U.S. News

Preview: M&A Surge to Continue, U.S. Economy in Focus

Robin Knight

The current trend of heavy M&A activity shows little sign of abating and investors could be set for another week of deals dominated by private equity groups. Last week saw bid approaches for Spanish airline Iberia, British drug retailer Alliance Boots and publicly traded British hedge fund Man Group.

Aside from the corporate deals, concerns about the state of the subprime lending market denting U.S. consumer confidence is also likely to influence next week’s European market movements along with continuing concern at strained diplomatic tensions between Iran and the U.K. over the capture of British services personnel, and its effect on the price of oil.

“M&A looks set to continue in Europe because interest rates are still low and people have to close deals before they increase,” said Bruno Verstraete, CEO of Nautilus Invest, to CNBC.com.

The Bank of England is due to announce its interest rate decision Thursday. 11 out of 60 analysts polled by Reuters predicted a 25 basis point hike to 5.5%, leaving the majority expecting the central bank to remain on hold.

IT companies in the S&P 500 could be involved in M&A, according to Verstraete, because they have an average of 26% cash on their balance sheets compared to an average of 8% for the S&P 500 overall.

The strength of the yen will also be a good indicator for the markets at the start of next week, according to Verstraete.

“It’s estimated that there is $4.5 billion in speculative positions, of that 60% is borrowed money and 90% of that is in yen.”

Tata Steel's acquisition of Corus Group is expected to become effective Monday. Corus shareholders voted to accept the $11.3 billion offer which saw Britain's largest steelmaker leave the FTSE-100.

Full year earnings are expected early next week from Germany’s Praktiker, Switzerland’s Rothschild, France’s Scor and the U.K.’s Christie Group.

Purchasing Managers Index data is due from France, Germany, Italy, U.K., Switzerland and Turkey next week.

In the U.S. Thursday will be a big day for retail with the likes of Wal-Mart, Cost Co and Ann Taylor reporting their same store sales – giving traders a clear indication of the strength of the U.S. consumer.