Stocks grind higher, Vectura goes up in smoke

Morning Note

All a tad quiet this morning. European stock markets were tentatively higher in early trade Friday after another record session on Wall Street saw the three major indices rally, though small caps declined. The FTSE 100 led the way as it sprang back from yesterday’s ex-divis, up 0.3% to 7,220, whilst the DAX moved close to 16,000. Asian stock markets moved in the opposite direction as concerns about the pace of the delta variant in the region left many of the major indices lower again. There is not a whole lot going on today and risk remains fairly muted as US 10yr yields hover around 1.34% and FX markets look reasonably calm. Gold made further gains to $1,760 in the wake of yesterday’s strong producer price inflation print in the US.

 

Up in smoke: Vectura’s board recommended the Philip Morris offer of 165p, a 10p-per-share premium to the Carlyle bid, but in the statement they seemed to make a point of stressing they did so on advice from their bankers and they were heavy on the idea of ‘fiduciary duties’. They argue that “wider stakeholders could benefit from PMI’s significant financial resources and its intentions to increase research and development investment and to operate Vectura as an autonomous business unit that will form the backbone of its inhaled therapeutics business”, but clearly there will be much hand wringing over the fact this business has been taken over by Big Tobacco and many investors will worry about the ESG implications of the transaction. But probably not enough to vote down the deal. The government could yet step in.

 

Shares in Airbnb fell in after-hours trading despite a 300% pop in revenues. Despite the strong figures for the second quarter, the company warned about the impact of the delta variant. Meanwhile Disney reported a blowout quarter, with parks returning to profitability for the first time since the pandemic struck. Earnings came in at $0.80 per share vs the $0.55 expected as subscriber figures for Disney+ also beat forecasts at 116m. 

 

On Tuesday we spoke about the demand problem for oil, specifically that too much hope was being placed on the recovery in H2. Right on cue, the International Energy Agency (IEA) sharply downgraded its demand outlook for the rest of 2021 due to the worsening progress of the pandemic. It warned that new restrictions in consuming countries, particularly in Asia, will reduce mobility and oil use. Nevertheless, it says the ongoing OPEC+ restraint will keep the market in balance for now, though a surplus may be seen in 2022 if members and other producers ramp up.  

 

According to the IEA, oil demand is set to rise by 5.3m bpd 2021 and by an additional 3.2m bpd in 2022. OPEC thinks demand should rise 6m bpd in 2021, with 5bpd of that figure due to arrive in H2. It seems OPEC may need to revise its figures for the rest of the year, though it seems the IEA believes the market should remain in equilibrium with existing production cuts.  This pretty much reflects the sentiment in the oil market right now, with prices retreating ~10% since the early July peak, as traders have taken a dimmer view of the demand story. 

 

Transitory? After the consumer price inflation held at a 13-year high, US producer price inflation rose to 6.2% vs 5.6% expected, with the core month-on-month reading up to 1% against +0.5% forecast. That left those clinging to the CPI-data-showed-inflation-has-peaked narrative a little uneasy. Also please note that a major port in China – the world’s third busiest – is now closed because of a solitary coronavirus case, which will mean ongoing supply chain disruptions, further pressuring PPI and thus CPI higher. 

 

Chart: Cable starting to look wobbly at 1.38 as it flirts with the 200-day SMA following a bearish MACD crossover on the daily chart.

GBPUSD Chart 13.08.2021