UK Market Comments

In mid-morning trading the FTSE 100 is sharply lower once more, with Shire Pharmaceuticals providing the catalyst.

Any hope of today seeing a continuation of yesterday’s small gains was wiped out by the news that Shire’s deal with AbbVie was under threat of being undone. The news took around 30 points off the index, representing the majority of early losses, but the selling gathered pace as the morning continued. Fellow tax-inversion takeover target AstraZeneca was in retreat as well, but the 3.5% loss was as nothing to the 25% slump in Shire that wiped out all the gains made since mid-June. Astra’s deal looks equally uncertain now, since the loss of tax benefits will result in Pfizer lowering its price, diminishing the attractiveness of the deal to Astra shareholders. One spot of good news was the drop in the UK unemployment rate to a fresh post-crisis low. Even average earnings rose faster than expected and with inflation falling UK consumers can feel marginally more confident about the future. Sterling’s bounce on the news was short-lived however, with the impact of yesterday’s inflation data still weighing heavily.

The rush to buy up US Treasuries is still the driving force at present, while gains in US indices are still proving to be fleeting. Intel’s earnings helped to stabilise the situation late yesterday evening, but with Europe in full retreat again US stocks are unlikely to escape unscathed. Unguarded talk about QE4 is now doing the rounds, which is an indication of how nervous investors are rather than any actual indication that the Fed is moving in that direction. After five years, the economic recovery is still not self-sustaining, a fact that should be more worrying than any drop in oil prices or the fresh woes in the eurozone. Ahead of the open, we expect the Dow to start 18 points lower at 16,297.