We’ve seen a negative start to the last trading week before Christmas with the FTSE100 bucking the negative tone due to a strong performance from the energy sector, along with telecoms amidst M&A speculation.
Europe
This morning’s jump in oil and gas prices has sentBP and Shell higher on the back of the decision by BP to suspend all tanker transits through the Red Sea until further notice due to safety concerns over Houthi rebel attacks.
Given the importance of the Red Sea and Suez Canal as a crucial transit point for both crude oil and natural gas these suspensions mean that cargos face a lengthy diversion around the Horn of Africa which will add significant costs to company supply chains, as well as having significant inflationary impacts.
Vodafone shares are on the up on reports that the Iliad bid for its Italian business is back on the cards almost 2 years after Vodafone rejected a similar €11bn bid for the same business, arguing that the bid was too low. Since then, the Vodafone share price has continued to sink, slipping to 25-year lows earlier this month, and previous CEO Nick Read has gone, replaced by Margherita Della Valle.
Today Iliad has returned with a €10.5bn bid with today’s option being that Vodafone would get 50% of the share capital in the new company along with a €6.5bn cash payment. If management has any semblance of good sense, they won’t dismiss this offer out of hand in the same way they did in February 2022. Vodafone has said it is exploring its options with respect to its Italian business and is looking at other options, without specifying what those options are. The reality is that apart from Iliad there has been relatively little interest from other parties in the last 2 years which suggests that this offer may be too good to ignore.
Entain shares have continued their recent rebound after the departure of their CEO Jette Nygaard-Andersen last week, and the presence of a new activist investor Corvex, who have pledged to shake up the business. A broker upgrade from Jeffries to a “buy” on an expectation that we could see a spinoff of the underperforming BetMGM stake, which caused Goldmans to downgrade the business at the end of November.
Rolls-Royce is also getting a lift on the back of weekend reports that Ukraine is mulling the development of its Small Modular Reactor nuclear technology.
On the downside Mexican silver miner Fresnillo is the worst performer after being downgraded by Morgan Stanley on concern over higher cost pressures on its profit margins.
US
US markets opened higher as investors absorbed some of the pushback from senior Fed officials about the prospect for rate cuts as early as March, with the outperformance coming mainly from the Russell 2000 which has rallied over 20% from its October lows, with almost 6% of that coming last week.
Apple shares have seen strong gains in the last few weeks, regaining its $3trn market cap in the process, however its market share in China looks set to face fresh challenges on reports that more Chinese companies are ordering staff not to bring their iPhone devices to work. This growing protectionism could well mean that Apple, along with Samsung could see its devices end up being shut out of one of its biggest markets.
On the back of concerns expressed by the UK’s CMA back in November, and the fact that the deal has been stalled for months, Adobe and Figma announced that they were giving up on the $20bn merger citing a failure to agree agreement with EU and UK regulators. Adobe went on to say it was not looking at any remedy packages in relation to the concerns raised by the CMA. The costs of terminating the deal are $1bn.
FX
The euro has shrugged off a disappointing IFO business climate survey for December which showed economic confidence in Germany slowed again. This shouldn’t have come as a surprise to those who looked at last week’s flash PMI numbers which showed an unexpected slowdown from the pickup seen in November.
The US dollar is broadly stronger after a succession of Fed officials continued to push against the dovish reaction to Powell's comments last week. The Japanese yen is the weakest ahead of tomorrow’s Bank of Japan rate meeting where it is expected that despite all the recent speculation rates will be left unchanged.
Commodities
Despite the prospect of supply disruptions in the Red Sea caused by Houthi rebels in Yemen oil prices had been under pressure initially, before reversing sharply mid-morning. The catalyst behind the sharp change in sentiment was the news that BP became the latest global company to announce it was pausing all tanker transits through the Red Sea until further notice. This appears to have prompted a slight defensive bias along with the prospect that inflation might become stickier as higher trade costs get passed down through supply chains.
There’s been precious little movement in gold prices today, with higher yields serving to cap the upside and geopolitical risk limiting the downside.
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