FTSE holds onto gains as Sainsbury rallies on Asda merger details

After climbing across the morning to a high of 7546 shortly after midday, the FTSE pared gains in the afternoon, although remaining in positive territory supported by Sainsbury and a weaker pound.

Supermarkets have been particularly under the spotlight and Sainsbury surged on the open, rallying over 20% on news of a tie up with Walmart’s Asda. 

The £7.3 billion merger between the UK’s second and third largest supermarkets will dethrone Tesco’s from the number one spot, a fact that sent shares in Tesco tumbling 3% across the day. Morrisons which is already some way behind competitors would become a distant number three in terms of market share.

The deal would see Asda Walmart take £3 billion in cash and 42% stake in the newly formed company, but the truth is we are still a long way from that point. 

The CMA will almost certainly have a lot to say about a deal of this size which could change the sector landscape so significantly. 

Despite the uncertainty of this ever actually making it past the regulators investors focused on the positives of such a deal going through, sending Sainsbury share price to levels last seen in 2014.

Wall Street Opens Higher On Improved Sentiment

Wall Street opened in positive territory, boosted by stronger sentiment following solid earnings and a flurry M&A activity. 

The Dow rallied over 100 points on the open, with McDonalds leading the charge after its results surprised to the upside.

US PCE hits 1.9%

Core personal consumption index, the Fed’s preferred measure of inflation jumped to 1.9% year on year in its biggest annual gain since February 2017. 

With just two days to go until the FOMC and just a whisker away from the Fed’s 2% target, a rate hike in May is almost a dead cert at 92.8% priced in. Investors will instead be paying close attention as to whether the Fed are looking to raise rates more aggressively through the year. 

The dollar rallied 0.3% versus a basket of currencies as it looks to target 92.00, a level not seen since early January.

The stronger dollar combined with disappointing German inflation figures sent the EUR/USD 0.4% lower and firmly below $1.21. German inflation was 1.4%, lower than the 1.5% forecast, whilst the US PCE jumped to 1.9%. 

The divergence in inflation and central bank expectations are pushing the US – German yields wider apart, pulling the pair lower.