Europe

A recovery in Asian markets, after South Korea became the latest country to gain an exemption from steel and aluminium tariffs, along with comments from US Treasury Secretary Steve Mnuchin that he was cautiously optimistic that some form of agreement can be reached with China, saw European markets open higher this morning, as the widespread pessimism from last week gave way to a slight recovery in optimism early on.

This initial buoyancy has been difficult to sustain with stocks pulling back from their highs on the back of a rising euro, as well as some concern that the recent declines could also be indicative of developing micro fissures in the economic arguments for higher stock prices, and a buoyant global growth story.

On the companies’ front M&A is still dominating proceedings, which ordinarily should be positive for sentiment, yet in Europe equity markets are struggling to rebound.

Packaging company Smurfit Kappa is the worst performer after the company rejected a new offer of €9bn from America’s International Paper. The new offer worth €37.54 was rejected last week as failing to value “the groups intrinsic worth and future prospects”, which is usually code for dig a little bit deeper if you want to get serious about starting a wider conversation. 

Elsewhere in the M&A universe GKN is again in the news as shareholders continue to mull over the Melrose approach, with management urging the alternative of a deal with US based Dana who today announced an increase to the cash portion of their bid to $1.8bn, to acquire GKN’s automotive business. Major shareholders appear to be split between the two bids with the Melrose option the more controversial of the two and one might argue the more short termist as well as risky, if recent warnings from Airbus are any guide. Last week GKN’s biggest customer warned that it could take its business elsewhere if the Melrose deal were to be accepted. Given this intervention it remains difficult to see how any deal would be able to deliver the savings that Melrose claims it will.

JD Sports is also higher after the company announced that it would be acquiring US sports shoe chain Finish Line for £400m, giving JD Sports a major foothold in the US market, a brave move given the problems already being faced by other established players like Foot Locker and Dicks Sporting Goods.

Gold miners have also had a good day with Fresnillo up sharply after Goldman Sachs added the stock to its conviction buy list and urged investors to buy gold on expectations of higher inflation and concerns about further declines in equity markets.

US

US markets opened higher today, rebounding strongly on optimism that the trade tensions that weighed on risk appetite last week, could be starting to subside, after US Treasury Secretary Steve Mnuchin’s comments at the weekend on Fox News, that he was cautiously optimistic about arriving at an accord with Chinese officials with respect to trade.

Facebook shares have continued to slide as the company continues to face negative publicity over the use of its customer’s data, with the FTC announcing a probe into the company’s data practices. With its clients queuing up to pull advertising slots we could see further declines. It would appear that for now the advertising campaign launched by the company over the weekend is having little effect on the diminishing trust in the brand, with the #deletefacebook campaign on social media still cutting through.

US sports shoes maker Finish Line opened higher this morning after finding itself the subject of a bid from UK sports retailer JD Sports of $558m. This is a bold move by the UK sports retailer as it looks to diversify into different overseas markets, given that the US market is undergoing significant problems of its own, as can be seen from the recent woes of Under Armour, Foot Locker and Dicks Sporting Goods.

FX

The US dollar has remained under pressure, though it has managed to recover some ground against the Japanese yen, after hitting sixteen month low, as concerns grow around the stability of Prime Minister Abe’s government in the wake of an ongoing political scandal.

The euro has rallied back above the 1.2400 level after comments from Bundesbank President Jens Weidmann, which urged a faster end to the current stimulus measures, while also arguing that the prospect of a rate rise in 2019 remains a realistic possibility.  This rise in the euro has taken all of the heat out of the rebound in European markets sending stocks sharply lower.

Commodities

Crude oil prices appear to be running into some resistance close to their peaks earlier this year after last week’s suggestion that Saudi Arabia might look to extend the production cap into 2019. The appointment of John Bolton as National Security Advisor, a renowned hawk on Iran, has also raised concerns that the US might look to pull out of the nuclear deal, paving the way to blocking Iran’s ability to export to the global market. This would be hugely significant given that Iran is OPEC’s third biggest exporter behind Saudi Arabia and Iraq. 

Gold is also higher on the back of a weaker US dollar and an upbeat note from Goldman Sachs on the prospects for gold miners and the gold price in general.  

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