European markets never quite got off the ground on Tuesday. Traders were transfixed on finding out the fate of the Iran nuclear deal. US President Trump’s decision at 2pm local time means Europe will only react on Wednesday. A one-percent drop in the price of a barrel of oil meant the energy sector dragged major stock averages south.
The notable exception was Italy’s FTSE MIB, where political jitters triggered a spike in volatility. The Five Star movement rejecting the idea of a non-partisan prime minister means a second election could be here before the summer.Five Stars and two elections! We think a second election could see a swathe of the Italian electorate that either voted mainstream or sat on the sidelines switch to the populists.
The FTSE 100 was pushing up against the widely watched 7600 level on Tuesday. The level twice sent the index significantly lower in 2017.
Bid activity was keeping things interesting for UK mid-caps. Shares of Virgin Money (LON:VM) jumped 8% after rival CYBG (LON:CYBGC) (owner of Clydesdale and Yorkshire Bank) made an all-cash takeover offer. Shareholders will probably hold out for a cash and shares offer. The fiasco at TSB could make Virgin Money more amenable to a deal. The idea for this transaction likely pre-dates the IT issues at TSB but the crises has put the spotlight on challenger banks. The challengers have seen impressive revenue growth but have made relatively small inroads into taking market share from the Big Six. Meanwhile, shares of FirstGroup (LON:FGP) sunk 10% after buyout group Apollo ruled out another offer.
It looks like King dollar is back. The US dollar continued its broad rally, gaining against major and emerging currencies and sending precious metal prices lower. The Federal Reserve chair Jerome Powell used his speech to voice his plans to stay the course on monetary policy. Powell said that even though the Fed has raised the benchmark rate 6 times since December 2015, US financial conditions have grown looser. Powell’s message is that stocks and bonds have not dropped enough yet for financial conditions to tighten and prevent the Fed from hiking rates further.