The sentiment of the week seems to be a positive one as news of growth fills the headlines. Australia’s economy celebrates 25 years of growth while the Eurozone experiences mild growth, and the chemicals subsector sees chaw dropping deals. Read more in this edition of Steady Investor’s Week:
Weak Growth, But Still Growth in the Eurozone – GDP growth in the EU came in at just +0.3% for Q2, which equates to no change from the initial figure released in July. Weak as it is, +0.3% for Q2 is a slowdown from Q1 growth which came in at +0.5%. This has been par-for-the-course for the Eurozone throughout this business cycle – middling and uninspiring growth. But if there’s a good sign to be seen here, it’s that there was no pause in growth as a result of the Brexit vote.
G20 Promises: Don’t Read Too Much into Them – anytime the G20 leaders meet, there always seems to be some vote of confidence or another type of positive rhetoric that emerges from the meeting. This time was no different. In a joint statement, the leaders declared that they would use all tools necessary in “monetary, fiscal and structural – individually and collectively to achieve our goal of strong, sustainable, balanced and inclusive growth.” Perhaps in light of issues with corporations’ off-shoring profits to countries like Ireland (Apple Inc.), it was also a stated goal to work towards “international tax cooperation, a transparent financial system, environmentally sustainable growth strategies, and opposition to protectionism on trade and investment in all its forms.” Often these G20 meetings amount to little more than just talk, but when it comes to taxes, these leaders may actually mean business.
Big Chemical = Huge Deals – the Chemicals subsector has quietly seen some big action this year, in eye-popping deal sizes that show a scramble to be the biggest. Just this week, Bayer raised its offer for Monsanto to $127.50 a share, which is substantially higher than the $122/share it offered at the beginning of summer. Should the deal go through, it would register as the largest all-cash deal in history, worth a whopping $65 billion. Overseas, chemicals companies have already been busy buying, and that is perhaps the driving reason behind Bayer’s apparent sense of urgency. ChemChina bought Syngenta for a cost of $43 billion, which would make it the world’s largest supplier of pesticides and agrochemicals. Meanwhile back in this country, Dow Chemical and DuPont are sorting through a merger worth some $130 billion. In the Chemicals space, it’s survival of the biggest.
25 Years of Growth – remarkably, there hasn’t been a “recession down under” in 25 years. Indeed, Australia has gone 100 quarters without two of them being negative back to back, in a testament to the diversity of its economy. Q2 GDP growth came in at 0.5%. Congrats, Aussies!
SF Fed President Echoes Our Sentiment – we often cite the San Francisco Fed in our “Stock Market Outlooks” (which are available for free download), in part because we’ve found their views to be generally insightful and consistent with our own. We received further affirmation of that this week, when San Francisco Fed President John Williams stated that “it makes sense to return to a pace of gradual rate increases, preferably sooner rather than later.” He referred to the economy as being in good shape and also expected the labor markets to firm up even further than where they are now, with unemployment in his view falling as low as 4.5% next year. Perhaps living in San Francisco gives him a rosy bias, what with the tech sectors’ blistering pace of growth.
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