FTSE opened the week mostly in the green. Early gains were backed by business news in London led by 2.95% surge in Shire as its non-stimulant ADHD treatment received European approval.
Energy stocks rank among the top gainers in London as they benefit from recovery in oil markets this morning. Nonetheless, the ground in the oil market is soft and could rapidly be a source of downside reversal should the market downheartedness in the US dollar dissipate. In fact, odds for a December Fed rate hike could only improve after last week’s slump following the Fed meeting.
The pound is set to recuperate against the US dollar as the improvement in UK’s market conditions and wages revives the hawks among the BoE members. In combination with the delay in Fed normalisation, the setting now becomes fundamentally favourable for a sustainable, mid-term recovery in cable. The pound would look to recover 50% of losses suffered between June 2014 and April 2015; hence an advance to 1.5880/1.5900 area is a fairly realistic one-to-three week target.
The appreciation in the pound could return back to business headlines in weeks ahead and could necessitate strong macroeconomic news in order to keep the ground solid in the FTSE index. The 6000/6025 is expected to hold given the sparsity of major macro news from the UK this week.
Volkswagen Weighs Heavy on the DAX
European indices are slightly higher this morning. The latest release of the Chinese ‘Beige Book’ implies that ‘current market perceptions of China are "thoroughly divorced" from the reality on the ground’.
The poor German PPI is likely imbuing some speculation of additional ECB QE and somewhat underpinned by comments from ECB’s Linde that the programme will continue until inflation targets have been reached but that there was no need to change the current status quo.
The DAX is failing to benefit from this dovish talk in early trade as Volkswagen sells off dramatically in the wake of news that it had been concealing facts on its diesel emissions measurements. With orders from the US government to recall almost 500,000 cars, the back of the envelope figure for the maximum fine comes in at around $18bn. This morning alone has seen €15bn wiped from the VW share price as the shares plunged towards and below the €130 per share mark, last seen in 2004. The share price had already been in decline since reaching a peak back in March earlier this year.
Volkswagen is the largest manufacturer of automobiles in Europe and one of the biggest firms in Germany. VW revenue totalled €200bn last year. For now, investors seem a little reluctant to buy in at a level that in the past would have seemed a downright bargain.
Investors are erring on the defensive as healthcare and utilities seem to be the go-to stocks this morning.
Today’s Equity Highlights:
Volkswagen (OTC:VLKPY) (-15%) admits diesel emission cheat - could face a fine of $18bn (around $34k per car).
Shire (NASDAQ:SHPG) (+2.7%) - the top performing FTSE stock today following EU drug approval and an upgrade to overweight from Barclays.
RSA (LONDON:RSA) (-20%) having a troubled day as Zurich terminates talks on merger plans. Cut to sell at Panmure, hold at Shore Capital.
Berkeley Group (LONDON:BKGH) (+0.41%) its first day of trading on the blue-chip FTSE 100 index, having been promoted in the London Stock Exchange’s quarterly review.
SABMiller (LONDON:SAB) (+1.4%) Moved to ‘not rated’ at GS. Citi states that the deal is likely to happen.
SSE (NYSE:SSE) (+ 1.61%) Raised to outperform at Macquarie Group, stating that European utilities are set for structural shift and seen outperforming on strong power distribution exposure.