Greek deal buoys European stocks
The shock sensation that the Bank of England could finally be about to lift UK interest rates died down on Friday. If monetary tightening spreads beyond US shores, that’s when global stock markets could start to become unstuck. Sentiment was lifted by an agreement between Greece and its international creditors that should remove the threat of another debt default next month.
FTSE supermarkets split on Amazon-effect
The FTSE 100 ends the week well off the one-month lows reached on Thursday but further gains could be tough since higher rates would naturally make UK equities less attractive.
Tesco (LON:TSCO) shares managed a spectacular 180 degree change in fortunes on Friday. Investors flipped from satisfaction at the highest sales growth in seven years to fears that Amazon (NASDAQ:AMZN) could knock Tesco off its perch as Britain’s number one supermarket. Amazon’s $13.7bn purchase of US natural food store Whole Foods (NASDAQ:WFM) marks the entrance of a major new player into the supermarket space.
There have been rumours for a while that Amazon would buy Britain’s online grocer Ocado (LON:OCDO) as a test run before taking on the US. The drop in Ocado shares on the threat of greater competition from Amazon could eventually present an opportunity. Given the Amazon’s spending power and already large footprint in the UK, the Whole Foods purchase probably increases the odds of an Ocado acquisition.
Amazon had already shown its intent through its partnership with Morrisons (LON:MRW). Its existing relationship with Amazon helped Morrisons shares outperform those of Tesco and J Sainsbury (LON:SBRY). Morrisons must have moved up the table of possible takeover targets now that Amazon has officially entered the supermarket sector.
Walmart (NYSE:WMT) drags US stocks lower
Speculation that Amazon’s acquisition of Whole Foods could trigger a new wave of mega M&A deals is on ice for now. The Dow Jones sagged after the release of disappointing housing data with Walmart the biggest faller after Amazon announced it was buying rival Wholefoods. Investors are struggling to celebrate the Federal Reserve’s optimistic view of the economy when the data keeps disappointing. Shares of US supermarkets tanked after Amazon and Wholefoods announced the deal with Kroger (NYSE:KR) falling double digits.The cost of upgrading technology, revamping stores and improving supply-chain efficiency to compete with Amazon will be devastating to the profitability of incumbent supermarkets.
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