European markets close higher
The final scores in Europe showed some reasonable gains in the wake of the oil price rise, itself fuelled by the bigger than expected fall in US crude stocks. A boost to pharmaceutical stocks also helped matters, as investors bet that Pfizer would turn its attention to another target following the collapse of its $160bn deal to buy Allergan. The closing figures for Europe were:
- The FTSE 100 finished 70.40 points or 1.16% higher at 6161.63
- Germany’s Dax added 0.64% to 9624.51
- France’s Cac climbed 0.81% to 4284.64
- Italy’s FTSE MIB rose 0.77% to 17,240.91
- Spain’s Ibex ended up 0.13% at 8398.6
- In Greece, the Athens market bucked the trend, slipping 1.27% to 554.12
On Wall Street, the Dow Jones Industrial Average is currently up 70 points or 0.4%.
On oil, Chris Beauchamp of IG said:
The positive sheen on stock markets this afternoon would likely have been more of a thin veneer had it not been for a surge in oil prices thanks to the first fall in US stockpiles in two months. More of this is needed however to convert the still robust community of oil bears that expect further declines.
West Texas is up 5.1% at the moment to $37.74 a barrel, while Brent crude is 5.2% higher at $39.84.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
The oil price rise has energised markets which were threatening to drift in an uncertain fashion towards the close of trading. Tony Cross at Trustnet Direct said:
It’s been a decent session for London’s FTSE-100 with the blue chip index seeing gains accelerate into the close. A large fall in the US crude inventory data is certainly helping bolster sentiment with WTI oil lining up for another go at the $40 a barrel mark and as we keep noting this asset really does seem to be driving momentum for the market as a whole.
West Texas Intermediate - the US crude benchmark - is currently up 4.8% at $37.62 while Brent crude is 4.2% better at $39.47.
Back with the news that Pfizer and Allergan have called off their merger, and the collapse has been welcomed by the Democratic frontrunner in the US election:
Glad to hear Pfizer is calling off the merger. We need to close the loopholes that let corporations escape paying their taxes. -H
— Hillary Clinton (@HillaryClinton) April 6, 2016
Updated
Brent crude, which was up around 1.8% before the release of the US crude figures, is now up 2.85% at $38.85 a barrel. David Morrison at Spreadco said:
Crude was already in positive territory for the day with WTI and Brent climbing back above their technically-significant levels of $36 and $38 per barrel respectively.
This push higher began late yesterday and bucked the downward trend that’s been in place since mid-March. The sell-off over the last few weeks is a reaction to the dysfunction apparent within OPEC ahead of the planned meeting between OPEC and non-OPEC producers to freeze output.
Suggestions from Kuwait that there would be a positive announcement on a production freeze at this month’s meeting was partly behind the strength in the oil price earlier in the day.
Here is Reuters on the drop in US crude inventories:
U.S. crude stocks unexpectedly fell from record highs last week as refineries continued to hike output and imports fell, while gasoline stocks rose, snapping a six-week decline, data from the Energy Information Administration showed on Wednesday.
Crude inventories fell by 4.9 million barrels in the last week, compared with analysts’ expectations for an increase of 3.2 million barrels....
Crude stocks at the Cushing, Oklahoma, delivery hub rose by 357,000 barrels, EIA said.
Refinery crude runs, which have remained at record seasonal levels for most of this year thanks to unusually strong gasoline margins, rose by 199,000 barrels per day, EIA data showed. Refinery utilization rates rose by 1 percentage point, although usage may ebb with more maintenance expected throughout this month.
Gasoline stocks, which swelled this winter to record highs and remain at unusually high levels for this time of year, rose by 1.4 million barrels after six consecutive declines, compared with expectations for a 1.0 million barrels drop.
Distillate stockpiles, which include diesel and heating oil, rose by 1.8 million barrels, versus expectations for a 333,000 barrels drop, the EIA data showed.
U.S. crude imports fell last week by 446,000 barrels per day.
