Must read: UK bank stress test, US inflation, Microsoft, PageGroup

Our head of investment rounds up the morning's big news.

GLOBAL MARKETS

The FTSE 100 is trading higher again today, hovering around 7,300 amid broader gains across Europe. Banks like Lloyds Banking Group (LSE:LLOY) and Barclays (LSE:BARC) are leading the charge following successful results in the Bank of England’s stress tests.

Bunzl (LSE:BNZL) is languishing at the bottom of the UK blue-chip index after RBC cut the stock to underperform and lowered its target price from 2850p to 2550p. 

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All the major UK banks have passed the Bank of England’s latest stress tests, with none having to submit a revised capital plan. The UK Financial Stability Report said Britain’s economy is resilient amid the monetary tightening backdrop, however it warned about the stress from higher interest rates on consumers, buy-to-let landlords and smaller and highly indebted businesses. The central bank’s governor Andrew Bailey will be speaking more on this during his press conference at 9am. 

Focus turns to the latest US inflation rate later today, which is expected to drop to 3.1% in June, marking the twelfth monthly decline to reach the lowest level since March 2021. Investors will also be paying close attention to Canada’s central bank rate decision, with expectations for a 25-basis point hike to 4.75% after pausing at its previous two meetings.

MICROSOFT/ ACTIVISION BLIZZARD 

Shares in Activision Blizzard Inc (NASDAQ:ATVI) soared over 10% after a US judge offered support for its $69 billion deal with Microsoft Corp (NASDAQ:MSFT). It comes after the UK and the United States previously opposed the videogame mega deal. The UK regulator, the Competition and Markets Authority (CMA) said it is now willing to consider any proposals from Microsoft to restructure the transaction in a way that addresses its concerns. 

In April, the CMA blocked the deal, citing concerns over innovation and gaming consumer choice in the years ahead, in a major blow to the two companies. At the time, Microsoft’s president Brad Smith said it marked the tech giant’s ‘darkest days’ of working with the UK and said the decision was ‘bad for Britain.’ 

The US ruling indicates that the deal is back on the table and suggests it could ultimately surpass these regulatory hurdles. Following a major backlash, Microsoft is back in the driving seat, with the regulators forced to come back with their tails between their legs. The differences of opinion between the US judge as well as the EU regulator on the one side, versus US and UK regulators on the other, highlight the complexities of the transaction and the mixture of pros and cons for the industry and the consumer from what would be Microsoft’s largest ever tie-up. 

Next, Microsoft and Activision Blizzard must outline proposals that address regulatory concerns with a deadline of 18 July, although it could be extended. Microsoft has already agreed to limit obstruction to competition by licencing Call of Duty to rivals such as Nintendo if the merger goes ahead.

PAGEGROUP 

PageGroup (LSE:PAGE) reported second-quarter gross profit of £263.5 million, down 6.5% year-on-year, and said it expects full-year operating profit to meet consensus expectations for £137.6 million versus £196.1 million in 2022. The recruitment firm highlighted the challenging conditions and the global macroeconomic and political uncertainty in its major markets. As a result, PageGroup reduced its fee earnings headcount by 255 or 3.8% in the second quarter. 

Businesses continue to prioritize the temporary recruitment market instead of layering on additional fixed costs through permanent hires amid the economic storm clouds. While Europe, Middle East & Africa (EMEA) was a bright spot, Asia, the UK and the US struggled, weighing on PageGroup’s quarterly earnings. Offsetting even further weakness has been a strong level of vacancies as well as worker shortages. This year, the recruiter looks set to face ongoing headwinds from inflation and sluggish economic growth that are dampening appetite for business hiring. This trading update echoes a similar story outlined by rival Robert Walters last week. 

Shares in PageGroup have underperformed the wider market so far this year, shedding over 10% year-to-date but has outperformed Robert Walters (LSE:RWA) which is down over 23%.