Shire jumps on possible offer from Japan's Takeda, markets nervous after tech shakeout - as it happened
- US economy grows more strongly than expected
- UK retail sales fall
- Tesla and Facebook lead US tech falls
- Shire could face 35bn takeover bid from Japan
2.50pm BST
It was another volatile session for stock markets.
After Tuesday's slump on Wall Street, driven predominantly by sharp declines in technology stocks, European markets opened mostly lower.
2.39pm BST
Back with Shire, and Ketan Patel at EdenTree Investment Management says it could be a key moment if a deal goes ahead:
If a bid does materialise from Takeda for drug maker Shire, it would be a watershed moment for Japanese pharma. There hasn't been a cross border transaction in the sector, excluding joint ventures and small generic M&A. Takeda's cash laden balance sheet appears a good fit for Shire's struggling balance sheet, following recent large scale M&A.
The attraction for Takeda is the highly lucrative rare disease market in the US, which comes with exceedingly high margins and is largely exempt from the usual pricing pressure that affects the wider pharmaceutical sector.
2.33pm BST
After Tuesday's tech-inspired slump, there is little respite for the sector despite US markets generally starting the day on a slightly more positive note.
The Dow Jones Industrial Average is up 121 points or 0.53% in early trading, while the S&P 500 has edged up 0.05%. But the tech-heavy Nasdaq Composite has opened down 0.35%.
1.48pm BST
The stronger than expected US GDP figure will revive talk about how many interest rate rises the Federal Reserve will sanction this year. Dennis de Jong, managing director at UFX.com, said:
Robust jobs growth and healthy consumer spending have been attributed to today's stronger than expected US GDP data, as the country's economic outlook appears in rude health and the 3% growth target appears within touching distance.
...As a result of the strong economic outlook, questions may be raised around the possibility of Fed Chair Jerome Powell introducing a June rate hike.
1.44pm BST
The 2.9% growth in the US economy, although better than the initial estimates, shows a slowdown from the 3.2% rise recorded in the third quarter.
The figures were helped by the biggest rise in consumer spending for three years, offset by a surge in imports. The Bureau of Economic Analysis said:
The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, exports, residential fixed investment, state and local government spending, and federal government spending that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.
1.31pm BST
Breaking news:
Something for Donald Trump to tweet about. The US economy grew more strongly than expected in the final quarter, up 2.9% on an annualised basis compared to expectations of a 2.7% increase and an initial estimate of 2.5% growth.
12.19pm BST
Here's some analyst reaction to the possible Shire deal. Peter Welford at Jefferies says the structure of any deal is uncertain:
We see the potential strategic rationale for the deal and have long highlighted Shire is currently trading at a substantial discount to our fundamental 4300p or so value given overhangs, notably haemophilia competitive concerns. Nevertheless Takeda's near.$42bn market cap versus Shire's $47bn or $66bn enterprise value raises questions on a potential deal structure....
We presume Takeda would need a significant equity raise to acquire Shire, suggesting a "merger" is perhaps better terminology, which may raise hurdles to the successful completion of any future deal.
Since Takeda's market cap is close to Shire's we assume a potential offer would have to include a substantial percentage in equity and how Shire's board and shareholders would react is hard to predict. However as Shire's share price is significantly below the net present value of our cash flow estimates, Takeda could trigger discussion of other bidders.
Shire does not strike us as an obvious take-over candidate. There is presumably a price at which the financial engineering would work. However, Shire's specialty focus and mix of therapeutic foci means that most buyers would struggle to extract substantial operational synergies while escaping from competition problems, in our view. Also Shire's low corporate tax rate could rise in most scenarios were the company acquired. It would also be a bold acquisition in our view given the uncertain trajectory of Shire's haemophilia business. A merger of equals in this context might be more feasible.
12.13pm BST
The potential offer for Shire has helped the FTSE 100 come off its worst levels after the morning's earlier declines.
The UK's leading index is now down just 0.12% or around 8 points, with Shire up 18% and fellow drugs group GlaxoSmithKline 1.5% better.
11.58am BST
Here's our story on the possible takeover of Shire by Japan's Takeda:
Shares in the UK-listed drugmaker Shire surged after Japan's biggest pharmaceutical company, Takeda Pharmaceutical, said it was considering making a takeover approach.
Shire's shares jumped as much as 33% to 38.79 on the news, and later traded 17% higher at 36, valuing the company at 32.8bn. Takeda's market value is about 29bn, around the same as Shire's at last night's closing price.
