Market commentary: Oil up to offset sliding banks

Stock markets were mixed on Wednesday as investors braced themselves for the release of the UK government’s budget for 2016 and waited to see what the Fed’s next move on interest rates would be. Markets in Asia closed lower overnight. The Japanese yen fell after Governor Haruhiko Kuroda said that the Bank of Japan could slash interest rates from -0.1% to -0.5%.

In Europe, markets swung between gains and losses as a surge in oil helped offset sliding banks. Meanwhile, on Wall Street stocks edged higher with oil once again being the centre of attention with rallies, which led to gains in the energy sector.

Among the movers of the day, Oracle saw its shares gain 4.5% as the US software giant posted better than expected quarterly profit, adding a whopping $10 billion to its existing stock buyback plan. Elsewhere, Chesapeake Energy and Williams Cos. added around 6% on optimism that OPEC members will meet to resume talks on capping output.

Budget day

The UK Treasury chief, George Osbourne, presented the government’s annual budget on Wednesday aiming to deliver a surplus despite the recent economic gloom. Some of the key highlights mentioned on the day included a cut to corporation tax from 20% to 17% from 2020, and a revision of the country’s GDP figures downwards to 2% in 2016, 2.2% in 2017 and 2.1% in 2018. Furthermore, the inflation forecast was revised down to 0.7% in 2016. All having been said, the budget announcement was based on the assumption the England will remain in the EU, despite the looming Brexit referendum on June 23.

Meanwhile, a new tax to be introduced surprised most people, most of all Jamie Oliver. This was a sugar tax that will be introduced on all soft drinks in an attempt to promote healthier lifestyles. The news left plenty of soft drink makers see their shares trading in the red, including the likes of Coca-Cola, Irn-Bru, Robinsons and even Tate and Lyle Sugar.

Third time lucky!

Wednesday was a big day in Frankfurt, as Deutsche Boerse finally agreed to combine with the London Stock Exchange in a deal worth $30 billion. This merger, which marks a third attempt to link the Frankfurt and London exchanges, will create a European trading powerhouse better able to compete with US rivals intruding on their turf, and would be the world’s biggest by revenue and the second largest by market value. It would be a powerful competitor to CME Group, Intercontinental Exchange and Hong Kong Exchanges & Clearing Ltd, although the transaction could yet be derailed by competition concerns.

While the companies declared it a merger of equals, Deutsche Boerse stockholders will get 54.4% of the enlarged group in the all-share agreement, and the German Boerse Chief Executive Officer, Carsten Kengeter, will run the enlarged business.

This news is music to the ears of banks, since the merger is estimated to yield up to $85 million in fees for those who put the deal together. Too bad they’ll have to split it 11 ways, as financial advisors to LSE include a variety of consultants from Goldman Sachs, JP Morgan Chase, Barclays and UBS Group, among others.

News of this merger caused shares of London Stock Exchange group to fall 0.9%, while shares in Deutsche Borse rose 0.34%.

This article was issued by Rebecca Naudi, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.