THEattack that hit Manchester yesterday evening (at least 22 dead and over 50 wounded) casts a sinister light on the upcoming British elections. But it also affects the pound and raises the temperature on all markets, as demonstrated by the caution of the Tokyo Stock Exchange, the increase in the yen (to 111,04 against the dollar +0,1%) and gold (+0,2. 1262,68% to XNUMX dollars), even if the markets are now accustomed to pricing the risk of terrorism in a geopolitical framework in constant and often surprising evolution.
Confirmation was provided yesterday by Angela Merkel: “The euro is too low” said the Chancellor in the most improbable venue, a visit to a sole in Berlin. But the statement, made to justify the success of German exports, was the propellant to the rise of the single currency. Just yesterday, moreover, France and Germany announced an axis for the relaunch of the EU with concrete measures (starting with corporate taxation), while pressure on the ECB is growing and rumors about the request for a German banker (only in October 2019, fortunately for us) as Mario Draghi's successor.
A completely different climate on the other side of the Atlantic. Donald Trump, who will land in Rome today accompanied by Melania and her daughter Ivanka, has delivered his budget proposal (4.100 trillion dollars) to Congress: deep cuts in social spending, a sharp increase in the defense budget and he is back on the list of spending the wall with Mexico which, for now, has not suffered damage from Trump's pressure (GDP has been adjusted up by 0,7%). Will the president, weakened by Russiagate, be able to advance such a radical project? Wall Street seems skeptical but consoles itself with the petrodollars arriving from Ryad.
ASIAN BAGS FLAT. YEN AND GOLD RISE
Here is the financial panorama at the start of a day which, among other things, will be dominated by the release of the flash estimates of the PMIs of Germany, France and the eurozone as well as on French business confidence and the German Ifo.
This morning the stock exchanges of Asia are little moved. Tokyo's Nikkei index is down 0,1%. Hong Kong gains 0,2% and Shanghai loses 0,1%. Seoul +0,5% and Mumbai -0,5%.
DEFENSE TITLES FLY. M&A ARE BACK
Wall Street climbed yesterday evening thanks to the boost of defense and oil stocks: the Dow Jones rose by 0,43%, S&P +0,52%. Better the Nasdaq (+0,82%). Tensions between powers in Washington are helping to weaken the dollar, with the euro rising to 1,123 from 1,120 by Friday night's close.
The bond market also signals that the honeymoon between Trump and the financial market is over: the differential between the yield on the 10-year Treasury Bill and its 2-year counterpart is 96 basis points, a flattening that signals a deflating expectations of economic growth.
Defense stocks soar after the 350 billion dollar arms deals signed by Trump with Saudi Arabia and the Gulf countries (Lockheed Martin +2,4%, Raytheon +3,4%). Boeing gained 1,5%. The wave also touches Fincantieri (+1,68%): according to Banca Akros, the company will be involved in one of Lockeed Martin's orders.
M&A are making a comeback. While waiting for an agreement between Philip Morris and Altria, the market is celebrating the paper-to-paper merger between the American Huntsman and the Swiss Clariant, which will give rise to a chemical giant with an enterprise value of 14 billion dollars, which becomes 20 billion if debt is included.
The market's attention is now turned to the minutes of the latest FOMC meeting, which are due out tomorrow and which could provide indications as to when the Federal Reserve will begin trimming its balance sheet.
TURNOVER IN FORD, FIAT CHRYSLER DOWN AGAIN
Ford climbs (+1,5%) after the change at the top: Jim Hackett, formerly responsible for the self-driving car project, has been named president and CEO in place of Mark Fields, who is retiring. Hackett – who is 62 and will report to Executive Chairman Bill Ford – is a recognized leader in business transformation. In the Fields era, the stock has lost 37%, while GM is down 16% since the arrival of Mary Barra. Fiat Chrysler loses 1,6%.