Here is the notification on the crude move from the Energy Information Administration:
U.S. commercial crude #oil inventories week ending 4/01/2016 DOWN 4.9 MMbbl, refinery utilization= 91.4% https://t.co/CBIXZMS9Vf #energy
— EIA (@EIAgov) April 6, 2016
US oil stocks fall unexpectedly
A surprise weekly drop in US crude stocks has pushed oil prices even higher.
US DoE US Crude Oil Inventory Change (WoW, w/e 1/Apr): -4937k (est 2850K, prev 2299K)
— Livesquawk (@livesquawk) April 6, 2016
Biggest draw in crude inventories for this week of the year since at least 1997.
— Bespoke (@bespokeinvest) April 6, 2016
Updated
It’s become rather a mixed bag as far as markets are concerned, as Europe heads towards the close of trading.
The FTSE 100 is holding onto its gains, up 20 points or 0.3%, but Germany’s Dax is marginally in the red while France’s Cac has managed to edge higher.
In the US, the Dow Jones Industrial Average has lost its early gains and is now 49 points or 0.28% lower, ahead of the minutes of last month’s Federal Reserve meeting. Connor Campbell, financial analyst at Spreadex, said:
Whilst the FTSE held into its oil- and pharma-inspired gains the picture was far more mixed across the rest of the market.
The Dow Jones [has slipped], a lack of data and hesitation ahead of this evening’s Fed meeting minutes suppressing the appetite of US investors. It will be interesting to see what is uncovered with the latest insight into the inner workings of the central bank. Reports of discord between a dovish Yellen and the FOMC’s more hawkish members have only grown in the past few weeks, and investors will likely be keen to see what kind of rhetoric was used by both sides in March’s meeting, especially if it helps provide an idea of when the balance might shift in favour of those supporting a rate hike.
The FTSE, meanwhile, managed to outperform the rest of the major global indices... thanks to two of its key sectors. Firstly Brent Crude’s $39 per barrel-pushing rebound helped to instil the semblance of stability in the oil stocks (even if their mining peers have been dragged down by a one month low-showing from copper). Secondly the likes of AstraZeneca and Shire saw unexpected growth as the day continued, the fallout from the failed Pfizer/Allergan merger causing many to speculate that the former might be go shopping again to satisfy its M&A-thirst.
More detail of the state of the US job market has just been issued by the Bureau of Labor Statistics. The report says:
Unemployment rates were lower in February than a year earlier in 296 of the 387 metropolitan areas, higher in 76 areas, and unchanged in 15 areas, the U.S. Bureau of Labor Statistics reported today. Eleven areas had jobless rates of less than 3.0 percent and 11 areas had rates of at least 10.0 percent. Nonfarm payroll employment increased over the year in 323 metropolitan areas, decreased in 62 areas, and was unchanged in 2 areas. The national unemployment rate in February was 5.2 percent, not seasonally adjusted, down from 5.8 percent a year earlier.
Feb. jobless rates down over the year in 296 of 387 metro areas; payroll jobs up in 323 https://t.co/x6SHYjuy1h #BLSdata
— BLS-Labor Statistics (@BLS_gov) April 6, 2016
In its latest pronouncement ahead of its meeting next week, the International Monetary Fund has called for labour markets to be reformed to boost jobs. Larry Elliott writes:
The protracted weakness of the global economy has highlighted the need for lower taxes on employment and higher public spending to get the unemployed back into work, the International Monetary Fund has said.
Expressing concern about sluggish growth in the west since the 2008-09 downturn, the Washington-based IMF said it was time for ultra-low interest rates and quantitative easing to be accompanied by a range of structural reforms.
The IMF issued its advice in a chapter from the half-yearly World Economic Outlook (WEO) released before the report’s publication next week.
Romain Duval and Davide Furceri, economists from the IMF’s research department, said: “In the current environment of persistent weak economic activity in many advanced economies, there is a strong case for product and labour market reforms, complemented by macroeconomic policy support, to boost jobs and growth.”
The chapter from the WEO said an example of product market reform would be to make it easier for new firms to break into markets such as retailing and professional services.
