leverage on the balance sheet and the consequent extra cost could move the economic dynamics beyond them making sense.
Monsanto’s share price rose just over 4%, but not above US$106, which gives a good idea of what the Americans thought of Bayer’s chances of getting the deal done.
Personally, I found Bayer’s cheek thoroughly refreshing. It doesn’t often happen that a European company makes an unsolicited bid for a US icon and on the back of all the rather sordid tax trades which have seen dozens of American companies back themselves into European ones in order to achieve nothing more than tax inversions this looks like a proper, red-blooded takeover bid. Succeed or fail, I’d like to raise three cheers to Bayer’s management.
Information overload?
Under normal circumstances one would expect to see stock markets rally the moment they smell the blood of a new wave of mergers, but yesterday absolutely nothing happened. Is this a function of investors very clearly placing a higher priority of repricing markets ahead of an inevitable Fed tightening or is it just the blind leading the blind?
Money managers would appear to still feel uncomfortable with the shifting dynamics, which are most likely the result of too much information rather than too little.
No one knows any longer which way to look first so even events such as the Bayer bid, which in the past would have set the scene for the day and possibly even for a few more to come, has been swamped by everything from the Fed’s intentions to the price of cheese.
That said, at least the Austrian market had the decency to rally a bit, albeit by a modest 0.55%, after it was revealed the FPOe candidate for the Presidency, Norbert Hofer, had been defeated by the narrowest of margins.
Alexander Van der Bellen prevailed but it was a very close run thing. 31,000 votes out of 4.5m is as near to a dead heat as one can get.
What is worrying for liberal thinkers is the number of people who did not vote for Hofer in the first round but who did in the second.
There was no sign of anything to compare with the “Anything but Le Pen” vote we saw in France. This is another case which should not be met with triumphalism but with the European mainstream asking itself where it has a) gone wrong and b) what it could or should be doing to stop the rot.
The next episode is already upon us with Greece standing, cap in hand, ready to collect the next pile of bail-out funds.
Athens has done everything it has been asked to do or, at least, it has done so on paper. Raising taxes is fine and dandy but that is not Athens’ problem; it is collecting them.
At the end of the day debt relief is the only solution other than formal default, while Germany is still trying to find out what the difference is.
The rhetoric surrounding the fiscal and financial stresses in southern Europe, the garlic belt, has changed more than the underlying facts. Dave “You may now call me David again” Cameron deserves to be awarded the Grand Medal of Europe with Oak Clusters for having so successfully diverted attention away from the real and deep-seated problems still facing the continent’s southern fringes.