A solid start to the week from equity markets, the continued disturbance in the Ukraine appears not to be affecting investor sentiment. The news that we may have to prepare for an interest rate rise in the UK within the next 9 months, did not undermine equities or have a great deal of effect on the bond market, UK 10-year gilt yields rose modestly to 2.73%. As the FTSE 100 once again gets close to the magical 7000 barrier, expectations will rise that this time it will manage to pull out of its year-long trading range.
Mining shares seem to get an early boost on speculation that the Chinese authorities may move to stimulate the economy, conclusions from an overnight speech from Premier Xi according to some news wires. It could also just be a case of catching up the broader market after a recent spate of underperformance for the sector. Although we may be facing higher rates in the UK and the US within the next year, which is an encouraging sign the central bankers are getting more comfortable with the sustainability, there should continue to be plenty of central bank liquidity in the financial system. Apart from the possibility of the Chinese acting, we have the probability the ECB will cut rates next month, and that the Bank of Japan will add further stimulus at some stage.
The proposed bid of AstraZeneca continues to get a lot of press coverage, both political and financial. The political concerns stem from the Kraft takeover of Cadburys, pledges by Kraft particularly with regard to jobs were quickly broken, and fears are that Pfizer will do the same. Anthony Hilton wrote a piece in the last week's Evening Standard highlighting that Pfizer's market value ($189bn) has not changed in 15 years despite making over $218bn of acquisitions in that time. The value of mega mergers is always one that causes debate and history probably suggests that the whole is rarely greater than the sum of the parts. Taking aside the rights and wrongs socially, or the motives Pfizer may have for the takeover of Astra, the UK is a free market economy and for that reason it thrives, anything that changes that perception could have wider consequences. The question of when a takeover of a public company is in the best interest of the country is a thorny one, defence companies are the one most often quoted as protected by national interests. Ultimately it is hard not to side with the view that the shareholders own the company and, unless the case is clear cut against the national interest (our security being the most obvious), it is our view that it should really be in their hands to decide its fate.