Labour market reforms included higher public spending to help the jobless find work, cutting unemployment benefits to encourage the jobless to take low-paid work, cutting taxes on employment, and making it easier for employers to hire and fire full-time staff.
The full story is here:
Wall Street opens higher
As the oil price continues to rise, buoyed by hopes of production freezes after comments from Kuwait, US markets are edging higher in early trading.
The Dow Jones Industrial Average is up while the S&P 500 is 0.09% higher and Nasdaq has added 0.17%.
And after falling 15% on Tuesday on talk that its takeover by Pfizer would fall through, Allergan has recovered slightly, up 0.5% at the open.
Here’s our latest report on the collapse of the Pfizer and Allergan deal:
The world’s biggest pharmaceutical deal was called off on Wednesday when Pfizer and Allergan responded to changes in the US tax regime by abandoning their $160bn merger.
In what will be regarded as a victory for the US president, Barack Obama, in his drive to clamp down on tax avoiding deals, Pfizer – best known for Viagra and its cholesterol pill Lipitor – will now pay the Botox producer Allergan $150m for pulling out of the deal.
The transaction was first announced in November and is the second major deal Pfizer has attempted that has collapsed in two years after it failed to clinch a £70bn takeover of the British drugmaker AstraZeneca in 2014. There was immediate speculation that Pfizer might again turn its attentions to a UK-listed company, with shares in Shire and AstraZeneca each rising by about 3% to lead the FTSE 100 higher.
Both Pfizer and Allergan set out their credentials to remain standalone entities, though Pfizer’s chief executive, Ian Read, said a possible division into two parts – one focused on patented-protected innovative drugs and the other on older products that have come off patent or are close to it – was still on the table.
“We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016, consistent with our original timeframe for the decision prior to the announcement of the potential Allergan transaction,” Read said.
The full story is here:
Most of Europe’s main markets are still up:
Pound falls on Brexit fears
The pound is down against the dollar and the euro on renewed fears over what an exit from then EU would mean for the UK economy.
Sterling fell 0.6% to a near two-year low of 80.85 pence against the euro. It hit a five-week low against the dollar, down 1% at $1.4025.
The pound was also down against a basket of currencies at the lowest level since December 2013.
The falls came as the latest poll on the EU referendum showed 43% of voters wanted to leave, while 44% were opposed to Brexit.
Peter Frank, currency strategist at BBVA:
The closeness of opinion polls means that there is a large risk that Brexit could happen.
This scenario risks a huge slide in sterling. Foreign direct investment and portfolio flows are needed to recycle the UK’s record trade and current account deficits. A Brexit vote ... could halt such sterling supportive net capital inflows.
Updated
The FTSE 100 continues to make gains on the back of the collapsed $160bn deal between Viagra-maker Pfizer and Botox-producing Allergan.
The index is up 0.7% or 42 points at 6,133, with pharmaceutical companies Shire and AstraZeneca at the top of the leader board, up by 3.7% and 3.4% respectively.
Investors appear to be betting that now the deal has collapsed, UK pharma companies might be back on the shopping list.
Chris Beauchamp, market analyst at IG:
The possibility now is that Pfizer goes shopping again, and you might be prepared to develop a case that maybe a firm like Shire becomes the bid target.
The implications of the new [US tax inversion] rules would have to be worked out, but if you’ve got cash sloshing around the sector, people are wondering who will benefit.
Allergan’s full statement on the collapse of the Pfizer deal can be found here.
The company said it was “disappointed” that the deal would no longer happen, but argued it still had a strong future as a standalone company.
Brent Saunders, chief executive and president:
While we are disappointed that the Pfizer transaction will no longer move forward, Allergan is poised to deliver strong, sustainable growth built on a set of powerful attributes.
Leading therapeutic franchises with strong brands across seven therapeutic areas provide the foundation for continued strong growth in 2016 and beyond.
