- Stocks on hold before Fed
- Altice buys Cablevision (NYSE:CVC) in huge TV deal
- Engineering firms bottom of FTSE
- Swiss franc higher after SNB
- FOMC decision bad for commodities either way?
UK & Europe
European shares were mostly lower on Thursday. Traders took some gains from the past two days off the table ahead of potentially volatile price movements surrounding the decision by the Federal Reserve whether to raise US interest rates.
Germany’s DAX and France’s CAC both traded slightly into the negative, retracing two days of gains while the UK’s FTSE 100 lost over 1% led lower by weakness amongst engineering firms.
Shares of Altice (AMS:ATCA) jumped as much as 10% on news the Dutch telecoms company has agreed to acquire US cable-TV operator Cablevision for $17.7bn. The deal opens up a whole new market for Altice but it is main reason for being is defensive. With Charter Communications (NASDAQ:CHTR) having recently bought Time Warner Cable, the whole cable TV industry is in consolidation mode to increase firepower in the fight against internet TV competition from Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and soon Apple (NASDAQ:AAPL).
There was little excitement over the deal in the UK telecoms sector; shares of BT and Vodafone (LONDON:VOD) were both lower while shares of Sky were up by less than half a percent.
Engineering firms Smiths, Weir and Babcock all slumped between two and four percent after O&G peer Rotork (LONDON:ROR) said it had seen an increase in project deferrals and cancelations with business in August particularly weak. These engineering firms have oil companies as major customers and Big Oil is scaling back capex so that means less work.
Firms with large exposure to emerging markets were under pressure on the FTSE given the possible fallout in the region from a Federal Reserve rate hike. Hargreaves Lansdown (LONDON:HRGV), HSBC, Burberry and Rolls Royce (LONDON:RR) were all top fallers.
US
US markets opened slightly lower but were mostly directionless before the conclusion of the FOMC meeting and the following press conference with Fed Chair Janet Yellen.
Opinions are split on most aspects of the Fed meeting; whether there will be a hike, what the language will be and how economic forecasts will change. Four year highs on two year US treasury yields suggest a hike but Fed funds futures suggest there’s a 30% chance.
It’s precisely because of the split opinion that a rate hike is unlikely at this meeting, the Fed don’t want to catch markets by surprise.
Shares of Cablevision shot higher as markets reacted to news of the takeover from Netherlands-based telecoms company Altice.
FX
The dollar was mixed before the big Fed announcement. Housing data was mixed with building permits rising but housing starts falling. Unemployment claims dropped to a new two month low. The Philadelphia Fed manufacturing dropped much more than expected to -6 from +8.3 previously.
The Swiss franc was higher after the Swiss National Bank chose to leave interest rates unchanged at negative -0.75%. USD/CHF dropped below 0.97 but remained inside recent ranges.
The British pound was higher after UK retail sales excluding autos rose by 0.1% as expected in August but a lower revision to July’s number meant the annual pace slowed to 3.5% from 3.8%. GBP/USD traded back above 1.55, having closed just beneath it on Wednesday.
Commodities
As far as a US interest rate increase, commodities could be stuck between an emerging markets rock and a hard place.
If the Fed hikes, that potentially creates more capital outflow from emerging markets, reducing investment and commodity demand. Should the Fed choose not to hike rates, the ongoing uncertainty as to when they will cut could still weigh on commodity demand from emerging markets.
Both crude oil and gold prices were lower on Thursday, retracing yesterday’s gains.
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