Europe

After an initially positive start to the day European markets have struggled to make much in the way of progress, despite a huge amount of M&A news hitting the tape. It appears to be becoming much more difficult to separate the optimism around the chatter about progress on a vaccine, with the economic reality that tighter restrictions are likely to curtail the current rebound in economic activity across the bloc.

The rising tide of coronavirus cases across the UK and Europe and the resultant tightening of restrictions, along with the announcement by the CEO of the world’s largest vaccine maker, the Serum Institute of India, that it could take until 2024 before everyone is inoculated has helped to temper some of this morning’s early enthusiasm. 

G4S shares have surged on reports that privately owned Canadian private security firm GardaWorld has made an all cash offer of 190p per share, or £3bn, for the business. The Canadian company said that it had approached the G4S board on three occasions to discuss a deal but had been rebuffed at every turn. G4S has been a business that has seen its air share of problems over the past three years, its share price down sharply from the record highs seen back in July 2017. Earlier this year the company reported a £91m loss after writing down the value of its cash handling business, and has also been involved in a number of incidents that have damaged its credibility

Last year the company was stripped of its contract to run Birmingham prison, while earlier this month the Serious Fraud Office charged three former executives of the company with defrauding tax payers, after it was found the company overcharged the government in respect to the number of tags it used on offenders. In 2017 the company was criticised over claims of excessive behaviour on the part of some of its staff at its children care homes business which it has since sold, as well as some of the immigration centres it used to run. I

There has also been some chatter in the Swiss media that the country’s two biggest banks, UBS and Credit Suisse might be looking at a possible merger deal, after reports that Axel Weber, Chairman of UBS had discussed the possibility with his Credit Suisse counterpart Urs Rohner.

There has been a great deal of speculation about the prospect that we could well see some consolidation within the European banking sector, however most of the focus has been on the EU banking sector, which has problems aplenty all by itself. There are far too many banks in countries like Spain and Italy with fragile balance sheets, hence the recent speculation over Caixa Bank and Bankia, not to mention concerns about Germany’s Deutsche and Commerzbank, where some consolidation is long overdue.

A merger of Switzerland’s two biggest banks appears to be trying to address a problem that doesn’t exist, and merely gives the Swiss government an even bigger too big to fail institution. This in itself is likely to provide a huge barrier to any tie up.

The weakness in the oil price after OPEC downgraded their estimates for 2020 global demand has seen the oil and gas sector weigh on the FTSE100, with BP and Royal Dutch Shell dragging on the index, along with a firmer pound.

US

US markets have opened broadly higher, boosted by various M&A announcements that have come out over the weekend, and the old well used chestnut of optimism over the delivery of a vaccine by year end.

US pharma company Gilead Sciences who have agreed to buy cancer drug maker Immunomedics for the sum of $21bn, funded by $15bn in cash, and $6bn in newly issued debt, while Softbank appears to have finally agreed a price with US graphics chip maker NVidia, for UK chip company ARM Holdings of $40bn, as it seeks to bolster its balance sheet after a rather troubled 2019, as well as the recent scrutiny of its big derivative bets on some big US tech shares.

Nvidia shares have moved higher on the back of this morning’s news, however given the sway over the global chip market such a deal would give them global regulators may well have something to say about whether this deal goes through in its current form. We could also see some pushback on the part of the likes of Apple which licences technology from ARM Holdings for its iPhone and iPad products. While Nvidia CEO Jensen Huang has assured the company has no intention of abusing its position when it comes to ARM Holdings and its clients, previous experience of broken promises from US Company CEOs, namely the hollow assurances Kraft gave about Cadbury, regulators could well set a very high bar to allow any deal through.

Confirmation from Oracle that they are leading the race to buy TikTok’s US operations is also helping on the margins, with the shares higher on the day, though there are some reports out of China that suggests neither Microsoft or Oracle will be allowed to purchase the business, with reports that ByteDance won’t sell or transfer the TikTok algo in the event any sale does take place.

Delta Airlines is also in the news after the airline announced it was looking to raise $6.5bn in new bonds and loans, backed by its SkyMiles loyalty program in order to help bolster its balance sheet against a slowdown that is likely to last a lot longer than originally envisaged. Airlines globally had been hoping that a resumption of capacity to levels above 60% of normal would take place by the beginning of Q4. This now looks like wishful thinking with September capacity likely to be 60% below last year’s levels, and unlikely to pick up quickly any time soon. Despite this Delta shares have pushed up on the day.

Having seen their shares take an absolute beating last week Nikola management have pushed back with a rebuttal to the allegations made by two short seller hedge funds last week. It has outlined a number of examples which it said was false and misleading. The pushback hasn’t stopped the shares from coming under further pressure today, begging the question that, if the allegations are false then why aren’t they threatening a lawsuit?

FX

The pound has managed to recover some of last week’s lost ground ahead of a vote later tonight on the government’s Internal Market Bill. There appears to be some unease amongst certain members of the Conservative party about the wisdom of certain parts of the IMB, which is prompting some to break ranks and seek changes which don’t run up against international law conventions.   

The US dollar has slipped back across the board ahead of this week’s latest FOMC rate decision as traders pare back some of the rebound seen in the last couple of weeks, with speculation starting to grow that the Fed could well deliver a particularly dovish message in its pursuit of its new policy target of average inflation targeting.

Commodities

Crude oil prices have also come under pressure after OPEC downgraded its outlook for global oil demand to 90.2m barrels a day for the rest of 2020. Concerns about a continued slowdown in oil consumption appears to have prompted this reassessment, against a backdrop of worries about renewed localised lockdowns in the wake of the onset of colder winter weather. 

Gold prices have edged higher on the back of a weaker US dollar.

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