Our pipeline is one of the strongest in the industry, loaded with 70 mid-to-late stage programs including 14 expected approvals and 16 regulatory submissions in 2016 alone,”
This will be fascinating watching. Pfizer and Allergan call off their merger after U.S. move to block inversions https://t.co/2DmjKsnllU
— Francesca Craig (@FVCraig) April 6, 2016
BREAKING: Under intense pressure from US over "insidious" tax loopholes, Pfizer and Allergan call off record $160 billion merger
— The Associated Press (@AP) April 6, 2016
Pfizer and Allergan officially scrap $160bn deal
Pfizer has officially confirmed that it is walking away from its proposed $160bn deal with Ireland-based Allergan.
It follows moves by US President Barack Obama to clamp down on so-called tax inversion deals, where companies relocate their headquarters in order to benefit from lower tax rates.
Pfizer said the deal was terminated by “mutual agreement”. It will pay Allergan a break fee of $150m (£106m).
Pfizer said it was pulling out as a result of the proposed changes in the US, which it judged to be an “adverse tax law change”.
Ian Read, Pfizer’s chairman and chief executive, said:
Pfizer approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies. We remain focused on continuing to enhance the value of our innovative and established businesses.
Our most recent product launches, including Prevnar 13 in Adults, Ibrance, Eliquis and Xeljanz, have been well-received in the market, and we believe our late stage pipeline has several attractive commercial opportunities with high potential across several therapeutic areas. We also maintain the financial strength and flexibility to pursue attractive business development and other shareholder friendly capital allocation opportunities.
We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016, consistent with our original timeframe for the decision prior to the announcement of the potential Allergan transaction. As always, we remain committed to enhancing shareholder value.
Updated
S&P Global Market Intelligence has published a report on what impact share price falls in the first quarter have had on the market value of Europe’s top banks.
HSBC held on to the top spot despite a near 19% fall in value over the first quarter.
S&P notes:
HSBC Holdings Plc remains atop the ranking, but with its shares down nearly 19% in the first quarter, its market capitalisation expressed in terms of euros is no longer more than double that of runner-up Lloyds Banking Group Plc.
Deutsche Bank AG dropped to 20th by market capitalisation from 14th three months earlier, having seen its shares fall by one-third during the first quarter. PAO Sberbank of Russia rose five spots to 12th, while Allied Irish Banks Plc returned to the top 20 by rising 11 places from 26th.
KBC Group NV, Standard Chartered Plc and UniCredit SpA dropped out of the top 20 during the quarter.
Updated
Port Talbot MP: lower Tata losses improve chance of a deal
Stephen Kinnock, the Labour MP whose Aberavon constituency is home to Tata’s Port Talbot plant has been speaking of his hopes that a deal can be done to save the steel plant.
This from Guardian reporter Sean Farrell:
Losses at Tata Steel have halved from the previously reported £1m a day, giving weight to management’s claims that it can turn the business around, the Labour MP Stephen Kinnock said.
Kinnock, whose Aberavon constituency is home to Tata’s Port Talbot plant, said the government should not rush into backing the wrong deal for the business,which Tata put up for sale last week.
He welcomed the interest of metals magnate Sanjeev Gupta in a possible rescue plan but was doubtful about Gupta’s proposal to replace Port Talbot’s giant steelmaking blast furnace with an operation built around recycling scrap steel.
Kinnock has been a fierce critic of the government’s handling of the crisis at Tata Steel, which employs 15,000 people including about 4,000 at the Port Talbot plant in south Wales.
The business secretary, Sajid Javid, arrived in Mumbai on Wednesday to meet Tata’s bosses a week after Kinnock travelled to the city to lobby the Indian conglomerate when Javid was on a trip to Australia. Javid is now trying to help broker a purchase of the business, possibly with government support for the buyer.
Speaking on the BBC’s Today programme, Kinnock said: “It’s very good that Sajid Javid has finally found his way to Mumbai. The proposals Mr Gupta has outlined are very interesting indeed. I’m going to be meeting with him very soon … But there are quite interesting ideas bubbling under and we need to make sure we don’t rush to something because the government is in such a shambles.”
