Europe
With US markets closed for Presidents Day European markets have had a rather mixed and quiet session with the FTSE100 trading slightly lower as Unilever (LON:ULVR) shares slip back in the wake of the quick capitulation by Kraft Heinz on its takeover bid for the Anglo Dutch consumer group.
There had been widespread speculation that this bid may well have turned out to be a rather protracted affair given some of the politics involved. Kraft’s quick about turn appears to have drawn a line under that, over concerns that any public battle could have the potential to turn increasingly bitter.
Much has been made of the weakness of the pound with respect to this particular bid, but this is much less of a problem for a company that reports in euros, something that appears to have got lost in the fog of politics.
Notwithstanding these UK political concerns there is also the added complication of a Dutch election on the 15th March and irrespective of your political persuasion a protracted takeover battle for one of the biggest companies in the Netherlands is unlikely to be a good look.
This may well have played a part in the reluctance of Warren Buffett in pursuing what would have probably been a hostile takeover, as well as running the risk it could well have been blocked.
Kraft’s track record on M&A was also undoubtedly a factor particularly given the Cadbury experience in 2010. While the share price fall is its biggest in thirteen years, the shares are still higher than they were prior to the Kraft bid becoming public.
The big question now is whether or not Kraft will come back in six months’ time, and look to try again. One thing is certain they’ll need to pay a much higher price, though its quote likely the reaction could well be fairly similar.
Royal Bank of Scotland’s share price is enjoying a welcome boost, and is now back above its pre Brexit levels on news that it now won’t have to offload its Williams and Glyns branches which it was informed it would have to sell as part of its bailout package in 2008. It’s just a shame it’s taken nearly £2bn of taxpayers money to realise that this was always going to be an extraordinarily difficult process to achieve. Whether these gains are sustainable will very much depend on how much of a loss the company posts when it releases its full year results on Friday this week.
Beleaguered engineering group Rolls Royce (LON:RR) is also having a good day after a broker upgrade from Goldman Sachs (NYSE:GS), with the broker citing the potential for significant improvement in cash flow over the course of the next few years.
Eurogroup finance ministers are in Brussels today to discuss the latest bailout program for Greece with the IMF and EU no closer to aligning an approach that would result in a lessening of the tensions between the two.
US
US Markets are closed for the Presidents Day Holiday.
FX
The pound has been the best performer today by quite some way, with weakness in the US dollar helping in that regard, helped by the latest CBI factory orders data which showed the best level of activity in two years. Inflation expectations also came in higher, though some of that was related to the bad weather in Spain which caused the recent courgette and lettuce shortage.
The euro has also slipped back as French yields continue to rise on uncertainty over the upcoming French elections.
Commodities
Crude oil prices continue to remain fairly resilient despite US rig counts rising again last Friday to 751, from 741. The markets appear to want to believe that the OPEC measures are having an effect in reducing supply despite three successive weeks of US inventory builds offsetting OPEC production cuts.
Despite the resilience of equity markets gold prices don’t want to go down, though the current strength may be more to do with the fact that Fed fund futures probability of a US rate rise in March has slipped back from 45% to 32% in the last three days. There may also be some hedging going on given the uncertainty over whether US President Trump will be able to deliver on his fiscal promises.
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