We start the new week with lots of hype about two major M&A deals. The merger between mining giants Glencore and Xstrata looks set to be going ahead, with latest reports suggesting that a final deal was hammered out over the weekend. It appears Xstrata’s board will be able to retain key management and staff within the company, a major sticking point in the deal. In contrast, the tie-up between BAE and EADS is far from over. Complications with the Pentagon’s contract with BAE could see the merger being dropped. It didn’t help that the CEOs of BAE and EADS, Ian King and Tom Enders, said in a joint article in the Financial Times that the merger was an “opportunity” and “not a neccessity” – code for: this probably won’t work out.
Looking ahead to today, there is a slew of manufacturing data to watch out for starting with US ISM manufacturing index and German PMI data. Federal Reserve chairman Ben Bernanke is also due to speak later in the day.
US ISM Manufacturing Index (14:00 GMT) Manufacturing output in the US is expected to be little changed in September, after the index slipped to 49.6 from 49.8 in August. Analysts forecast the index coming in at anywhere between 49.5 and 49.8 this month. The manufacturing index had looked set to return to a neutral 50 points in August, but a decline in the production index to 47.2 from 51.3 in July and a drop in new orders, which also moved to 47.1 from 48.0, meant manufacturing actually contracted further. Meanwhile, regional surveys show the outlook in manufacturing continues to be grim, with the Texas and New York activity indicies both pointing to a contraction in September.
German Manufacturing PMI (07:55 GMT) The decline in manufacturing production in Germany is expected to slow for a second straight month in September. The flash PMI measure rose to 47.3 for the month from 44.7 in August. Research firm Markit said a near stagnation in business activity and backlog of work was behind the poor production levels. Meanwhile, the latest manufacturing data out of Italy, Europe’s third largest economy, is also set to improve in September. Analysts forecast the PMI manufacturing index for the country to rise from 43.6 to 44 in September, although this continues to indicate a contraction in output.
Bernanke speech (16:30 GMT) Fed Chairman Ben Bernanke will be giving a speech on monetary policy at the Economic Club of Indiana in Indianapolis today, where he is expected to outline in more detail the Fed’s new plans to provide unlimited quantitative easing. After Philadelphia Federal Reserve President Charles Plosser’s attack on the Fed last week, Bernanke is expected to discuss the justification behind the move and how it will help give the economy a lift. I think many people are still surprised by the Fed’s decision to go for all out QE as the risks to growth were not as unevenly balanced as in previous cases. His comments may also address current fears over the US fiscal cliff, which continues to be a destabilising factor in markets.
Yusuf Yassin,
SAXO BANK