Related: Shire's shares surge as Japan's Takeda considers bid
11.30am BST
Here is the full statement from Takeda, which includes more detail of the Japanese company's thinking:
Takeda believes that a potential transaction with Shire presents an opportunity to advance Takeda's stated Vision 2025, build on its current strong momentum, and create a truly global, value-based Japanese biopharmaceutical leader. In particular, a transaction with Shire would:
strengthen Takeda's core therapeutic areas of oncology, GI and neuroscience
11.22am BST
Back to Shire:
Shire's been tipped as a takeover target for ages - Takeda biting
Shire #SHP shares adding 18pts to the FTSE 100 today and lifting it off the lows - announcement at 10:23 clear to sees on index pic.twitter.com/DzDRxo8yUb
11.20am BST
More from the CBI's high street survey:
#Retail sales fell on a year ago as cold weather gave retailers the chills, according to March #CBI_DTS https://t.co/DGwqkh3E6T pic.twitter.com/AqvhErsomL
Online #retail sales growth in the year to March slowed to its lowest since records began in 2009 #CBI_DTS https://t.co/DGwqkh3E6T pic.twitter.com/c97VsGMOSU
11.15am BST
More bad news for the high street, with a new survey showing a slump in sales this month. Reuters reports:
British retail sales fell for the first time in five months in March as heavy snowfall combined with the financial strains on many households, a survey by the Confederation of British Industry showed on Wednesday.
The CBI distributive trades survey's retail sales balance fell to -8 from +8 in February, confounding a median forecast of +15 in a Reuters poll of economists.
10.59am BST
Elsewhere, the latest report from the Bank of England's network of regional agents has just come out with some good news to cheer British workers. Used to detect early warning signs for the economy, the quarterly report compiles the views of businesses recorded by the Bank's 12 regional outposts.
In their latest assessment, the agents say companies are handing out pay rises worth between 2.5% and 3.5% - which would be inflation-busting for staff at the top end of that range. Firms are also telling the agents inflation is beginning to fade.
This is either a massive sign of complacency, or the whole Brexit thing really isn't much to worry about. Bank of England agents survey shows 41% of CEOs spend no time at all planning for Brexit... pic.twitter.com/hPNC24A4Uc
10.59am BST
Shire shares - which climbed as high as 38.79 on news of the possible approach by Takeda - have come off their best levels.
The rather conditional nature of the Japanese statement means Shire is now at 35.45, still 15% better on the day.
10.47am BST
Takeda says it is at a preliminary and exploratory stage in considering a bid, and no approach has been made to the Shire board.
10.43am BST
Meanwhile Takeda - Japan's biggest pharmaceutical company - is worth some 29bn. This is less than Shire's value after today's jump, but around the same as the UK-listed company was worth at last night's closing price.
10.36am BST
Shire is worth 35bn after its shares jumped to 38 on the news of Takeda's possible approach.
10.32am BST
Breaking news:
Pharmaceutical group Shire has soared 25% after Japan's Takeda says it is considering making a takeover approach to the company.
10.29am BST
The Easter break couldn't have come at a worse time for stock markets, says David Morrison, senior market strategist at GKFX:
Investors were already on edge having been shocked by February's equity sell-off triggered by the dual spike in volatility and bond yields. Despite a strong rebound, the major stock indices remain fragile with many in danger of breaking back below some major technical levels - in particular, the lower level of the S&P's bullish trendline advance since February 2016. This has been brought sharply into focus with the sell-off in tech stocks, which have lead the market rally for so long, catalysed by the scandal surrounding Facebook's cavalier attitude to its users' data.
Now we have a long holiday weekend which coincides with the close of the first quarter. Once again, bonds are in focus - particularly the US 10-year Treasury. But this time yields have slumped with the 10-year crashing back below the key 2.80% level which has held as support for the past six weeks. Investors are piling back into the perceived "safe haven" of fixed income as stock markets slide...
10.22am BST
Markets could be in for a run of volatility similar to the summer of 2015, says Chris Beauchamp, chief market analyst at IG:
Markets remain under pressure as the sell-off in tech spreads once more to the wider equities space. The bounce on Tuesday looks like a flash in the pan, with more and more investors heading to the exit.
It is looking increasingly likely that we have a re-run of August 2015 on our hands; equities then had months of volatility to contend with before the rally resumed. With trade wars and the tech scandal weighing on sentiment we may well have more downside to content with...
10.17am BST
Oil prices are on the slide after a surprise rise in US stockpiles.
Brent crude is currently down 0.6% at $69.68 a barrel while West Texas Intermediate - the US benchmark - is 1% lower at $64.6.
9.39am BST
Here's an interesting chart on market bubbles:
A brief history of recent asset price "bubbles"" pic.twitter.com/3vPfZEFIU4
9.30am BST
The eurozone is seeing steady economic growth, thanks to a revival in world trade, according to S&P Global Ratings. In a new report, the agency says:
Global momentum has lifted the eurozone's economic prospects, and it now appears to have reached cruising altitude. The economic and monetary union closed 2017 on a high note, with GDP growth at 2.5%, its fastest pace in a decade.
