Greece continues to occupy the headlines and the parliament, by all accounts, will have only a matter of days to pass economic reforms if the bailout aid is to be released. It’s widely expected that the IMF will have wait a few days but will be paid. Tsipras may have more pressing personal issues as without a parliamentary majority behind the proposals he may be forced to resign.
Markets are consolidating awaiting further developments but in the main, the imminent likelihood of ‘Grexit’ has dissipated for now.
The Fed’s Powell and the Bank of England’s Weale are both intimating the possibility of monetary tightening before the end of the year. The greenback is in demand and the dollar index is at a 1 week high; the 1.8% contraction in May’s durable goods orders evidently being tempered by the expected upside revision to first quarter US GDP later this afternoon.
The UK market, despite the hawkish comments is holding firm with energy, materials and consumer staples leading the gainers. Given that the last vote saw resulted in 9-0 to keep rates as is, one has to question the rationale surrounding Mr. Weale’s comments. Surely if a member of the MPC feels that a rate hike is appropriate then he should perhaps think about voting in favour of it? Sterling is slightly stronger nevertheless and is approaching the $1.58 level.
The FTSE is outperforming its European counterparts; up 0.43% on the day with broker upgrades and M&A rumours fuelling the index.
Royal Dutch Shell (LONDON:RDSa) (+1.08%) The price of Shell's London shares has declined 15% since April 7, the last trading day before the merger announcement but the oil company has benefitted from an upgrade from Deutsche Bank (XETRA:DBKGn) today. Shell is now set to the world’s biggest gas producer The potential acquisition of BG Group (LONDON:BG) is key to the substantial restructuring opportunities in Shell. Once finalised, the BG deal will see Shell's proved reserves and current production increase 25% and 20%, respectively. - A price target of 2425p remains in play.
Sainsbury (+2.53%) Another broker upgrade for Sainsbury has pushed the company to the top of the index this morning dragging Morrison (+1.89%) and Tesco (LONDON:TSCO) (1.95%) along for the ride. Despite a fairly downbeat year for the sector, we may now over the worst for UK supermarkets. Cost cutting and improving margins along with some investor bargain hunting may culminate in additional gains in this sector.
Barratt Developments (LONDON:BDEV) (-1.11%) MPC member Weale’s comments have hit their mark this morning with the house builder sector under pressure on fears that a rate hike may be imminent. Given that the voting breakdown remains unchanged at 9-0, it is still rather unlikely that the BOE will act as early as August. There is a strong possibility that a hike will come before year end but it will be the latter part of Q4 at least.
Carnival (LONDON:CCL) (+0.18%) Second quarter profits beat expectations for the cruse operator and bookings have improved and are well above those of last year The forecast for the year end may be on the cautious side but as the share price up 15% year to date and approaching its all-time high, we are seeing something of a subdued reaction in London trade today.
We are calling the Dow down 34 points this morning to 18110.