Europe
Markets in Europe spent most of the day tap dancing on the spot with little in the way of direction, until comments by US President Trump changed that when he said he would be spending large sums of money on infrastructure and defence spending, with the details likely to be fleshed out in tomorrow’s speech to US lawmakers. This helped pull European markets back into the green offsetting concerns about the potential unravelling of a major M&A deal.
The long running saga that is the LSE and Deutsche Boerse (DE:DB1Gn) tie up looks set to hit the buffers after the European Commission moved the goalposts and imposed a new condition on the merger two weeks ago; imposing a deadline of today to outline plans to sell off its 60% stake in Italian based platform MTS.
The timing of this is curious given that this deal has been in the pipeline for over a year now. There were concerns over regulatory scrutiny a year ago so it’s absolutely astonishing that the European Commission has raised this as an issue at this late stage.
The LSE said that it is not prepared to comply with this request as well as sell off its stake in the French arm of LCH Clearnet, and given the political obstacles already in place with respect to this deal here in the UK, especially after Brexit, as well as in Germany who want the HQ domiciled in Frankfurt, this deal may well be heading out of the last chance saloon, and into the night.
If this does spell the death knell of this deal then we could well see ICE reignite its interest on what still remains a key strategic asset.
Car insurers have been hit hard by the decision of the Ministry of Justice to cut the rate at which compensation payments are calculated in personal injury claims to -0.75%. This means insurers will have to pay out more for personal injury claims inevitably raising the prospect that insurers will raise insurance premiums to offset the hit to margins. Admiral, Aviva (LON:AV), Direct Line as well as RSA Insurance are all lower.
On the plus side distribution and outsourcing group Bunzl (LON:BNZL) reported a 12% jump in profits for 2016 helped by the weaker pound, given that 85% of its revenues come from outside of the UK.
Weekend speculation around a possible disposal of Unilever’s food arm is helping push the shares up as the company undertakes a strategic review of its operations in the wake of the recent abortive Kraft-Heinz bid.
CRH (LON:CRH) has also moved to the top of the FTSE100 on the back of this afternoon’s comments from President Trump that he would be spending big on infrastructure, given it derives a great deal of revenue from its US operations.
US
US markets slipped lower on the open with corporate news taking a back seat ahead of tomorrow’s speech by President Trump to the US Congress.
Hopes that the President may sketch out the framework of a tax plan took a knock after he admitted that he could not make an announcement until after a revamped proposal for Obamacare was complete. He did say he would be making a big statement on infrastructure spending.
On the data front the latest US durable goods orders numbers for January came in short of expectations, declining 0.2%, on the core measure, breaking a sequence of four consecutive monthly gains. On the more volatile transportation measure the number rose 1.8%, above expectations, helped by a surge in demand for commercial and military aircraft.
Pending home sales for January also disappointed, coming in at -2.8%, missing expectations of a 0.6% rise.
FX
In shock news the Scottish government may want another referendum
The pound has come under pressure from renewed speculation that the Scottish Government may look to hold another independence referendum, in the aftermath of the UK leaving the EU.
While this uncertainty is nothing new it also overlooks the fact that any new Scottish referendum would have to be sanctioned by the UK government, which isn’t likely given this afternoon’s reaction from Downing Street, while the existing Scottish government would need to feel confident about winning it. Neither looks likely at this point.
This speculation about another referendum is unlikely to ever go away, whatever the circumstances; given that Scottish independence is the primary reason for the SNP to exist. It is therefore strange that traders have all of a sudden become spooked by something that has always been a concern, and is likely to continue to be so.
The US dollar has had a mixed day as uncertainty over what may come out of tomorrow’s speech keeps investors on the back foot. The prospect of any sort tax reform has receded after President Trump admitted that he couldn’t look at that until an Obamacare replacement plan had been sketched out.
Commodities
Oil prices continue to hold up well, after US rigs only rose marginally at the end of last week, as speculative buyers continue to prop up prices, as optimism about continued compliance to OPEC production quotas grows.
Gold and other precious metals have continued to hold up well with gold price looking to push through the 200 day MA, for the first time since November last year.
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