Morning Market Pulse - Papa Smurfit gives Int. Paper the blues


FTSE 100 Index called to open +15pts at 7700, extending a bounce from overnight lows of 7670 that keeps the index sideways, but also still technically in a falling channel from yesterday’s highs. Bulls need a break above 7717 to escape the falling channel; Bears require a breach of 7668 to breach support. Watch levels: Bullish 7717, Bearish 7668


Calls for a positive open come thanks to gains in both Asia and Wall St, as Tech pushes higher (Twitter leading the charge), helping paper over the cracks of grimmer global events, including Trump protectionism, and the hindrance of GBP strength, although reciprocal USD weakness is helping Oil and Metals, and thus Miners and Energy (see below).


The single currency Euro gained ground overnight after whispers from within the ECB that the long-running quantitative easing (QE) bond buying stimulus programme could start to be wound as early as next week (we’re not so sure).


Oil prices are recovering from recent lows to continue a 2-day rally (to the benefit of Energy shares around the world) on the back of a surprise API Oil drawdown (even if Gasoline stocks rose; US consumer confidence barometer, driving less?) and in spite of talks about oil-producing nations mulling adding back supply.


In corporate news this morning, International Paper (NYSE:IP) has abandoned its €8.9bn bid for Smurfit Kappa (LON:SKG) blaming a persistent lack of engagement from the latter’s board.


easyJet (LON:EZJ) May passengers +3.7% YoY to 7.79m (12M rolling +8.4% to 83.1m), Load factor +1.8pts to 93.3% (12M rolling +1.5pts to 93.5%); 974 cancellations (2.5% of capacity) vs 117 last May, due to FR/IT industrial action (~600) and Weather/ATC restrictions (~300). Carpetright (LON:CPR) received 92.1% acceptance for £60m rights issue at 28p/share.


Serco (LON:SRP) secures US health insurance eligibility support contract worth up to $900m (1yr base period, 4 one-year options); current 5yr contract ends 30 Jun; approx. $210m revenues over last 12 months. Workspace (LON:WKP) FY net asset value +8.8%, net rental income +21%, adj. trading profit +20%, final dividend +30%; proposes 10% share placement, to finance pipeline CAPEX, acquisitions.


WH Smith (LON:SMWH) Q3 Group Sales +4% (+1% Like-For-Like), Travel +8% (+3% LFL), High Street -1% (-1% LFL); broader economic uncertainty but still growing at home and abroad, confident in FY outcome. RPC FY revenues +36% (organic +2.8%), adj. Operating profit +38%, adj. EPS +16%, operating cash flow +40%, final dividend +13%; new financial year started in-line with expectations.


In focus today will be final US Q1 Non-Farm Productivity (1:30pm), expected to be revised slightly lower (0.6% vs. 0.7%), while Unit Labour Costs (1:30pm) should see a modest upward revision to 2.8% form 2.7%.With another Parliamentary vote on the Brexit withdrawal bill so close (12 June), UK Prime Minister’s Questions Time (PMQs) is likely to be lively.


This afternoon’s US EIA Weekly Oil Inventories (3:30pm) are also of interest following last night’s private API report showed a surprise Crude drawdown of 2m barrels and a 3.8m build for Gasoline. Markets will be looking at whether official Department of Energy data confirms or diverges. Another week of negative divergence (or missed) forecasts could put additional pressure on oil prices (and Energy stocks) already on a downward trajectory since reports of an under-the-table US request to OPEC to increase crude supply by 1m bpd, on top of existing rumblings about OPEC and Russia reducing production cuts to make up for lost supply from Iran and Venezuela.



Speakers today include ECB Chief Economist Praet (9am, dovish), giving a keynote speech at the International Congress of Actuaries in Berlin, as well as colleague Hakkarainen (2:30pm, supervisory board member), talking in Lisbon about the digitalisation of banking. The Bank of England’s Tenreyro (11:40am; centrist) speaks again, this time at a CBI event in Belfast while her MPC colleague McCafferty (5pm, dovish) speaks on LBC radio.

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