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Market update

Markets start a new week on a cautious note, as US debt ceiling talks continue

US 100 dollar bills

We’ve seen a modestly subdued session for markets in Europe today, opening higher on the back of the more positive mood coming out of the US, with respect to positive noises coming out from the debt ceiling negotiations at the weekend.

Europe

With the opening of US markets these gains started to melt away in the afternoon session as markets gave up these gains to slide into the red, although the FTSE100 appears to be outperforming, due to a modest rebound in commodity prices which is supporting the basic resources and oil and gas sector.

Wood Group shares have plunged after Apollo Global decided against trying to make a 6th bid for the oilfield services business. Management had previously rejected 5 previous attempts by Apollo to purchase the company, with the most recent bid of £1.7bn being rejected back in early April, on the grounds it significantly undervalued the business. Judging by today’s sharp fall in the share price, below the 155p level we saw prior to the first bid, it would appear that markets disagree with that assessment, even as management reaffirmed its full year guidance for the year.

At its most recent trading update Wood Group reported a 3.9% rise in full year revenues to $5.44m while losses increased to $356m from $136m the year before. The increase in losses was mainly due to a $542m impairment on goodwill and intangibles.

Electrical retailer Currys shares have pushed higher after the company updated its full year guidance for full year adjusted profit before tax to between £110m and £120m, with UK and Ireland EBIT expected to increase by more than 40%. Group sales are expected to see a decline of 7%. Debt is also expected to fall to the lowest end of the previous forecast at £100m.  

US

At one point today it looked as if US markets would see some early gains as we started a new week, however an absolute stinker of an Empire Manufacturing survey, for May, just before the open prompted these gains to slowly disappear.

After seeing a modest rebound in April to 10.8, it had been forecast that we might see a modest decline to -4, and while the survey did show a decline, it was an even bigger -31.8, prompting US markets to open broadly mixed. 

In M&A news US gold miner Newmont said it would be paying $19.2bn to buy Australian miner Newcrest Mining subject to regulatory approval.

There’s been little reaction to the news that the EU has approved Microsoft’s $70bn acquisition of Activision in complete divergence to the UK’s CMA who last month blocked the deal. The EU approval required Microsoft to offer cloud gaming companies 10-year free licences for Activision games including the Call of Duty franchise. While today’s news is welcome news Microsoft still has to secure US regulatory approval on a subject that appears to have prompted significant divisions amongst its rivals, as well as different regulatory regimes. 

FX

It’s been a slow news day on currency markets with the Australian dollar rebounding on the back of a weaker US dollar, and a recovery in commodity prices, over the past couple of days.

The pound has also rebounded from close to its lowest level this month, after sliding sharply over the previous 2 sessions, in the wake of last week’s rate rise from the Bank of England. Today’s buying interest is likely to be caused by modest position adjustment ahead of tomorrow’s unemployment and wages numbers, which are expected to show wage growth remains resilient.       

Commodities

Crude oil prices have seen some modest gains after finishing lower for the 4th week in succession at the end of last week, rebounding from one-week lows. While concerns over global demand have been rising, with today’s sharp drop in the Empire manufacturing index for May being the latest indicator, we’re seeing a more positive bias on an expectation that further weakness will bring the US government back into the market as it looks to refill the SPR. 

 


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