European markets continue to rise, with the FTSE 100 up 0.5% at 6,122.42.
The index of leading UK shares is being boosted by some upbeat news from China and a rebounding oil price (Brent crude oil is currently up 2.3% at $38.73 a barrel).
But it is also benefitting from the expectation that Pfizer is about to walk away from its $160bn merger with Allergan.
Jasper Lawler, market analyst at CMC Markets, explains:
A jump in the price of oil and surprisingly positive service sector data from China has helped lift European shares off three-week lows on Wednesday.
Reports that the Allergan-Pfizer merger has been terminated has counter-intuitively sparked buying in other UK and Irish pharmaceutical groups.
Speculation that Pfizer will look for another partner in its quest to relocate its headquarters and lower its tax burden has sent the shares of Shire and AstraZeneca flying.
Updated
Best selling cars in the UK in March:
- Ford Fiesta
- Vauxhall Corsa
- Ford Focus
- Volkswagen Golf
- Nissan Qashqai
- Volkswagen Polo
- Vauxhall Astra
- Mini
- Fiat 500
- Audi A3
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, has issued a note of caution on UK new car sales, which have seemed unstoppable in recent years.
He suggests consumer appetite will start to wane, with a knock-on effect for the wider economy.
The key drivers of the recovery in car sales are weakening. Unsecured borrowing costs, while still falling, are not declining as sharply as they did in 2015.
Meanwhile, consumer confidence has deteriorated this year and the intensification of the fiscal squeeze in the new fiscal year, which began this week, likely will depress sentiment further.
Car sales contributed 0.3 percentage points to the 2.8% year-over-year rise in overall household spending in 2015, so this slowdown will be discernible in the headline consumption numbers.
Phil Harrold, PwC’s automotive leader, is much more upbeat:
Today’s figures reflect continuing business and consumer confidence, which will undoubtedly be boosted following the recent motor friendly budget that saw no changes to vehicle excise duty and fuel duty frozen for a sixth year.
Business users continue to replenish fleets as more economical vehicles become available and consumers continue to access the very cheap finance deals that show no signs of abating.
Of particular interest is the growth of alternatively fuelled vehicles as technology becomes more advanced but, more crucially, consumer acceptance levels rise.
Updated
New UK car sales rise
New car sales rose by 5.3% to 518,707 in March, boosted by the fact it was a plate change month.
It was the best ever month since the bi-annual plate change was introduced in 1999, according to figures published by the Society of Motor Manufacturers and Traders.
It rounded off a record quarter, with more than 770,000 new cars registered between January and March. That was a 5.1% increase compared with the same period in 2015.
Consumers have been attracted by cheap car finance deals, as well as lower emission vehicles with lower running costs.
Mike Hawes, chief executive of the SMMT welcomed the increase in sales but warned consumer confidence could be undermined “by political or economic uncertainty”.
Updated
There is a 35-40% chance that the UK will vote to leave the EU on 23 June, according to analysts at IHS.
They point out that it would take two years to actually exit following the referendum, but what is unknown is whether the process of Brexit would be “soft” or “hard”. And this would have broader implications for the performance of the UK economy.
The most favourable outcome to a vote for the United Kingdom to exit the European Union would be what IHS terms a “soft” exit. Under this scenario, the UK would conduct amicable and constructive negotiations with the EU resulting in full trade agreements and full UK access to the European Single Market.
On the migration front, the UK would attract highly skilled workers, perhaps through the adoption of a points system as used by Australia. A reduction in the number of less skilled workers coming into the country would have an upward impact on UK earnings; though, this scenario would also hurt the UK’s competitiveness by putting upward pressure on unit labour costs, IHS says.
Under a “hard” exit scenario, the exit could be contentious and lengthy. The UK would struggle markedly over the short and longer term and would find itself excluded from, or having limited access to, the European Single Market. With the UK having limited access to the European Single Market and struggling for trade agreements, there would be significantly lower levels of new foreign direct investment.
