From Corporate Simplification to Recovering Growth: Europe's Business Environment
Lead — Analyzing the growing optimism in Europe's corporate landscape, the desk underscores that heightened CEO confidence and an eagerness for strategic transactions are indicative of a recovering growth phase, per the full note source. As highlighted by Goldman Sachs, strong economic data from the U.S. and improving conditions across Europe are fostering an environment ripe for mergers and acquisitions. The commentary points out that despite distractions from global trade tensions and tech scrutiny, the overall sentiment remains robust, creating a fertile ground for investment opportunities. As such, market participants should consider this backdrop when evaluating the EUR's position against major currencies, particularly against the dollar as U.S. growth remains a focal point.
What the desk is arguing
The desk frames this as a significant moment for European businesses, buoyed by a solid recovery in CEO confidence and a macroeconomic environment that encourages mergers and acquisitions. As Marc Nachmann of Goldman Sachs notes, the combination of strong U.S. GDP growth and a positive consumer landscape across Europe suggests that businesses are actively pursuing strategic deals.
Furthermore, Nachmann emphasizes that the simplification of corporate structures is indicative of a broader trend as firms adapt to these conducive conditions, which could increase M&A activity. The robust sentiment reflects a major shift in how companies are gearing up for future growth, signifying a more positive business climate.
Where it sits in our coverage
Our consensus target for the EUR/USD pair stands at 1.075, with estimates from key firms suggesting varying perspectives: - JPMorgan: Target 1.10 (Mar26) - BofA: Target 1.04 (Mar26)
This optimistic outlook aligns with JPMorgan's higher target, implying that the desk's readiness to embrace the upside is prevalent among forecasters, while BofA represents a more cautious stance at the lower end of the range.
How other firms see it
Firms like JPMorgan and others are aligned with this positive sentiment, seeing potential for stronger growth in Europe following the recent recovery. Conversely, BofA maintains a more bearish outlook, reflecting concerns about the sustainability of this growth trajectory amidst ongoing trade tensions.
Watch the EUR/USD trajectory as it interplays with broader macro indicators, including sentiment and policy shifts from central banks, notably the ECB and the Fed.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Increased CEO confidence is driving interest in M&A across Europe.
- 02The global economic backdrop remains supportive, particularly from strong U.S. growth.
- 03Corporate simplification is a strategic response to evolving market conditions.
- 04The EUR/USD pair could see upward pressure as these trends unfold.
Market implications
Market participants should closely monitor the EUR/USD pair as corporate sentiment improves, potentially leading to a breakout above 1.075. Watch for shifts in M&A activity and leadership changes that could influence market dynamics in the near term.
Risks to this view
A resurgence in trade tensions or disappointing economic data from either the U.S. or Europe could dampen the bullish sentiment and force a reassessment of growth forecasts. Should confidence wane significantly, a return to lower trading levels in the EUR/USD could be anticipated.
Europe's business environment is in focus as companies simplify their corporate structure, global trade tensions continue and the tech industry faces increased scrutiny. Marc Nachmann, co-head of the Goldman Sachs Investment Banking Division, joins us to talk through how these factors and more are shaping business decisions and M&A in Europe. "CEO confidence remains quite strong in light of strong U.S. GDP growth, European growth recovering, and a pretty good consumer environment almost everywhere," Nachmann says. "So business environment is pretty good, confidence is high, and as a result, everybody's pretty open-minded to consider strategic transactions." This podcast was recorded on August 2, 2018.
The information contained in this recording was obtained from publicly available sources and has not been independently verified by Goldman Sachs. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, as to the accuracy or completeness of the information contained in this recording and any liability as a result of this recording is expressly disclaimed. The recording should not be relied upon to evaluate any potential transaction.
Goldman Sachs is not giving investment advice by means of this recording, and this recording does not establish a client relationship with Goldman Sachs. Copyright 2018 Goldman Sachs & Co. LLC.
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