Europe

It’s been a quiet but positive start to the week for markets in Europe, after Asia markets largely got the week off to a positive start, after the People’s Bank of China unexpectedly eased monetary policy.

The FTSE100, has had another good day, moving above the 7,600 level, to another post lockdown high, helped largely by M&A activity with the weekend news of Unilever’s bid for GlaxoSmithKline’s consumer goods business, reinforcing the truth that a lot of companies on the UK’s benchmark index are seriously undervalued.

GlaxoSmithKline and Unilever have topped and tailed the FTSE100 after it was confirmed that Unilever had tabled a £50bn bid for Glaxo’s consumer health care business, which Glaxo has a stake in, along with Pfizer who hold the remaining 32%.

While the bid is being perceived as good news for Glaxo, the market reaction has been less than positive for Unilever with the share price reaction speaking volumes, with the shares sinking to 22-month lows on speculation it may have to tap shareholders for extra capital to finance any deal.

This feels like a step too far for Unilever, certainly in terms of the price, and while it might act as a decent fit for its own business, the market reaction suggests that it’s a different answer to the one Unilever needs to address.

While its peers have gone from strength-to-strength share price wise, Unilever shares have struggled to keep up. Its ability to grow revenues has lagged its peers and it’s hard to see how an expensive acquisition will deal with this particular problem. With the benefit of hindsight Glaxo may feel its rejection of Unilever’s December offer could be an opportunity missed.

Their claim that the Unilever bid seriously undervalues the business runs counter to its desire to offload it, or spin it off, with previous valuations of the business coming in between £37bn to £48bn. If Glaxo doesn’t want to sell, so be it, but Unilever should be wary of paying too much.

Today’s M&A activity has also given a lift to Reckitt Benckiser, which has also been facing similar challenges in the last two years, when it comes to growing its revenues.

Hikma Pharmaceuticals is also higher after announcing it had signed a deal with Teligent to acquire its Canadian assets for the sum of $45.75m

Taylor Wimpey shares have rebounded from its Friday six-week lows after reporting that it expected to report full year results in line with expectations, and with an improvement in operating margins. Total UK home completions increased by 47% to 14,087. Average selling prices were also higher at £332k, a rise of 3%. The order book for 2022 of £2.55bn down slightly from levels last year.

Its Spanish business has also started to show signs of picking up again with 324 new homes on the order book compared to 126 a year ago.

Also, on the downside Darktrace shares have slipped back on criticism from short seller ShadowFall that its business model is watery-thin and won’t stand the test of time. The hedge fund says that its addressable market is nowhere near as big as they think that it is. Last week Darktrace shares shot higher after a better-than-expected trading update, with the company upgrading its H1 revenue to $190m, with year-on-year revenue growth expected to rise between 42% and 45%, up from a previous forecast of 37% to 39%.

US

US equity markets are closed for Martin Luther King Day.

FX

FX markets have been subdued today in the absence of US markets with the Norwegian Krone and Canadian dollar edging higher, while the Japanese yen is weaker ahead of tomorrow’s Bank of Japan policy decision.

Commodities

Brent crude oil prices have slipped back after briefly hitting a new three year high earlier today, as concerns over another SPR release help to cap the upside. Libya has also seen its output rise to 1.2m barrels a day, as it looks to bring production back online after recent outages.

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