Geopolitics hurt stocks
News out of Asia including a lower economic growth target in China and North Korea firing a missile off the coast of Japan put European stocks on the back foot. Political and corporate developments on the continent itself meant shares never quite bounced back.
The announcement from Alain Juppe that he won’t run for President in France leaves Francoise Fillon as the mainstream conservative candidate. Fillon’s tainted campaign plays right into the hands of far-right candidate Marine Le Pen. Anything that help’s Le Pen’s chance of being President doesn’t help French stocks or the euro, which duly fell on the news.
Stocks in the US opened lower to setup what could be a third straight losing day for the first time in a month. President Trump switching gears from a conciliatory speech to accusing Barack Obama of wiretapping unwinds some of the cross-party good feelings that could have helped pass tax and spending reform policies. The dramatic improvement in the odds of a March rate hike has caused no big fallout in markets, but it’s no coincidence we’re seeing the biggest pullback for stocks in over a month.
Banks suffer on DB rights issue
Shares of Deutsche Bank (DE:DBKGn) led European banking stocks lower after it announced it would be raising capital to the tune of €8bn. It marks about a year since Deutsche Bank was in the middle of a crisis of confidence after reporting a huge loss in 2015. At the time CEO John Cryan denied that the lower profitability would lead to a rights issue. Investors have long been calling for European banks to do the heavy lifting of raising capital and reducing non-performing loan portfolios. European bank chiefs appear to think the improved confidence in the banking sector since the US election is an opportune time to begin much-needed reforms.
Aberdeen Asset Management merger
Shares of Aberdeen Asset Management PLC (LON:ADN) and Standard Life PLC (LON:SL) rose on Monday after the companies confirmed they had agreed to merge. Active Management will have its time again in the sun when market volatility increases and correlations drop. Until then, Aberdeen AM and Standard Life will be better positioned to take on the passive management competition from the likes of BlackRock and Vanguard as one company. It’s a pretty minimal premium for Aberdeen shareholders, and little reward for holding into the investment after 15 months of outflows.
PSA in the Vauxhall driver’s seat
The prospect of £1.7bn in savings for Opel/Vauxhall under the roof of PSA has seen shares of Peugeot SA (LON:0NQ9) and General Motors Company (NYSE:GM) jump. Markets know that when PSA CEO Carlos Tavares talks about synergies, he means job cuts. PSA were likely in the “driver’s seat” in negotiations since after a decade and a half of losses, GM clearly wanted to get shot of Opel and Vauxhall. Through the Opel brands, PSA have a new opportunity for expansion in China, where French car brands have not been so popular.
For the moment, PSA will pay GM for intellectual property, meaning car-buyers can expect to be buying GM standards for the next few years. Eventually Vauxhall will morph into Peugeot so a big question longer term will be how many Vauxhall drivers stay loyal. From a GM shareholder perspective it’s pretty cut and dry; the deal removes a loss-making division from the balance sheet and the proceeds will directly line their pockets via share repurchases.