UK and Europe
Foiled multi-billion pound mergers and weak corporate results on both sides of the pond kept markets at bay on Wednesday. A late rally in crude oil after a surprise drop in US stockpiles offered some sense of damage-limitation.
European regulators blocked the proposed merger of mobile carriers Three and Hutchinson’s O2 whilst US office suppliers Staples and Office Depot abandoned a planned merger after a Federal judge sided with regulators in opposing the deal. Competition concerns were cited for blocking the deals, but M&A has become the last vestige for growth in a weak environment for organic growth.
Property stocks were the biggest drag on the FTSE 100, with Land Securities and Intu Properties top fallers whilst mining shares tracked commodity prices higher.
Bank stocks were volatile as investors digest Greece’s debt negotiations and the prospect of bad loans to the oil and gas following Tuesday’s better than expected results from Credit Suisse (SIX:CSGN).
Tui AG (LON:TUIT) shares dropped, but bounced off lows of the day after announcing the disposal of its ‘Specialist Group’.
The rise in the yen this year has received its first complaint from corporate Japan. Toyota (T:7203) expects its first profit drop in 5yrs, largely in expectation of lower sales in the US and China where the less favourable exchange will make it less competitive.
The profit warning has knocked Toyota shares lower despite the car giant reporting its third record profit in a row. Toyota is the first but unlikely to be the last Japanese multinational to warn of falling profits due to the stronger yen. Toyota's comments go a long way to explain the underperformance of the Japanese stock market this year.
Shares of Carlsberg (CO:CARLa) were amongst the biggest fallers in Europe, with the company citing a decline in its China market as a reason for a bigger than expected fall in sales. The beer giant will close more breweries in China in response to the lower consumer demand.
Heineken’s results are another indicator from corporations, including Apple (NASDAQ:AAPL), of slower demand in China that counters official figures suggesting only a moderate downturn in economic growth.
US
US stocks opened lower after Disney (NYSE:DIS) missed profit and revenue forecasts for first time in five years, leaving the media giant’s stock down as much as 5%. The box office hits have not proved enough to offset weaker results from Disney’s theme parks and cable TV business.
Shares of Macy’s (NYSE:M) plummeted 12% after the US retailer and owner of the flagship New York City store missed sales expectations and offered weak guidance for the second quarter. The share price drop perhaps could have been worse had Macy’s not lifted its dividend.
Shares of Fossil (NASDAQ:FOSL) collapsed over 30% after the company best-known for its watches missed earnings expectations and issued a bleak outlook for watch-demand amongst the millennial generation, who it says use smartphones for telling the time.
FX
The US dollar snapped a six-day winning streak as a combination of yen-buying and comments from the Fed’s Dudley weighed brought the currency down from overbought conditions. Dudley made no explicit reference to interest rates, but surprisingly suggested he was not concerned if the US dollar lost its status as a world reserve currency.
USD/JPY slipped back beneath 109 as the momentum brought about by Japanese official jawboning waned. If the yen is to appreciate further, markets will need to overcome the shock strengthening in the wake of the last BOJ meeting.
The British pound fell after data showed a smaller than expected rebound in industrial production in March. EUR/GBP hit two-week highs.
Commodities
The price of oil rose after a surprise draw in US oil inventories. Oil prices have been choppy in the past few days as traders have parsed a number of supply-shocks from Canada to Nigeria and Libya whilst grappling with higher supply from OPEC.
Saudi Arabia’s state-owned oil giant ARAMCO has announced it will expand production this year, adding to the global supply glut. The increased production comes after a failed agreement to freeze output at a producer meeting last month and ahead of the company’s planned IPO.
Weakness in the dollar and a pullback in stock markets created the perfect environment for a rebound in gold and silver prices.
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