Market report: Japan ends negative rates, Astra Zeneca buys Fusion pharma and…
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The FTSE 100 has opened flat and is set for another lacklustre session, as caution weighs ahead of key central bank meetings, amid a raft of big corporate news from AstraZeneca and Unilever, which is scooping off its ice cream division from the rest of the business and shedding 7500 jobs.
AstraZeneca is buying Fusion Pharma in a deal worth £1.9bn, which is at significant premium to yesterdays’ closing price. AstraZeneca is clearly optimistic about the future revenue streams which Fusion will bring to the business, given that it focuses on clinical-stage oncology drugs. Its developing next generation radiopharmacueticals as precision medicines, with specific hopes for advances in new treatment for prostate cancer. Cancer treatments already represent a third of sales for AstraZeneca and remain a key growth driver. Often these treatments can maintain high growth levels stretching into the future as patient access improves, approvals are gained in new markets, and new use cases pop up through clinical trials. But product development can be very expensive in terms of research and marketing, so the company is planning for growth through acquisition to avoid a potential drag on profits of focusing purely on long-term internal drug development.
The share price dipped a little in early trade reflecting, that for the company this is a relatively small deal and that future revenues may be still some way off, if they arrive at all. But AstraZeneca is very much at the forefront of new ways to treat cancer and is not afraid to make multiple bets on potential first in class candidates.
The fight against the risks of deflation in Japan is officially over, with the Bank of Japan ending its policy of negative interest rates. Aimed a conquering falling prices, ultra-loose monetary policy has been in place since 2016 and the Bank of Japan has been ultra-cautious about shifting stance, even though core inflation has been running at 2% over the year. But now that Japan’s biggest companies, through a negotiated deal with the largest industrial union, have agreed to raise wages by 5.28%, and consumer price inflation hit 2%, the Bank has finally judged it prudent to make a move. It’s hiked rates, for the first time since 2007 and also brought its yield curve control policy to an end – aimed at keeping a lid on on short term and long-term government borrowing costs by buying bonds. But this doesn’t necessarily mark a new era of interest rates shooting higher. The bank is stressing the need to keep monetary conditions pretty loose to try and boost growth in the world’s second largest economy, and there are expectations that inflation has slowed.
It’s AI enthusiasm rather than hopes of an easing of high borrowing costs which are driving the swell of market moves on Wall Street. Investors are shrugging off expectations that the Federal Reserve policymakers will stay cautious as they begin their two-day rate-setting meeting today. No change is expected, and markets have already reassessed the timeline of interest rate cuts, with a reduction not expected until June. But with price rises still steamier than expected, signs of a more watchful wary Fed are likely to emerge from this meeting. However, the wave of exuberance is continuing among investors still charged with enthusiasm about the seemingly infinite possibilities that artificial intelligence will bring to the corporate world. Apple’s integration of Google’s Gemini AI engine into the iPhone boosted sentiment. Shares in Alphabet gained 4.6% as investors cheered the application of its technology into the iconic devices, while there was a smaller applause for Apple, with concerns still lingering about its backseat in the AI revolution.
Oil prices are still hovering near highs not seen since October last year, as geo-political tensions remain high and supply concerns linger. Brent Crude is trading close to $87 a barrel, with drone attacks by Ukraine on Russian refineries still front of mind, given that they are thought to have hit targets representing 10% of Russia’s oil processing capacity. China’s better than expected industrial production and retail sales figures released on Monday also has led to expectations of higher demand for energy in the world’s second largest economy as hopes of more of a sustained economic recovery grow”
