market relief

European stock markets are in the red this morning as traders lock in their profits. 

The yield on the US 10-year government bond is back above 3%, and this is also a factor in the equity sell-off as investors seek attractive returns from assets that are deemed to be lower risk. Equity benchmarks in Europe have been pushing higher since last month and today’s decline might attract fresh buyers. 

Lloyds’ share price is a touch lower this morning after the bank posted figures that were good, but slightly below expectations. First-quarter underlying pre-tax profit jumped by 6% to £2 billion, while analysts were expecting £2.08 billion. Cost-cutting and improved efficiency helped the bank post higher profit. The balance sheet is in better health too as the common equity tier (CET1) ratio is now 14.4%, up from 13% at the end of last year, which will reassure investors. Impairments doubled, but that was partly down to the collapse of Carillion, which was a unique case. The net interest margin, which measures the difference between how much interest it pays out on savings and how much interest it charges on loans, increased to 2.93% from 2.86%.

Whitbread revealed plans to demerge Costa Coffee from the rest of the business. The group was under pressure from investors to split the business in two, as they feel it would provide better shareholder value. The move with be completed in the next two years, and it will allow Costa Coffee and Premier Inn to focus on their respective expansions plans.

Shire has confirmed it is considering an offer from Takeda. The Japanese company is offering the equivalent of £49 per share. Judging by the decline in Takeda’s share price since it announced its interest in Shire, investors are unhappy with the proposed deal. Takeda is already heavily indebted, so the buy-out would certainly ramp up its debt levels. Shareholders in Shire need to be aware of the poor share price performance of Takeda in recent months, as they would end up with a stake in the Japanese company should the deal go through. Shares in Shire are down 0.6% at 3905p.

EUR/USD is weaker today on account of the firmer US dollar. Rising bond yields in the US indicates traders believe the Federal Reserve are keen to continue on their interest-rate hiking cycle. French consumer confidence ticked up in April to 101, from 100 in March, but the announcement failed to boost the single currency.

We are expecting the Dow Jones to open down 54 points at 23,970 and we are calling the S&P 500 down 4 points at 2630.

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