It looks like a turnaround Tuesday for European stocks today as markets in Europe ride the last night’s bullish wave from the US, opening higher as global trade tensions ease.
On the M&A story, the UK government has written to Melrose (LON:MRON) seeking assurances over the company’s bid for GKN (LON:GKN), with a view to determining whether the deal has concerns for national security. Always assuming that Melrose management would agree to give those assurances it would be difficult to imagine a scenario where any assurance would be in any way enforceable. This raises the prospect that any agreement is unlikely to be worth the paper it is written on, something the UK government learned to its cost with the Cadbury deal.
There are any number of reasons for the deal to be scrutinised not least the risk that the company could lose its biggest customer in Airbus, which is the biggest short term risk, it would be sensible if shareholders chose to focus on that.
GlaxoSmithKline (LON:GSK) is leading the gainers on the news it has agreed to buy out Novartis' (NYSE:NVS) 37% stake in its own consumer healthcare joint venture, for $13bn, only days after pulling out of the bidding process for Pfizer’s (NYSE:PFE) consumer business. With sales of £7.8bn the business has shown consistent growth over the past few years. To help recover some of the costs of the transaction the company is looking at selling off some parts of its health care business and other consumer nutrition products.
Plumbing and heating specialist Ferguson is also surging after reporting better than expected revenues for the half year driven by a buoyant US business. Profits rose 15% while revenues came in above $10bn, an increase of over 10%. The company also announced a hike in the dividend as well as a 4% special dividend, sourced from the proceeds of the $1bn sale of its Scandinavian business Stark Group.
In the retail sector Swedish clothing giant H&M reported its worst performance in over a decade for Q1 sales as unsold inventory prompted a significant markdown in margins as the company cut prices to shift the backlog. This has seen UK retail stocks lag behind today’s surge in European stock markets, as the difficult retail environment continues to keep pressure on margins.
US markets look set to build on yesterday’s gains despite their biggest one day gain in over 2 years, as trade concerns move further into the background. Shares in focus are likely to include Facebook (NASDAQ:FB) which, despite dropping below $150 for the first time since July last year, still managed to close higher on the day.
Dow Jones is expected to open 120 points higher at 24,322
S&P500 is expected to open 12.5 points higher at 2,670.5
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