Global M&A deal rush fades in third quarter as rising borrowing costs bite
M&A activity in Q3 has seen a dramatic decline, totaling $993 billion, a stark 41% drop from Q2. This marks a notable shift in the market as increased borrowing costs hinder corporate deal-making, falling below the $1 trillion mark for the first time in over a year. The decline underscores the tightening financial conditions and could have significant implications for currencies tied to corporate confidence and investment flows. Investors should closely monitor how persistently rising rates affect broader economic sentiment.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). This indicates a divergence in outlooks, as economic pressures from declining M&A activity could impact the euro's stability against the dollar.
How firms align
Goldman anticipates that ongoing economic uncertainties and borrowing costs will lead to weakening euro prospects, aligning with the headline's bearish sentiment. Conversely, BofA holds a more cautious view, expecting the euro to hold steady against USD based on different internal metrics. See our internal reports for detailed assessments from each firm.
What the data shows
Recent forecast revisions indicate a growing consensus among analysts that continued borrowing cost increases may stifle investment and corporate debt, impacting the euro's performance. Insights on recent shifts in M&A trends can be found in our research report /research/ma_trends_2023.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01M&A activity down 41% in Q3 reflects rising borrowing costs.
- 02Key for FX traders: watch EUR/USD reactions to M&A trends.
- 03Investors should consider levels around 1.075 amid uncertainty.
Market implications
Moving forward, traders should watch the EUR/USD closely, particularly any movements around the 1.075 consensus level as it may indicate deeper trends influenced by economic activity. Upcoming Federal Reserve communications on monetary policy will also be crucial.
Risks to this view
This view could be invalidated if there are unexpected shifts in monetary policy that lead to a significant drop in borrowing costs, potentially reviving M&A activity and strengthening the euro versus the dollar, forcing reconsideration of current targets.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.55
Sources & References
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