...S&P Global Ratings' economists say the chief reason for this is the revival of world trade, which has put the eurozone's industries back in motion. Capacity utilization was just short of its 2007 high, triggering stronger investment and boosting industry prospects for this year.
Strong fundamentals in the eurozone suggest that economic expansion will continue at a brisk pace, and we have raised our GDP growth forecasts for the region to 2.3% this year and 1.9% in 2019.
We've also raised our euro-dollar exchange rate forecast to $1.27 in 2018 and $1.3 in 2019, since we expect the dollar's weakness will persist.
9.14am BST
#ftse100 under pressure, trend support being tested, touch here could signal a chance to rally? pic.twitter.com/FAa65abmtJ
9.06am BST
Meanwhile the pound is edging higher, up 0.16% against the dollar at $1.4177 and 0.21% better against the euro at a1.1430. Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi, said:
The ongoing reduction in Brexit risks and more hawkish outlook for Bank of England policy are the key drivers behind the pound's upward momentum.
The pound has derived some additional support from a report that Irish officials have been told to expect new plans "imminently" on how Britain plans to avoid a hard border with Northern Ireland. While short on details, the report has further boosted confidence that the UK and EU can find a workable and timely solution to the Irish border issue to support plans for a "smooth & orderly Brexit". Nevertheless, it still remains a potential banana skin for the pound in the coming months if intensified Brexit talks do not progress as well as hoped.
8.22am BST
Among the day's company news, furniture group DFS has bucked the gloom in the high street with an upbeat outlook.
It reported a 7.4% fall in underlying half year profits to 30m, in line with expectations, and chief executive Ian Filby said:
We have seen a strengthening trading performance across the first half of the financial year and through February into March. We therefore remain confident that, despite the current challenging market conditions, the group will deliver modest growth in [earnings] and generate strong cashflow across this financial year, in line with our expectations.
Management is striking a confident tone today (despite a challenging market), as the group heads into an easier comparison phase....The shares were pricing in bad news, so we'd expect to see a decent relief rally today.
We still believe in the long-term attractions of DFS Furniture. It is a highly cash generative market leader, which is consolidating the physical market at the same time as some online pure players re-evaluate their business models.
8.11am BST
More on the tech fallout, which saw the US FANG stocks have their worst day for more than two years. Naeem Aslam, chief market analyst at Think Markets, said:
The tech sector is predominantly getting battered, mainly due to the woes of Facebook's data breach. We clearly have three kind of investors when it comes to the Facebook; firstly there are some who are jumping out of the ship, pushing the stock price lower. Secondly, we have investors who are watching the show from the sideline and thinking there is more pain to come as we do not know how big the potential fine could be. This is not helping the stock price either. Finally, we have those who are not interested in Facebook anymore as they think that the regulatory burdensome on Facebook is too risky for their appetite and they do not want to get involved in this stock.
We personally think, that Facebook has strong fundamentals and it has become the part of everyone's daily life, so once we have a clear idea about the potential sum which the firm would have to pay as a result of this situation, the stock price could present a potential opportunity.
8.05am BST
Following the falls on Wall Street and in Asia, European markets have indeed dropped back in early trading.
The FTSE 100 is down 0.7%, with software group Sage slipping 1.8% and mining shares also among the leading fallers. France's Cac and Spain's Ibex have fallen 0.9% while Italy's FTSE MIB is 0.88% lower. In Germany, the Dax has dropped 0.77%.
7.45am BST
Here are IG's opening calls for European markets:
European Opening Calls:#FTSE 6946 -0.78%#DAX 11868 -0.86%#CAC 5069 -0.91%#MIB 22008 -0.91%#IBEX 9398 -0.80%
7.37am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
An early rally on Wall Street went south by the close of play yesterday, and the turnaround is likely to weigh on European markets at today's open.
For all the gains seen in US markets over the past 18 months the bulk of these have been driven by tech stocks, and yesterday these tech stocks swooned quite sharply, reversing a good proportion of Monday's gains, in the process dragging the S&P500 back down towards its 200 day moving average.
This rolling over in tech stocks looks set to weigh on European markets this morning, with a lower open as markets mull over the potential for uncertainty over a tech sector that could catch a cold as a result of Facebook's woes around user data.
The economic backdrop was supportive in the last quarter of 2017. Robust jobs growth and healthy consumer spending comfortably propped up the economy, which is expected to be reflected in an upwards revision for economic growth to 2.7% on an annualised basis from 2.5% in the previous estimate. The reading will not yet include the benefits from the tax cuts, nor the more recent uncertainties over global trade. However, given how quiet the economic calendar is, the reading is expected to attract attention anyway.
A surprise to the upside, could boost the possibility of a June rate hike up from the CME FedWatch odds of 78%, lifting the dollar back towards 90.00. On the contrary, should growth remain around 2.5%, we could see buying demand for the dollar decline and the greenback look to test 89.00 once more.
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