Investment market update
UK stocks look set to open slightly higher this morning, following global stocks upwards. Focus of investors will be on any possible steers from the Bank of England after today’s meeting.
The FTSE 100 rose once again after strong performance by BP and Royal Dutch Shell, as the price of crude oil climbed above $40 per barrel. However, shares in soft-drinks makers such as Britvic and Nichols fell after the announcement of a sugar tax in the Budget. Shares in London Stock Exchange Group gained 1.2% after the company agreed a merger with Germany’s Deutsche Bourse.
The Federal Reserve provided a shot in the arm for riskier assets, with US and Asian stocks rebounding after US officials scaled back their interest-rate strategy amid concern over the global outlook. Oil also rallied with high-yielding currencies, while the dollar tumbled against major peers. The Standard & Poor’s 500 Index closed at its highest level this year as commodity shares led the advance as metals prices rallied after the Fed decision. Copper miner Freeport-McMoRan Inc. surged 10%, while Chevron Corp. rose 1.2%. Oracle Corp. rallied to a four-month high, boosting technology shares after its quarterly profits topped estimates. Banks fell on the outlook for a slower climb in rates, with Bank of America Corp. losing 1.9%.
For the first time since the Asian and Russian crises rocked world financial markets in the late 1990s, US monetary policy is as focused on the risks to global growth as it is on the domestic economy. Driving the resurgent internationalism inside the Federal Reserve is concern about how dollar strength — reinforced by aggressive policy easing abroad — could keep US inflation too low when the Fed’s policy rate is close to zero. Another worry is a global economy that’s lumbering along without a prominent engine of growth, said Jon Faust, a former adviser to Fed Chair Janet Yellen. “We have learned that the world is a more fragile place,” said Faust, who is now the director of the Centre for Financial Economics at John Hopkins University in Baltimore. “At times like this, you don’t want to risk a significant slip because globally there are so few economies with really strong policy options.”
Companies that profit from Britain’s sweet tooth fell as the UK unveiled a sugar tax, a surprise move that adds another burden to food and beverage companies grappling with marketing restrictions and a shift toward healthier fare. Soft-drink makers Britvic Plc and A.G. Barr Plc both declined more than 5% in London, while ingredient suppliers Tate & Lyle Plc and Associated British Foods Plc fell as much as 4.9% and 1.5%, respectively. UK Chancellor George Osborne said the levy on the soft-drinks industry will be introduced in two years’ time, in two bands depending on how much sugar is in a drink. The tax will raise £520 million in its first year, according to government estimates, part of which will go to schools to promote healthier lifestyles.
Shire Plc fell the most in a month as investors who pummelled Valeant Pharmaceuticals International Inc.’s stock yesterday shunned other specialty drug-makers. Mallinckrodt Plc and Allergan Plc dropped for a second consecutive day after Valeant shares fell the most ever on Tuesday. The plunge came as Canada’s Valeant cut its forecast for the year, issued a press release with a $600 million typo and held a conference call that left analysts and investors baffled. Specialty drug-makers like Shire and Valeant sell medicines for diseases such as cancer and rheumatoid arthritis, which usually cost much more than pills for common conditions such as high blood pressure. Presidential candidate Hillary Clinton has made drug pricing one of the focal points of her campaign, criticising Valeant in a television ad that started running last week. Valeant has also been the subject of regulatory and congressional investigations.