Europe
The FTSE 100 was outperforming the rest of Europe on take-over speculation in a light day of trading that saw stocks hover near recent multi-year highs thanks to the supportive monetary policy environment.
M&A was in focus again. After weeks of speculation; Shire officially became a take-over target as a result of a bid from its US rival AbbVie which it quickly rejected. There is also a fierce battle brewing between General Electric Company (BA:GE)and a Siemens (LONDON:SIES)-led group for the acquisition of select Alstom (PARIS:ALSO) assets.
There are bid rumours flying around left and right, particularly from US companies looking to Europe. US firms are sitting on big piles of cash and are under pressure from shareholders to use it. Cash held abroad would be subject to US corporation tax if repatriated so M&A abroad is becoming a popular method of legal tax-avoidance. Worryingly, companies seem unwilling to invest in their own business and instead are looking to share buybacks and M&A to gain tax advantages.
The M&A activity is good for short term speculation in the sectors involved but perhaps doesn’t bode well for business investment and economic recovery over the medium to longer term.
The FTSE 100 has spent the last two days travelling between 6,800 and 6,840 after gains made post-FOMC. Shire Plc (LONDON:SHP) and Smith & Nephew (LONDON:SN) boosted the Healthcare sector amid takeover activity while BT Group (LONDON:BT) and Vodafone Group (LONDON:VOD) were holding down the telecoms.
Sainsbury (LONDON:SBRY)’s announced they are teaming up with Danish discount store Netto. The deal seems like a smart move in principal by Sainsbury’s, they can have a stake in the discount market without trying to turn Sainsbury’s into a discounter and do ‘a Morrison(LONDON:MRW)s’ who have cut prices, increased revenues but lost profits. Netto have already tried and failed in the UK so it’s questionable whether Sainsbury’s backing will make it any more attractive to customers this time around.
ITV (LONDON:ITV) saw some initial selling from disgruntled English football fans but pulled back given that the TV advertising slots for the World Cup would have been booked well in advance by sponsors so England’s likely early departure is not going to impact ITV’s ad revenues, though viewership will take a hit.
US
Investors in the US were in generally positive spirits with the S&P 500 making another intraday all-time high as Federal Reserve’s dovish stance and a steadying of yesterday’s commodity rally aided stocks.
Oracle Corporation (NYSE:ORCL) opened lower as fears of competition from cloud-computing on the company’s server business proved correct. The company missed earnings and revenue estimates by a good distance.
Darden Restaurants (NYSE:DRI) surprised investors with profits beneath expectations. Its Olive Garden restaurants saw same store sales drop by 3.5%.
FX
The US Dollar was stronger against major currencies today, retracing some of the losses made yesterday as investors digested the Federal Reserve’s position on inflation.
The USD/CAD was the one major currency trading higher against the USD today as speculation of a rate hike got renewed after consumer price inflation increased dramatically in the month by 0.5% while retail sales beat expectations.
The British pound was consolidating after yesterday's gains to six year highs. Governor Carney will speak next Thursday and may have to explain in any Q&A the reason behind his recent change in tone that has caused the strength seen in the pound this week.
Commodities
Brent Oil and gold retreated while WTI and Silver made further gains today having been on a tear in the last week. Gold was up $40 yesterday with silver up almost $1. The US is on a trajectory of higher inflation but this has not been matched by a more hawkish stance from the Fed.
Copper rallied over 1.5% amidst tighter supplies in China. Talks of moving some of the physical metal out of China to London Metal Exchange warehouses has relieved some concerns over the metal being used in bank financing.
In the face of higher inflation, by keeping the same pace of intended rate hikes, the Fed could be said to be even more dovish than before which is bad for the US dollar which continues to be devalued and good for commodities.
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