Merger news in Europe’s automotive market as well as inflation data from China, Germany and the UK kept investors busy on Tuesday. Still, equity benchmarks were mostly flat on the day.
The FTSE 100 was little changed with early gains in connection with a weaker pound wiped out by a weak start on Wall Street. A solid trading update from TUI that set aside fears Brexit and rise in terrorist incidents would dim travel demand and sent its shares to the top of FTSE. Rolls Royce was the biggest faller on the day after reporting a record £4.6bn loss.
Shares in PSA, the owner of Peugeot and Citroen surged after reports it is in talks to buy General Motor's European division including Opel and Vauxhall. The unit has been losing money for years under GM so PSA obviously fancies its chances with a turnaround. GM sells a lot of units in Europe so with some merger ‘synergies’, PSA could turn those sales into profits.
Investors were awaiting the latest outlook for US interest rates from Federal Reserve Chair Janet Yellen before making their next move in markets. Ms Yellen gave her Humphrey Hawkins testimony to US lawmakers towards the end of the European trading day. A tone from Janet Yellen suggesting a little more eagerness to get on with normalising interest rates sent the US dollar to fresh highs for the day and knocked interest rate-sensitive markets including stocks and gold off their perch.
The British pound was lower after UK inflation missed expectations. UK CPI hit 1.8% y/y in January, below the 1.9% forecast but still up from the 1.6% in January. With the inflation rate below the Bank of England’s target of 2%, it’s all but a certainty that policymakers will wait until after article 50 is triggered to even think about raising interest rates. Still, it is likely just some temporary relief for central bank doves. Oil prices bottomed in January of 2016 so from here on in the ‘base effect’ in year-over-year inflation data means oil will add to, not detract from price rises.
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Risk on sentiment returned and traders were once again in the mood for buying overnight. As the Lira moved higher, Wall Street rebounded snapping a four-day losing streak on the Dow. Whilst the markets have regained their cool towards Turkey
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