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Profit-taking has dented European equity markets. 

Europe

Some stocks saw multi-month highs yesterday, and they are now in retreat. The increase in US government bond yields has given traders an incentive to seek out safer assets.

Lloyds reported first-quarter figures that were good, but not good enough. First-quarter pre-tax profits in increased by 6% to £2 billion, but analysts were expecting £2.08 billion. The banking business performed well, and costs were cut by 5%. The capital position of the company improved too as the common equity tier (CET1) ratio rose to 14.4%, from 13% at the end of last year. Provision for the mis-selling of payment protection insurance was £90 million, but it continues to a fall in size. The stock is down 1.7% today.

Shire confirmed it is contemplating the takeover proposal by Takeda, and shares in Shire are down 2.8% at 3825p. Takeda’s offer is the equivalent of 4,900p. Should the deal go ahead, investors in Shire would wind up owning Takeda stock, while also receiving a cash payout. Takeda has a high level of debt on its books, and seeing as the share price is down 29% year-to-date, Shire shareholders may not be so keen on the offer. 

Whitbread has succumbed to pressure and announced plans to demerge the Costa Coffee and Whitbread businesses. The move follows mounting pressure on the company from activist investors like Elliott Advisors and Sachem Head. The motivation behind the move is to maximise shareholder value. Both Costa Coffee and Premier Inn have their own expansion plans.

Comcast have offered to buy out Sky for £22 billion, which equates to £12.50 per share, while the stock is currently at 1358p. Rupert Murdoch, who already owns 39% of Sky, has put in a bid to try and acquire the remaining 61%, but Sky has now withdrawn its recommendation for the Murdoch offer in light of the Comcast proposal. The UK regulators aren’t too keen about the prospect of the Murdochs owning all of Sky because of media plurality.

US

Stocks are in the red as markets struggle to undo last night’s decline. Now that US government bond yields are higher, and the benchmark 10-year yield is above 3%, investors are rethinking their positions in the equity markets.

Boeing shares are in demand after the company posted first-quarter figures that comfortably topped estimates. Revenue was $23.38 billion, while earnings per share (EPS) came in at $3.64, while the consensus was for $22.26 billion and $2.58 respectively. The company also lifted its full-year outlook, which added to the bullish sentiment. The stock is a major component of the Dow Jones and it says a lot that Boeing’s good results couldn’t prevent the index from going into the red.

Twitter also announced solid first-quarter figures, but concerns about new regulation in the sector put pressure on the stock. EPS was 16 cents, while analysts were expecting 12 cents. Revenue was $655 million, and traders were predicting $608 million. Monthly active users is a key measure for social media stocks, and Twitter recorded 336 million, above the consensus for 334.2 million. Jack Dorsey, the CEO, was quizzed about data privacy on the investor conference call. Even though Mr Dorsey made it clear that Twitter operates in a different space to Facebook, traders are still nervous. 

FX

The US dollar index hit its highest level since mid-January as US 10-year yields rose above 3%. Some dealers are predicting another three interest-rate hikes from the Federal Reserve this year, which would make four hikes, and that would compare with the three we saw in the past two years. The prospect of a quickening pace of rate hikes is driving the greenback higher.

It has been a quiet day in terms of economic data from the eurozone. The only important announcement came from France, and we saw an increase in consumer confidence this month. The reading for April was 101, up from 100 in March. It is encouraging to see an increase in consumer confidence, but EUR/USD still suffered today on account of the firmer US dollar.

Commodities

Gold has fallen to its lowest level in over two weeks on account of the rally in the US dollar. The inverse relationship between the two markets is still strong, and since there is talk the Fed will raise interest rates three more times this year, the gold market may come under pressure. Even though the metal is weaker today, it is still range-bound, and a break below $1,310 could point to further losses.

WTI and Brent Crude oil has been hit by profit taking after a strong day yesterday. The oil market experienced volatility on the back of the energy information administration report, which showed a build of both oil and gasoline inventories in the US. The energy market is still firmly in an upward trend and while demand is strong, and concerns about supply persist, its outlook is likely to remain bullish. 

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