Business-Insider

by John Jagerson

Mergers and acquisitions are often a sign of economic health. That kind of corporate "friendliness" is usually only undertaken when investors feel like deals have potential to the upside from a growth perspective. Their outlook on the market is a big part of that. With all the news lately of a higher price for Bear and M&As looking more likely for ClearStation and ConAgra I am wondering if an uptrend in corporate activity is a sign of a potential shift in the risk environment. I think we have been teetering on the edge of economic recession in Western economies but this may lend strength to the argument towards recovery.


"Can you feel the corporate love?"

M&As are risky and generally deal teams are not inclined to pursue them at the rate we are seeing lately when you have risk and credit problems as serious as we do now. I will be interested to see how much more this escalates. M&A's matter to forex traders in a couple of ways. First, very large cross border M&A activity can affect the exchange rate between the respective economies. With a boost to the currency of the company that is being acquired. But that is very difficult to forecast and usually mergers are much more complicated than merely paying a price for one company.

More importantly, M&As are a measure of risk and business confidence. Right now we are seeing a lot of specific M&A activity in commodity companies and a fair amount generally. I think this bodes well for trader sentiment in commodity currencies and to high yield strategies like the carry in FX. If M&A activity continues to rise, it is usually a good sign for equities, which could impact currency pairs like the USD/JPY and USD/CHF in the intermediate term. Specifically, as M&A activity rises, we would expect a position trend in both of those currencies as capital flows shift and investor sentiment improves.
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