Market commentary: Positive start for the second quarter

The first day to the second quarter of 2016 got off to a positive start in Europe, as markets edged higher on Monday thanks to gains in energy shares. Meanwhile, US stocks were little changed, thanks to wavering oil prices that weighed on risk appetite, and offset the positive effects of a recent dovish stance by the Federal Reserve, which adopted a go-slow approach to future interest rate increases.

One of the standout sectors on Monday was the French Telecom industry, as merger talks between Orange SA and Bouygues SA fell apart. The proposed tie-up was widely seen as a make-or-break chance to reduce the number of telecom groups to three from four in France, and prop up profits which have been low since the arrival of low-cost operator Iliad. However, shares in Bouygues slumped almost 15%, and were heading for their worst day in 17 years, after its attempt to buy rival Orange in a 10 billion Euro cash-and-share deal collapsed. Shares in Orange also fell 4.2%.

While Orange and Bouygues dropped, France’s CAC 40 managed to move up 0.53% to 4,345.22. Germany’s DAX and UK’s FTSE were also up 0.28% and 0.35 respectively.

Oil prices wavered Monday, dipping in and out of negative territory. Brent crude turned lower as hopes that top oil producers would reach an agreement to help tackle a stubborn global glut faded, when comments by a Saudi official dampened hopes for an output-freeze deal from major oil producers. Major oil producers are set to hold a meeting later on this month, to discuss measures to curb production.

Nevertheless, shares in oil and gas giant Royal Dutch Shell were trading in the green, and enjoyed a gain of 1.07% on Monday. Similarly, its competitor BP Plc reversed early losses, to end the day with a 0.88% gain.

It was also a big day in the airlines industry, as Alaska Air Group announced that it would buy Virgin America for a whopping $2.6 Billion, in an effort to compete more effectively with larger airlines and become the top carrier of the US West Cost. The deal would create the fifth-largest US airline in the latest series of mergers in the past decade that have shrunk the industry to a handful of companies. The top four control more than 80% of the US travel market. This news saw shares of Virgin America surge 40%, but Alaska Air shares were down 4.9%.

Marks and Spencer shares were up on Monday, after the UK retailing company had its “neutral” rating restated by broker Peel Hunt. The company upgraded Marks and Spencer’s rating to “buy” from “hold”, and raised its target price on the stock. Marks and Spencer shares gained 0.82% and closed at £410.63.

As the Federal Reserve remains on track to raise interest rates at a slow pace, the European Central Bank has been loosening monetary policy. Minutes from the bank’s March meeting are scheduled for release on Thursday.

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.