(Update) The FTSE 100 held on to its gains as shares in Shire (SHP) surged 13% on news that the drugs maker had rejected a third takeover bid from US rival AbbVie (more below).
A positive report on US factory activity overnight pushing the S&P 500 to a record high and the strong start to trading in TSB (TSB), up 12% on its debut, cheered investors and saw the FTSE 100 advance 18 points or 0.3% to 6,826, its third day of gains.
The Accumulator: West up, East down
As our exclusive Accumulator table shows it’s been a fairly good week for stock markets. In the five days up to yesterday’s close the US and world stock markets gained 0.7%, with the FTSE 100 notching up 0.5%, although emerging markets and Asia were weak.
The dollar has fallen against the pound in response to the Federal Reserve’s statement that it won’t increase US interest rates rise as much as it had previously thought. This hurt US government and emerging market debt prices, although UK and European bonds made modest gains.
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Unease: oil conflict and dolphins
Traders are now hoping the UK’s leading index will have another go at breaching the ‘resistance’ point of 6,880. It's been an up and down year for the FTSE 100 which is up just 3% since January following an 18.7% advance last year.
With the US sending 300 military advisers to Iraq, investors are keeping a close eye on the price of Brent crude oil, currently trading at a nine-month high of around $115 a barrel. Analysts believe it is unlikely the ISIS insurgency will affect the big oil fields in the south of the country but warn if it did and oil spiked to $125, the global economy and world stock markets would take a hit.
Analysts at Bank of America Merrill Lynch cautioned investors against being complacent about the speculative risks building up. With global shares and bonds at all-time highs, they highlighted the $5 million sale of a dolphin balloon sculpture (pictured) by Jeff Koons at a Swiss art fair as symbolic of a ‘summer of irrational exuberance’.
The scenario they feared is ‘where Wall Street excesses rather than Main Street recovery forces the Fed and other central banks to tighten’ and raise interest rates faster than expected.
Shire tells AbbVie to stick it
Shire shares leaped 492p to £42.29, before ebbing back to £41.32, after the company revealed it had rejected a cash and share offer from AbbVie worth £46.11 a share.
The drug maker's shares have advanced 19% this week after news broke it had hired investment banks to deal with bid approaches it expected to receive.
Shire said this was the third approach from AbbVie it had rebuffed. The latest offer was made on 30 May and was rejected by the board for fundamentally undervaluing the company and its prospects, it said in a statement.
Susan Kilsby, Shire chairman, said: 'Shire has a long track record of delivering for shareholders and addressing unmet patient needs. Our high-performing management team and focused strategy are producing even stronger results, reflected in our recent top-line growth and increased profitability.’
Shire shares have more than doubled in the past year as investors have regarded it as an attractive bid target for US companies seeking to expand and lower their tax base. Although listed on the London Stock Exchange, Shire is based in Ireland for tax purposes where corporate tax is low. It does most of its business in the US and is best known for its treatments for attention deficit hyperactivity.
AbbVie’s best seller is the rheumatoid arthritis drug Humira. It has a market value of around $86 billion (£50.4 billion).
Barrick Gold leads FTSE 250
The ‘mid cap’ FTSE 250 index raced 60 points or 0.4% higher to 15,683, led by African Barrick Gold (ABGL), the world’s biggest gold producer, on news of a possible alliance with China’s state-owned gold mining company China National Gold.
This follows the appointment earlier this year of John Thornton, a China expert, as chairman of the Toronto-based company. Reports suggest the tie-up will not involve any of Barrick’s Canadian assets but smaller, non-core mines.
Gold retreated from yesterday’s highs to trade $3 lower at $1,309.7 an ounce.