Top of the Morning: CEO Macro Briefing Book - Insights for Dealmakers
The desk believes ongoing deal-making momentum, supported by recent macro insights from UBS, will positively influence market sentiments in the foreign exchange rate space. Per the full note source, a resurgence in M&A activity, spurred by lower rates and technological advancements, suggests a robust outlook for select currencies, particularly aligned with economic growth. UBS forecasts a stabilized M&A landscape moving forward, positively impacting risk sentiment and consequently currency valuations. With no high-impact events scheduled in the next month, traders should focus on macroeconomic data and M&A announcements for market direction.
What the desk is arguing
The desk posits that the current momentum in deal-making could act as a catalyst for appreciation in selected currencies, reflecting broader economic recovery. Per the full note source, the resurgence of M&A activity, especially post-pandemic and against a backdrop of lowered interest rates, underscores a potentially fertile ground for exciting currency movements.
Recent trends show that M&A activity is rebounding, as it approached nearly $3 trillion globally in 2021 before declining following the rate hikes in 2022. Now, momentum in this area appears to be picking up again, potentially influencing related currencies positively.
Where it sits in our coverage
Our consensus target for USD/EUR remains at 1.075, with a range set between 1.04 and 1.12. Key firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's call for continued positive momentum aligns with jpmorgan, which forecasts a stronger dollar throughout its anticipated timeframe. However, this position sits on the upper end of the current spread, indicating varying convictions amongst firms on future pricing.
How other firms see it
Generally, firms like jpmorgan are aligned with this optimistic outlook regarding a rebound in M&A activity, which could spur currency movements. Conversely, firms like bofa maintain a more cautious stance, reflecting skepticism about sustained currency valuations amidst broader economic uncertainties.
This discussion intersects notably with the EUR/USD trajectory and ongoing monetary policy considerations from central banks, illuminating the delicate balance of risk and opportunity in current forex landscapes.
01Ongoing momentum in deal-making may positively influence currency valuations.
02M&A activity rebounded after a downturn following pandemic-related economic shocks.
03No major economic events are scheduled that could disrupt the current forex landscape.
Market implications
Traders should monitor any announcements around M&A activity or technological advances that could sway market sentiment. Key levels to watch are the upper boundary at 1.075, along with references from firms' insights that could signify movements in USD and EUR trades.
Risks to this view
The call may be invalidated by a major shift in central bank policy or an unexpected downturn in economic sentiment, particularly if inflation concerns lead to aggressive tightening measures, dampening deal-making activity and market confidence.
ubs
Hi everyone, Dan Cassidy here. Welcome back to Top of the Morning on the UBS Market Moves podcast channel. Joining me here for the conversation today, glad to welcome back asset allocation strategist for the Americas from the UBS Chief Investment Office, Paul Hsiao.
Paul is joining us to provide some highlights from the latest CEO macro briefing book. This is an ongoing series, which Paul has covered on this podcast quite a few times in recent years. So with that, Paul, thank you for dropping by today to talk about the latest with our listeners and our clients.
Great to have you back. Great to be here. Thanks, Dan, for having me.
Absolutely. And I do upfront want to point out to you, our listeners, and especially our clients of UBS. As mentioned, the latest CEO macro briefing book is now available.
So for clients, please reach out to your UBS financial advisor to receive a copy directly, or you may locate the piece up on UBS.com slash CIO. Though let's dive into it, Paul. I know back in 2025, we talked about how dealmaking at the time had picked up.
What have you been picking up on here in 2026? Is the momentum continuing? Can it continue?
Yeah, I think it can. So if we're putting 2025 in the context of the cycle, so M&A has been running at a decent clip in the years leading up to the pandemic, averaging around, I'd say, around $2 trillion globally from 2015 to 2019. And then the pandemic happened, obviously, in 2020.
There's a great shock to the economy and financial system. M&A went down. But then with ultra low rates in 2021 and 2022, we had 2021 nearing $3 trillion global worth of M&A.
And then since then, after the rate hikes in 2022, M&A has definitely been in a slump alongside other activity in the dealmaking space from private equity onwards. And so we're all thinking about when is it likely going to rebound and expectations year to year for 2024, we're hoping that this is the year of the M&A and 2025 really looked like it was the year of the M&A, where we had, depending on how you count it, whether it's globally deals over $50 million or just the U.S., a pretty significant rebound, close to 50 percent from 2024 levels, setting up 2025. So this is the highest amount in recent memory, definitely rivaling what we had in 2021 with, I'd say, higher rates, which are definitely headwinds to dealmaking activity, a better economy, but definitely a significant amount of headwinds that we're seeing this year that we've also seen in 2021.
