UK and Europe
European markets gave up early gains to trade lower on Monday as political uncertainty surrounding the failed attempted coup d’état in Turkey tempered enthusiasm over Softbank’s (T:9984) huge £23.4bn takeover of British chip-designer ARM Holdings (LON:ARM).
With gains in excess of 40%, ARM Holdings propped up the FTSE 100 after the takeover was agreed with Japan’s Softbank. A pullback in the price of oil meant oil and gas and basic resource sectors were a drag on the UK benchmark.
Softbank’s purchase of ARM Holdings is both opportunistic at a devalued pound-lira exchange rate as well as a big forward-looking play on the future of tech in the “internet-of-things.”
With a 43% premium on top of shares that were trading not far from record highs, Softbank CEO Masayoshi Sun clearly means it when he said his company doesn’t buy distressed assets. However, some of the other top risers in UK markets after the deal was announced were property and financial stocks. It makes sense that the most beaten down shares after Brexit could prove the most attractive to foreign investors looking to take advantage of a devalued Sterling.
Sage Group (LON:SGE), the FTSE 100’s only other tech stock as well as ARM’s smaller competitors like Imagination Technologies (LON:IMG) were enjoying gains on expectation of more M&A interest in UK tech shares.
The fall in the pound has given UK-listed companies a distinct M&A premium. With both Poundland and ARM Holdings signing over to foreign ownership in a matter of days, inbound M&A looks like it’s here to stay.
The deal is the first major blow to those who have forecasted that Brexit will deter inward investment into Britain. It will be the first test for Prime Minister Theresa May’s new Ministry for Business, Energy and Industrial Strategy and her belief that “transient shareholders are not the only people with an interest when firms are sold or closed.”
US
US stocks opened nearly unchanged as investors weighed up international M&A activity alongside better than expected earnings from Bank of America (NYSE:BAC).
Improved odds of M&A in the tech space after Softbank’s acquisition of ARM Holdings helped technology shares rise. IBM (NYSE:IBM) shares were down after being pipped at the post by Softbank to buy rival chip-designer ARM Holdings.
Major averages are sitting close to record highs ahead of the Republican National Convention in which Donald Trump is expected to be officially nominated as the Republican nominee for US President.
FX
There was only one contender for most volatile currency on Monday as the Turkish lira reversed some of its losses after the attempted coup in Turkey failed. Currency markets were otherwise subdued ahead of numerous first tier UK economic reports as well as the ECB meeting on Thursday.
The British pound has trimmed some of its sharp losses from Friday, helped by the Bank of England’s Martin Weale who said he was unsure whether he would vote for a rate cut at the August policy meeting. Mr Weale seems to be in the “don’t jump the gun” and “keep the powder dry” camp as opposed to the “crack a nut with a sledgehammer” camp occupied by chief economist Andy Haldane.
Commodities
The price of oil fell on Monday, taking WTI crude below $45 per barrel. Oil has been stuck in a pattern of volatile up and down days with price finding its equilibrium between $45 and $50 per barrel.
Gold appears to have found an interim base near $1320 per oz, though the sharp decline witnessed last week in concert with new record highs in US stocks doesn’t bode well. Barring a false breakout in US stocks turning into a rampant decline, it would appear gold is destined for another drop below $1300 per oz.
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