It’s been another volatile trading day with investors adopting a cautious approach in contrast to yesterday’s strong rebound.
Europe
The focus continues to be on the US tech story and this is weighing on any attempt to push higher for European stocks, which have remained under pressure albeit above their recent lows.
The FTSE 100 has managed to set itself apart from the wider weaker tone in Europe but that has largely been down to another M&A story, this time involving Shire, which has once again found itself in the crosshairs of an overseas suitor.
There had been some whispers in early trading that a bid might be in the offing, and this was confirmed by a mid-morning announcement from Japan’s Takeda that they were looking at the possibility of making a bid for Shire Pharmaceuticals, in order to strengthen its offerings in the fields of oncology and neuroscience. Takeda has until 25 April to firm up on its intentions, or walk away for at least six months.
This appears to be part of wider story, following on from yesterday’s Glaxo/Novartis announcement, when it comes to consolidation and business restructuring in the pharmaceutical sector, where the recent announcement by Amazon, Berkshire Hathaway and JP Morgan to look at increasing competition and driving down prices in healthcare is prompting a renewed focus on costs across the entire sector.
The retail sector has once again been in the spotlight today after the latest CBI retail sales numbers for March showed a sharp drop from February. It also feeds into the tougher narrative that we’ve seen from a number of retailers in the past two weeks. The cold winter weather not surprisingly appears to have prompted a sharp slowdown in footfall, though on the plus side this could translate into a little bit of catch up in the April numbers.
On the companies front there was a silver lining despite DFS Furniture posting a 58% fall in first half profit. While on the face of it this is a disappointing headline number, it’s also not surprising given the current climate, and the company did post an optimistic outlook, with the recent acquisition of Sofology helping add 4.3% to group revenue and pushing the shares sharply higher on the day.
Defensives have also performed well with United Utilities, Severn Trent and National Grid all higher, as investors rotate their capital into more defensive areas of the market. The biggest decliners have been mining stocks led by Anglo American, Antofagasta and Rio Tinto with copper and iron ore prices sitting at four-month lows.
US
It was all eyes on the Nasdaq as US markets opened, with the focus remaining on tech stocks after last night’s sharp sell-off.
While all the focus remains on Facebook and how tech companies use their data, Apple shares are also in the spotlight after Goldman Sachs took a scythe to its estimates for iPhone sales over the next two quarters. In so doing the revenue targets were also reduced, with the bank citing the prospect that users will hang on to their old devices for much longer than in the past. Given how expensive iPhones are becoming maybe this shouldn’t be too much of a surprise.
Looking at the overall tech sector and given how it has helped drive the rally in the US in the last two years, it is perhaps not surprising that we could see some pockets where valuations are out of kilter with what is considered fair value. This could result in further weakness across the board and act as a drag on the wider market. Amazon is also on the ropes on reports that the Trump administration might take steps to help out smaller retailers hurt by its dominance.
FX
The US dollar has once again been a net gainer, for the second day in succession, pushing higher across the board as we come to the end of the quarter.
The euro appears to have given up on moving through the 1.2500 area after numerous attempts to do so and could see further declines as end of week, month and quarter positions get tidied up.
The pound has come under pressure after CBI March retail sales showed a sharp drop, with retailers blaming the cold weather for keeping people at home and away from the high street.
Commodities
Rising builds in US API stocks has seen US prices back away from the top end of its recent range With US production already over 10m barrels a day and the US dollar looking a little stronger. Today’s inventory data would appear to support this with a rise of 1.64m barrels, above expectations and a significant improvement on last week’s 2.62m draw. As winter comes to a close rising inventories are likely to be another barrier to rising prices as the weather warms up.
Gold prices have slid back for the second day in succession as the US dollar recovers some ground after recent losses. While equity markets continue to remain volatile, gold prices could struggle to move higher, while US stocks remain above some key support levels. This could change if we do see further declines in US equities.
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