A bout of mergers and acquisitions gave European stocks a shot in the arm on Tuesday, while commodity and emerging market investors were somewhat calmed by the absence of an escalation in the Iraq crisis overnight.
Oil and gold eased back as U.S. and Iranian officials, in a rare sign of rapprochement, discussed the crisis on the sidelines of a nuclear conference in Vienna although they both ruled out military cooperation to face down the Sunni militant onslaught that threatens to break the country up.
“There is a growing sense that we could see a stalemate after the U.S. signaled that it was ready to talk with Iran,” said Jim Reid, market strategist at Deutsche Bank.
The slightly more benign geopolitical backdrop allowed European equities to take their cue from M&A speculation. Shares in British pharmaceutical group Shire led European bourses higher after Reuters reported that it hired investment bank Citi as an adviser, expecting to receive takeover approaches following a wave of deals in the healthcare sector.
“We’ve been buyers of Shire recently and on the back of this we’d look to add to positions,” said Manoj Ladwa, the head of trading at TJM Partners.
Healthcare companies have seen a wave of merger and acquisition speculation in the past two months, and Shire’s stock has risen nearly 30 per cent since mid-April.
At 0845 GMT Europe’s leading FTSEurofirst 300 index was up 0.4 per cent at 1389 points.
Germany’s DAX was up 0.8 per cent at 9966 points, Britain’s FTSE 100 was up 0.2 per cent at 6765 points and France’s CAC 40 was up 0.5 per cent at 4533 points.
Brent crude oil futures fell 0.5 per cent to $112.39 a barrel , pulling further back from last week’s nine-month high, and gold also fell 0.5 per cent to $1,265 an ounce.
UK INFLATION FALLS
Investors’ worries over Iraq, however, bubbled closely under the surface, as the possibility of the country breaking up remains distinct after militants from the Islamic State of Iraq and the Levant seized a large swathe of northern Iraq.
This helped support traditional safe-haven government bonds like U.S. Treasuries, with the 10-year yield at 2.59 per cent , flat on the day and off last week’s peak of 2.662 per cent.
The immediate focus is on the Federal Reserve’s monetary policy statement on Wednesday, when the U.S. central bank is expected to announce it will continue paring its bond purchase programme.
In currencies, the Australian dollar fell 0.6 per cent to $0.9344 after minutes of the Australian central bank’s June 3 meeting were more dovish than expected.
Sterling retreated from Monday’s five-year high above $1.70 after British inflation fell to 1.5 per cent in May, its lowest in over four years, casting some doubt whether Bank of England policymakers will raise interest rates this year.
The pound slipped 0.2 per cent to $1.6950, while the euro was steady against the dollar at $1.3573 and the greenback was up slightly against the yen at 102.02 yen.
Elsewhere, emerging markets took stock of a 10 per cent plunge in Argentina’s Merval stock market index on Monday after the U.S. Supreme Court declined to hear the country’s appeal over its battle with hedge funds that refused to take part in its debt restructurings.
The move risks sending Argentina into a fresh sovereign default. President Christina Kirchner said in an address to the nation that Argentina will honour all its restructured debts, but didn’t say how.
Turkey’s lira and South Africa’s rand held firm against the dollar .
“Despite the negative country-specific emerging market headlines, overall emerging market appetite remains fairly healthy,” said Deutsche Bank’s Reid.
This was despite tension in Ukraine showing no sign of abating as Russia cut off gas to Ukraine in a dispute over unpaid bills that could disrupt supplies to the rest of Europe and set back hopes for peace between the former Soviet neighbours.
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