We’ve seen a rather indifferent start to European trading this morning with sentiment being dominated by the return of the Volkswagen (DE:VOWG) story and the surprise bringing forward of a rights issue by Standard Chartered (L:STAN) Bank after the bank slumped to a surprise Q3 loss.
Volkswagen is back in the headlines this morning for all the wrong reasons after the US Environmental Protection Agency (EPA) accused it of using “defeat devices” on its 3 litre diesel engines used in the Porsche Cayenne and Audi A6 models. VW has denied this is the case, arguing that the software was permissible and in no way identical to the software on the 2 litre models.
These new charges are an unwelcome reminder that the car industry is likely to face further scrutiny in the coming months as more models are tested, with the prospect that other manufacturers could well get dragged in. The allegations are all the more serious given that VW’s new CEO Matthias Muller came from Porsche and any hint of further deception could well see his position come under scrutiny.
Standard Chartered shares are also under pressure after the bank announced a surprise $139m loss in Q3, as well as announcing a rights issue of $5.1bn. There had been an expectation that we might have got an announcement about a rights issue in the aftermath of next month’s Bank of England stress tests, but the surprise loss appears to have forced new CEO Bill Winters hand, as the bank struggles to overhaul its business at a time when emerging markets are struggling.
Housebuilding shares have remained under pressure after JP Morgan downgraded parts of the sector while nudging its price targets higher. Barratt Developments (L:BDEV) and Taylor Wimpey (L:TW) are among the bigger fallers.
Last night’s US close above 2,100 appears to have almost completed the round trip seen since the August peaks at 2,112 precipitated a sharp sell off to the lows at 1,834 seen at the end of August.
The bulk of the gains were driven by the energy sector with the Dow pushing back into positive territory for the year to date as Chevron (N:CVX) and Exxon Mobil (N:XOM) pushed higher despite a slide in oil prices.
While lower oil prices are undoubtedly acting as a drag on the oil majors it does appear that there is a silver lining with the downstream businesses appearing to some way compensate for the slowdown on the production side.
Stocks in focus this morning are set to include Candy Crush creator King Digital, which has been acquired by Activision for $5.9bn at $18 a share, well below the company’s IPO price last year of $21.
Since that day way back at the end of March 2014 the direction of travel for the shares had been more or less one way as the company struggled to shrug off the perception that it was pretty much a “one trick pony” with respect to its headline game.
This was always the risk and unfortunately that risk came to pass.
The investors who did take a bet on King Digital will no doubt take comfort from the fact that the $18 share price is well above yesterday’s close, but it’s still a sizeable loss on the IPO price of $21, and they can’t really complain that they weren’t warned. The warnings signs were there given the way Zynga fared after interest in Farmville waned.
The Dow Jones is expected to open 38 points lower at 17,790
The S&P500 is expected to open 5 points lower at 2,099.05
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