Global Weekly: Central banks in the spotlight

News item -

All eyes were on central banks this week, as central bankers in both the US and Europe gathered for important policy meetings. In the US, the Federal Reserve announced a rate hike – the second for this year, stating that the current labour environment had improved and reached satisfying levels, while core inflation was now slightly above the 2% objective.

What was not expected by many was the change in the so-called ‘dot plot’. The dot plot is a chart issued each quarter by the Fed, reflecting its policymakers’ assessments of appropriate future rate levels. In other words, this chart gives investors a good sense of future decisions to be taken by the voting members. Based on the newest dot plot, we can now expect 4 rate hikes this year – 2 more to go then – instead of 3, as previously expected. This news had some negative impact on equity markets: equity indices traded lower and, more importantly, volatility spiked. Bond markets, however, remained calm.

In Europe, decisions made by the ECB were more definite than expected. Indeed, the central bank announced to stop its asset purchase programme by the end of this year. After the summer, the amount of monthly bond purchases will be halved – followed by the end of the programme in December. The news was well received by bond investors throughout the eurozone, with yields decreasing by almost 10 basis points in Germany, as well as in France.

Equities – the Netflix Effect: a changing media landscape

The relatively positive momentum for equities faded this week when the US Federal Reserve revised its interest rates expectations upward. Both European and US indices ended the week flat. China’s Hang Seng Index, by contrast, declined by almost 2%. Ahead of the second-quarter earnings season, which starts in July, markets will most likely be driven by geopolitical and macro-economic news.

In terms of company news, the initial public offering (IPO) of Dutch fintech corporation Adyen drew investors’ attention this week. Adyen offers a platform that processes online payments. The company already has a rich client base. Technology giants like Uber, Spotify and Netflix are among Adyen’s clients. The IPO price was set at EUR 240 per share. During the first day of trading, however, shares traded hands at prices of more than EUR 500.

More company news came from the media sector. Twenty-First Century Fox received an unsolicited bid from Comcast this week. After Twenty-First Century Fox communicated the offer to the market, its share price soared by more than 7%. Comcast offers USD 35 per share in cash. Not only is the bid higher than Disney’s earlier offer. It is also more valuable to Twenty-First Century Fox shareholders: Comcast’s bid represents an all-cash offer, whereas Disney proposed to pay in Walt Disney Corp shares. More consolidation in the media sector is expected, in reaction to the growing dominance of Netflix. Through consolidation, media companies aim to lower their costs and improve their product offering. Here, it’s interesting to mention that AT&T this week received approval for its merger with Time Warner. A federal judge ruled in favour of the deal, providing a setback to anti-trust complaints brought forward by the US government. Anti-trust officials at the US Justice Department had argued that the acquisition would lead to price increases. The judge, however, ruled otherwise – thereby paving the way for other mergers and acquisitions in the sector.