- Anheuser-Busch Inbev SA (LONDON:0O1Z) to buy SABMiller (LONDON:SAB)
- Chinese shares jump 4.9%
- European shares rally
- US flat before Fed rates decision
- Pound at two-week high after UK unemployment drop
UK & Europe
A mega-deal between the world’s two largest brewers and the biggest jump in Chinese shares for two weeks went some way to ease the nerves of Fed-weary investors. The UK’s FTSE 100 and France’s CAC indices both rose over 1% with the German DAX up around half a percent.
Most of the gains in China were thanks to a late spike, typical of government buying but it was enough to shield markets from ongoing global growth fears.
The prospect of a consumer boom from rising wages and falling prices helped the FTSE 100 to a second day of gains.
Easily the top riser on the UK’s benchmark index was SAB Miller, up over 20% after the brewer said in a statement it was being approached by the world’s largest brewer Anheuser-Busch InBev for a takeover.
The fact that AB InBev has confirmed that it made an approach to the board of SAB Miller tell us it is more than just unfounded speculation this time. This deal has been a source of speculation since InBev first merged with Anheuser Busch. There are still a few hurdles to get this deal further past the rumour mill; a bloated price tag in the region of $75-100bn and regulatory approval to name just two.
Shares of Burberry and Sports Direct (LONDON:SPD) both traded higher following an 80% jump in first half profits at clothing retailer rival JD Sports. Commodity trader Glencore (LONDON:GLEN) found itself in the rate position as a top riser after a $2.5bn share issuance. Mondi (LONDON:MNDI) was a top faller following a broker downgrade.
US
US markets opened basically flat after inflation data did little to move the dial on whether the Fed decides to make the move and hike rates by 25 basis points.
The move higher in US stocks and bonds yields on Tuesday could be a sign of what’s to come after the Fed decision. A rise in bond yields can only really mean positioning for a rate hike. The concurrent move higher in stocks could mean that there will be a relief rally on a hike.
A hike in rates shows that the Fed is confident in the US economy, so in a circular kind of way, that confidence can spread to other market participants and the way they invest in the market.
In a typical tightening cycle, stocks top out long after the first rate hike because the move to tighten policy is considered a sign of strength in the economy, it’s only later when higher rates curtail investment. The only problem is that this isn’t a typical tightening cycle because of how long rates have been at rock bottom.
FX
The US dollar slipped against most major currencies after consumer prices declined in August for the first time since January and core inflation defied expectations of an acceleration, remaining at 1.8% year over year.
Strong UK labour market data helped the British pound surge against most major currencies. The move in sterling completely unwound yesterday’s drop after a report showing prices remained flat over the year. GBP/USD made two week highs above 1.55.
The euro was largely unchanged against the dollar but sunk against the pound after the final reading for Eurozone inflation dropped to 0.1%. EUR/GBP has dropped back beneath 0.73 but is still inside its 0.7250 – 0.74 range.
Commodities
The API and IEA reporting a surprise draw in US oil inventories coupled with a weaker dollar saw oil prices rise on Wednesday. Venezuela’s foreign minister saying that talks are advancing for an emergency OPEC summit scuppered previous warnings that the meeting wouldn’t happen and is supporting the oil price.
Gold rose back towards $1120 per oz and silver jumped 3% largely on dollar weakness following slightly disappointing US inflation data.
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