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Morning Market Pulse - GSK shows healthy appetite for M&A

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Mike van Dulken and Artjom Hatsaturjants at Accendo Markets, commented to clients this morning:

 

FTSE 100 called to open +10pts at 6710 extending its recovery uptrend from an overnight flirt with 6650, which coincides with both April 2017 falling support and November 2016 lows. Bulls need a break above 6725; Bears require a breach of 6700. Watch levels: Bullish 6725, Bearish 6700

 

Calls for a tepid open come after mixed trading on global markets, with Wall St higher, but Asia slipping in negative territory ahead of this evening’s Fed monetary policy updates. Oil prices have bounced robustly from 14-month lows, partially recovering from yesterday’s 5% drop following an unexpected increase in US crude inventories (+3.45m build vs. -2.5m draw est.)

 

Safe haven demand for Gold and the Japanese Yen are underpinned by the risk off sentiment, though USD (a haven of its own) is weaker amid Fed outlook uncertainty. Dollar weakness is supporting GBP, likely pressuring FTSE international names. On the other hand it is helping metals prices (Copper +1%) and thus FTSE Miners.

 

In corporate news, GlaxoSmithKline and Pfizer to combine Consumer Health Businesses in 68%/32% JV; £10bn sales, global leader in OTC, targets £1bn divestments, £500m annual savings by 2022; Within 3yrs, plans to separate JV via demerger, UK listing; GSK div policy unchanged.

 

Barclays fined $15m by New York State Department of Financial Services in connection with efforts to uncover whistle-blower. Glencore: Katanga Mining enters into settlement agreement with Ontario Securities Commission; Katanga to pay C$30m (US$22.5 m) as part of settlement. Rio Tinto and China Baowu Steel agree to negotiate extension to iron-ore JV (54%/46%) in Australia.

 

Shire: Takeda says listing/trading of American Depositary Shares (ADSs) on New York Stock Exchange expected to commence December 24, under the ticker TAK. Shire: FTSE Russell will issue further notice today (after the close) about Shire's replacement within FTSE 100 on 24 Dec.

 

FTSE Bookmakers (GVC, William Hill, Paddy Power) could be sensitive to UK government formally enacting £2 FOBT stake limit. As per GVC/Ladbrokes merger, GVC no longer required to pay Ladbrokes shareholders any Contingent Value Rights (est. at £700m).

 

Smith & Nephew to acquire Ceterix Orthopaedic (developer of the NovoStitch Pro Meniscal Repair System) for $50m cash and up a further $55m over 5 years, contingent on financial performance. Polymetal completes non-cash copper-gold asset exchange with RCC (Tarutin deposit in Russia for 85% of East Tarutin in Kazakhstan). Exchange synergistic, reduces ore haulage to 110 km.

 

James Fisher awarded £30m contract by Daewoo Shipbuilding & Marine Engineering to design and build a search and rescue submarine for Korean Navy, to be delivered in 2021. Virgin Atlantic says still considering potential offer for Flybe, discussions ongoing.

 

Tritax Big Box REIT exercises first of two permitted 12-month extensions to £350m unsecured revolving credit facility, now due Dec 2023. 888 confident adjusted EBITDA for FY will be in-line with expectations. HSS Hire gets CMA clearance for divestment of Nationwide Platforms for £60.5m.

 

In focus today will be the Fed monetary policy decision (7pm: statement; 7:30pm: press conference). In spite of intense political pressure from President Trump, the US central bank is widely expected to raise interest rates by another 0.25% to a new range of 2.25-2.5%.

 

With a hike priced in, attention will be on the statement and Fed Chair Powell’s press conference. Will we be offered a clearer indication about how close the Fed sees rates to neutral (neither helping nor hindering) and how many more hikes we can expect in 2019. Watch USD, equities and bonds.

 

Outside the Fed decision, there is plenty of macro data including UK Inflation (9:30am). Economists expect Consumer Price growth to have slowed in November, both at the headline (2.3% YoY est. vs. 2.4% prev.) and the less volatile core metric (1.8% est. vs. 1.9% prev.). Producer Prices may also have stalled. Beleaguered FTSE Retailers could be extra sensitive to Retail Prices, which are also forecast weaker at 3.2% YoY growth after 3.3% last month.

 

 

In the US, Existing Home Sales (1:30pm) are forecast to have fallen in November (-0.4% MoM), diverging with stronger than expected Housing Starts/Permits yesterday, but in-line with Monday’s weak NAHB print. Weekly DOE Oil Inventories (3:30pm) are forecast to deliver another draw, though last night’s API report surprised markets with an unexpected build.

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