UK and Europe
European stocks were mixed on Wednesday with the usual steady, low-activity trading ahead of a Federal Reserve meeting. M&A activity has boosted sentiment on the margins after the London Stock Exchange Group PLC (LON:LSE) and Deutsche Boerse (DE:DB1Gn) agreed to press ahead with a merger.
London Stock Exchange shares were lower after the deal was announced. There is still a good chance that American outfit Intercontinentalexchange Group Inc (NYSE:ICE) will intervene to block the deal with an offer before a March 29 deadline. Even if ICE doesn’t step up, the merger is likely to spark regulatory unease in Europe where the combination of Eurex and LCH Clearnet would create a monopoly player in European derivatives clearing.
A rebound off yesterday’s lows in the price of oil has seen the oil and gas sector outperform the rest of the UK benchmark. UK stocks outperformed those on the continent after a generally well-received budget.
The rabbit out of the hat moment came from a surprise levy on sugary drinks, taken right out of former NYC Mayor Michael Bloomberg’s playbook. The sugar levy may hit the sweet spot for addressing rising child obesity but the soft drinks industry could be feeling bitter. After the Sugar levy announcement was made, shares of Tate and Lyle (LON:TATE) slumped 6%. AG Barr (LON:BAG), the makers of Iron Bru saw similar declines alongside other soft-drink makers before later rebounding.
An increase in the insurance premium tax to 10% from 9.5% was not as bad as it could have been for Insurance companies and shares proved resilient to the well leaked announcement. The announcement of a new Lifetime savings ISA will be a boost for the pensions industry which has been under pressure since the reforms to annuities.
The most market friendly announcement was an intended drop in the corporate tax rate to 17%. There will also be an increase in small business tax relief from 6,000 to 15,000.
Hikma Pharmaceuticals (LON:HIK) saw a huge turnaround from early losses of over 8% to topping the FTSE 100 with gains of over 5% as brokers reaffirmed overweight and buy ratings.
US
US stocks opened flat ahead of the Fed meeting after Super Tuesday saw Donald Trump and Hilary Clinton consolidate their positions as frontrunners for the Republican and Democratic presidential nominations.
It would be a big shock to markets if the Fed hiked rates this time around. The recent bout of strength in the dollar in combination with a pickup in US inflation and calmer markets suggest Fed Chair Janet Yellen may signal the next rise as early as April.
FX
The US dollar was firmer for a fourth day after core US consumer prices rose more than expected in February while overall FX volatility has dropped ahead of the Fed meeting.
Average UK earnings growth was a touch higher than expected in the three months through January but an unchanged unemployment rate and jobless claims twice forecasts meant the data was a net neutral for the British pound. GBP/USD dropped mostly off the back of dollar strength, though the lower OBR growth forecasts for the UK didn’t help.
Commodities
The price of oil has rebounded off yesterday lows thanks to a smaller than expected US oil inventory build and a meeting between major oil producers excluding Iran scheduled for next month that could see an output freeze.
Strength in the dollar saw gold drop ahead of the Fed meeting. A fourth day of losses in gold has mirrored the fourth day of gains in the dollar index. A signal of another rate hike is positive for the dollar but it may be the direction of stock markets that determines gold’s fate. Any added uncertainty brought about by rate hikes in a weak global growth environment may put a floor under the weakness in gold.
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