OIL BRAKES THIS MORNING. SAIPEM +1,9%
Oil prices are on the rise ahead of Thursday's Vienna conference which should ratify the producers' agreement on cuts. Brent exceeded the threshold of 54 dollars (before falling back this morning to 53,70), Wti just below 51 dollars. The only uncertainty concerns the duration of the cuts: Russia and Saudi Arabia are aiming for 9 months, Iraq only 6.
The unknown factor remains for US production: the number of shale oil wells is still increasing (up for 18 weeks). Production (9,3 million barrels) is up 10,3% in the last 12 months. In Piazza Affari little move Eni (-0,1%). Saipem +1,9%. The reverse stock split started yesterday at a ratio of one new share for every 10 existing shares. Tenaris +0,9%.
Heavy drop for Trevi, a company active in drilling activities (-4,3%). Kepler-Cheuvreux cut the recommendation to Reduce (lighten) from Hold. Target price at 0,70 euro from 0,80 euro. The stock widens its year-to-date loss to -20%.
MILAN AT THE TOP, THE STERLING DOWN
The attack in Manchester is intended to condition the start of the European session. Piazza Affari ended yesterday's session with the best performance among the European stock exchanges. The FtseMib index marks a drop of 1,1%, but we must take into account the impressive amount of dividends paid yesterday (about 70), which had an overall weight on the index of 1,55%. Consequently, net of the dividends paid, the Milanese index closed positive by 0,4%.
The Paris Stock Exchange closed unchanged, Frankfurt -0,1%, Madrid -0,4%, held back by the success of Pedro Sanchez at the socialist congress: opposition to Prime Minister Mariano Rajoy is growing and the prospect of early elections is gaining ground.
Positive ground in London (+0,34%) thanks also to the weak pound: the pound is the only major currency to lose positions against the dollar. Brexit Secretary Davis said Britain would not hesitate to abandon the talks if demands for a penalty for leaving the EU were too high.
ITALY PROMOTED WITH RESERVE IN BRUSSELS
Italy has implemented and accepted the requests of the European Commission regarding the additional correction to be made to this year's public accounts, which is why Brussels will not open an infringement procedure. But reforms are urgently needed. These include "the reintroduction of the tax on first homes for high incomes". Padoan replied: "It doesn't seem like a good idea to me."
The spread goes down. At around 17,30, the yield gap between Italy and Germany on the ten-year stretch was trading at 174 basis points from 176 at Friday's close, not far from the January minimum of 173 points. The rate on the ten-year benchmark fell to 2,13% from 2,15% at the last closing, slightly up on the day's low of 2,11% but still at the lowest levels since the beginning of March.
THE SPREAD GOES DOWN, THE SPANISH BONOS SUFFER
Spain is particularly penalised. The Italy-Spain spread narrowed to around 54 points, at its lowest for about two months, the same level reached at the close.
Numerous stocks recovered the coupon detachment in yesterday's session. Intesa deserves special mention: +2,36 net of the dividend. Unipol (+2,92%) and Unipolsai (+1,57%) also performed well. Ubi +1,78%, Italgas +1,6%, Generali +2,02% and Banca Generali +1,98%. Azimut +0,93%, Brembo +1,07% and Tenaris +0,92%.
Time is running out for the community go-ahead to save Monte dei Paschi. The capital requirement remains unchanged: 8,8 billion. The original calendar foresees the closure of the agreement in June and the entry of the state into the Monte in July. Among the banks, Banco Bpm (+1,3%) and Ubi (+1,7%) rose. Unicredit (-0,1%) and Bper Banca (-0,4%) slip.
A day of sharp increases for asset management companies in the light of the good performance of inflows in these first few months. Banca Mediolanum +2,1%, Soul +3,4%.
THE DOLLAR STM AND CNH BRAKES, YOOX SHINES
The decline in the dollar slows down Stm (-2,1%) and Cnh Industrial (-1,5%). Weak in the final Recordati (-0,22%). The company has announced an agreement with AstraZeneca to acquire the European rights to certain medicines.
Telecom Italia slips (-1,2%). Positive Enel (+0,9%) and the other utilities: A2A +2,4%, Terna +1,3%. In luxury, a brilliant day for Yoox (+3%) and Tod's (+1,1%).
