Market snapshot: US jobs, Russian aggression and UK takeovers

Long overlooked by international investors, the UK is becoming a destination country for bargain hunters. That also means overseas companies with deep pockets hunting for new acquisitions. Our head of markets discusses events and the latest UK takeover attempt. 

The more recent market rebound rally has taken another pause for breath amid diminishing hopes of progress in peace talks between Russia and Ukraine.

Western scepticism over a cooling of Russian aggression seems to have been justified as Ukraine reportedly braces itself for another offensive in the East. Investors remain skittish not only because of the strangulation of energy supplies from one of the world’s largest producers in Russia, but also by some of the unintended consequences which are also emerging, such as the acceleration of the need for independent supply chains.

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Moving against the grain was a dip in the oil price, which nonetheless remains ahead by 40% so far this year. Reports that President Biden will later announce the release of up to 180 million barrels of oil in the coming months from the country’s Strategic Petroleum Reserve would strengthen some of the current constraints which have arisen in supply lines.

Meanwhile, the possibility of recession as a result of over-tightening by the Federal Reserve continues to bubble just under the surface. At a time of heightened sensitivity given the wider global issues, investors will again be looking to anticipate the latest Fed thinking as the monthly non-farm payroll figures are released tomorrow, with another strong showing expected.

The more recent rebound in US markets will not be enough to stem the declines as markets move into the last trading day of the quarter, with the Dow Jones down by 3.1% and the Nasdaq by 7.7%. For the benchmark S&P500, which has lost 3.4% so far, the likely quarterly decline would be the first since the opening quarter of 2020, as the Covid-19 pandemic was beginning to take full effect.

The first three months of the year has also prompted some ongoing resilience from the FTSE100, which remains ahead by 2.8% in the year to date. In an unusual turn of events as compared to recent years, the UK has become the centre of investor attention. Not only has the idiosyncratic FTSE100 held up given its natural defensive qualities, energy and overseas earnings exposure, but the UK as a whole has thrown up any number of acquisition opportunities, and indeed approaches, on valuation grounds.

A lacklustre start to Thursday's session underlines the need for further positive news to enable the next leg of growth, as investors remain in a reflective mood. However, one early highlight further underlined the M&A theme in the UK, with the announcement of a proposed £1.6 billion acquisition of Brewin Dolphin Holdings (LSE:BRW) by the Royal Bank of Canada.

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In the meantime, another feature of the quarter has been an investor return to “sin” stocks, as they hunker down. It may be that the momentum of the ESG movement has been partly sidelined for the moment, with investors hunting for returns in traditional areas. Indeed, the best performing sectors of 2022 have been those of tobacco and defence alongside those of oil and mining.