The City of London’s position would be compromised and it would lose appreciable business to Frankfurt and Paris. Finally, under this scenario, the UK’s migration policy would result in a lack of incoming workers needed for lesser-skilled jobs, and the resultant reduced workforce would limit potential UK growth.
Updated
More reaction on those better than expected German industrial production numbers...
Jonathan Loynes, Capital Economics:
February’s surprisingly small fall in German industrial production offers hope of a pick-up in GDP growth in the first quarter. But it is too early to conclude that the eurozone’s main growth engine is now firing on all cylinders.
Overall, an encouraging set of figures, given the importance of the German industrial sector. But with other evidence still downbeat, not least on the all-important consumer sector, there is little here to point to a broader upturn either in Germany or the currency union as a whole.
Carsten Brzeski, ING:
Another disappointment. German industrial production posted the expected decline in February, providing further evidence that the economy’s former backbone has become weak. Only the construction sector remains an almost inexhaustible source of growth.
Industrial production has become a kind of problem child over the last months. Despite tentative signs of stabilisation, industrial production has stagnated for a long while.
Still, there are some tender rays of hope at the end of the tunnel: the recent drop in inventories combined with a pick up in corporate loans and capacity utilization at the highest level since end-2011 suggests that it is too early, yet, to give up on the German industry.
Germany: industrial output falls less than expected
In Germany, official figures showed industrial output fell by 0.5% in February, compared with January.
While that doesn’t sound like great news, it was a far better result than the 1.8% drop economists polled by Reuters were expecting.
Andreas Scheuerle, economist at Dekabank, said:
Looking at January and February together, the picture is looking bright. Industrial production is pointing upward.
But nobody should take this as a sure-fire success for the rest of the year. The problems on global sales markets are not solved yet.
Scheuerle said the data pointed to German growth of 0.5% in the first quarter.
The industrial output data was also a welcome relief following shockingly poor figures for industrial orders, published on Tuesday. Orders had been expected to increase by 0.2% in February, but instead fell by 1.2%.
In corporate news, the largest pharmaceuticals merger in history appears to be on the rocks.
It is thought the $160bn (£113bn) deal between US giant Pfizer (best known for Viagra) and Dublin based Allergan (Botox producer) could be abandoned after the US government took new steps to clamp down on tax avoidance deals.
The US Treasury proposed new rules on Monday, which would make so-called tax inversion deals - where companies relocate their headquarters to countries with a lower tax rate - less financially appealing.
We will bring you official confirmation once we have it. In the meantime, read our full story on events so far here.
Updated
FTSE opens higher
The FTSE 100 has opened up 0.4% or 22 points at 6,113.
All other major European indices have also opened higher.
Oil prices rise on hopes of an output freeze
Oil prices rose from one-month lows as traders pinned their hopes on exporters agreeing to freeze production.
US crude futures jumped by more than a dollar, or almost 3%, to a high of $36.92 a barrel.
Brent crude is up 1.6% at $38.48 a barrel.
China services PMI rises
Business activity in China’s services sector increased in March on stronger demand, according to the latest PMI survey.
The Caixin China general services PMI came in at 52.2 in March, up from 51.2 in February. Anything above 50 indicates growth.
That has eased fears over the outlook in China, supporting the view that the economy is stabilising.
Caixin #PMI shows fastest #China economic growth for 11 months in March https://t.co/OXiI3gwJva pic.twitter.com/Dn3TnzuBIu
— Chris Williamson (@WilliamsonChris) April 6, 2016
Here is what’s been happening in Asia...
Asian investors relieved by China services data
Good morning and welcome to our rolling coverage of the world economy, the financial markets and business.
Asian investors were in a brighter mood today than their counterparts in the US and Europe yesterday.
The Nikkei has closed down just 0.1% at 15,715.36, while the Hang Seng was up 0.1% at 20,203.45.
That compared with sharper falls in the US and Europe on Tuesday, as investors became jittery following (another) warning from the IMF about the fragile state of the global economy, and weak eurozone data.
Asian investors were encouraged by an improvement in China’s services sector (more to follow), and a rebound in oil prices.
