After gapping higher on the open after the long weekend and amid a flurry of M&A activity, the FTSE has steadily lost ground across the session. The index was flirting with breakeven as from around midday and briefly dipped into negative territory as Wall Street opened lower and investors look cautiously ahead to President Trump’s decision on the Iran nuclear deal.
M & A activity lifted the FTSE early on, with the index hitting a 14 week high of 7585 as investors cheered the £46 billion takeover deal for Shire by Japanese rival Takeda.
After a month of to-ing and froing the deal has finally been approved by Shire’s board, in what will be the largest acquisition by a Japanese company overseas. The price of £49 per share represented a 56.9% premium to Shire’s closing price on March 27, the date prior to which Takeda revealed its interest in Shire.
Miner also started the session mixed, even after Chinese exports rebounded more strongly than expected. Usually strong data out of China, the worlds biggest consumer of metals, boosts metal prices, but this was being offset by a stronger dollar.
Trump to stay or not to stay in Iran deal?
Whilst a whirl of deal making supported the FTSE in early trade the optimism didn’t last as investors turned their attention to the White House amid fears that Trump is on the verge of withdrawing from the US – Iran nuclear pact.
This was a deal that lifted sanctions on Iran in return for limits on the country’s nuclear programme. Trumps announcement is due at 2pm EST and we are expecting trading to be subdued with a negative bias until then.
Whilst Wall Street is trading marginally lower ahead of Trump’s announcement, oil is the big story.
After crude charged to a 4 year high in the previous session at $70.84, today it has tanked over 2.5% amid conflicting reports on Trumps upcoming decision.
Trump is widely expected to scrap the deal, and reimpose sanctions, including sanctions targeting Iran’s oil.
However, confusion from a report earlier in the day has ensured oil traders have had a roller coaster ride across the session ahead of the announcement.
Should Trump decide to abandon the Iran deal, the price of oil is expected to rally as the markets adjust to reduced oil production.
The safe haven yen could also jump pulling USD/JPY lower. The dollar would be expected to charge higher versus other peers.
Should Trump opt to stay in the deal but remove the waiver on sanctions, this would mean that oil limits would be re imposed but with 180 day advanced warning.
This would allow the markets time to adjust and therefore reduce the chances of a knee jerk reaction.
Finally sticking with the status quo seems unlikely but given Trump’s unpredictability its something to keep in mind.
This scenario could oil give up some recent gains and see safe havens drop as markets breath a sigh of relief.