U.S. stocks will open slightly higher Monday as stocks are holding up on the wave of optimism triggered by Friday’s better than expected U.S. job data.
The S&P 500 index futures are currently up 0.2 percent ahead of the opening. Without any clear catalysts today, stocks will probably range trade as investors await tomorrow’s Eurozone retail sales, U.S. ISM non-manufacturing and the Federal Open Market Committee meeting.
Brent oil prices are close to USD 120 per barrel which will surely put pressure on global companies’ profit margins as we move forward. Looking at the chart below, the three months moving average is now entering levels that, when last seen began to hurt companies. The question is whether the economy and companies can absorb higher levels now, around three years later; we doubt they can and see USD 125 per barrel as the intermediate threshold. The problem is so far very short-term and as such is not that big of an issue because most energy intensive companies are not only operating in the spot market for energy but have hedged their costs through long-term contracts. But if oil prices move higher and sustain these levels then it will impact companies’ profit margins.
In Europe, the Euro STOXX 50 index futures are up 0.1 percent on a quiet day driven by Telefonica (+0.6%), Bayer (+0.8%) and ENI (+0.7%). In Europe’s credit markets, Portugal’s two year bond yields are continuing to rise and stand currently at 8.7 percent. If the play cool strategy was intended to ease the pressure on Portugal's government bonds the strategy has completely failed and it is only a matter of time before the country will ask for a bailout.
Europe is seeing M&A activity today in the specialty chemical industry as Solvay has offered to buy Rhodia for EUR 3.4 billion in cash; the shares are up 48.5 percent. Solvay has moved on Rhodia after being outbid by DuPont for the Danish ingredients maker Danisco this year. The new combined company will have revenue of EUR 12 billion.
Pfizer has agreed to sell its Capsugel business to Kohlberg Kravis Roberts & Co. for USD 2.38 billion in cash.
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