So it does show that the enthusiasm from people in the dealmaking space does seem to continue. And I think 2026, we're thinking that activity can be even better than last year. That was predicated on the idea that we'll have a pretty strong economy, equity market still quite robust.
And then in the first half of the second half of the year, easier financial conditions thanks to the OEEA taking into effect as well as the Fed cutting rates. Some of that has been upended with the conflict in Iran right now, just given the fact that higher oil prices threatens what the Fed might want to do when it says cutting rates because it pushes up inflation. Higher inflation, less likely cut rates, less likely cut rates, might be a hindrance to M&A activity.
So that's a big question mark, I think, on dealmakers' minds right now. You know, can policy really still be an incremental positive this year? And can dealmakers look through all the geopolitical noise that has been, I guess, dominating headlines in Q1 at least?
OK, so a lot there to consider, though it sounds like the momentum remains intact. Now, just surveying the landscape, Paul, what kinds of trends have you been picking up on as of late? A couple of things really stand out to us.
I think kind of like what we saw in 2024, just given a more different background for M&A, a lot of the deals have been upscaled, so larger deals and mega deals are really driving the value rebound. So the count of M&A deals has been declining, but the overall volume has still been increasing and tends to favor mega deals. We're also seeing that AI is accounting for about 50% of M&A dollars for the first time ever, and it probably will look like it'll be a theme that will last for quite a long time because you have a lot of companies now either thinking about how to ride the AI wave or to expand their capability so they don't get lost in other companies adopting various forms of AI, so really future-proofing various methods, sorry, various parts of their businesses.
You know, all that said, you know, it's not all roses in the dealmaking space. Obviously, in private equity fundraising remains a significant challenge and dry powder is, I think, even the closer it reaches a record high as a result of exit activity is improving, but still remains a quick flow. And, of course, Paul, have to spend a few moments on the impacts, influences of artificial intelligence, AI.
From what you've been seeing, Paul, what is the impact that AI is having on the dealmaking space today? Yeah, I think I'd like to look at it from two perspectives. And the first one is from a practitioner point of view, those firms enacting M&A deals, from what we hear, AI tools are just more and more broadly used into the M&A process.
I think it used to be concentrated in the first part of the dealmaking process, really sourcing deals, maybe going through diligence. And then now AI sophistication and trust has gotten to the point where a lot of AI has been deployed in either in the post-deal transaction. So whether that's finding the right deliverables or making sure that things are up to scale or having those portfolio companies having similar sort of dashboards to report back to the GPs, AI is increasingly being deployed in more creative ways during the M&A process.
And in the dealmaking space at all, I mentioned that AI is taking about 50 percent of M&A dollars. It was taking more of that in terms of share in the VC space. And I think the excitement for markets later this year is whether or not is what influence AI will have in the IPO space.
You take a look at the 10 most valuable private companies, but five of them are AI natives. A lot of them are, you know, AI adjacents at the top one, obviously being SpaceX. But if you look at just the AI native companies, names like OpenAI, Anthropic, XAI, Waymo, for example, we have even a fraction of those companies come to market.
I think that will really upend the IPO space. Right now, the IPO space has been recovering, but hasn't done as well as M&A, for example. We've had only a tepid recovery with 2025 coming back to what looks like pre-pandemic levels.
So at around $44 billion worth of proceeds in the U.S., I think consensus is around $60 to $80 billion. So that's a pretty healthy amount for ITOs this year. But we have any one of those AI native companies come on, OpenAI, Anthropic, for example, that can push IPO proceeds to a historic record amount.
And I think some consensus numbers were between $160 to even north of $200 billion worth of IPOs. So that's a significant amount of change in the IPO space as a result of AI. And if those companies debut and it's taken well by the markets, that could potentially unlock a wave of tangential IPOs as well.
But a lot of companies still on the shelf looking to go public, but seeing sort of choppy market conditions that are preventing them from really making that next step in terms of their and the company's trajectory. Well, Paul, very interesting insights. Always intriguing to hear about what's going on within the dealmaking space, what's driving activity and what the outlook is.
So thank you for dropping by Top of the Morning, spending a few moments here with our listeners, our clients, keeping them current on what's going on, how CIO is thinking about it. And do look forward, as always, to continuing with our conversation. Thanks for having me.
And again, today, we've been joined by Paul Hsiao, asset allocation strategist for the Americas with the UBS Chief Investments Office, again, referencing the latest CEO macro briefing book, which again is available for you now up on UBS.com slash CIO. From UBS Studios, I'm Dan Cassidy. Thank you for joining us.
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