EU stock markets in the red, weighed down by rising oil prices. Lottomatica down in Milan following a major merger in Spain

(Il Sole 24 Ore Radiocor) – European stock markets are continuing to fall at the halfway point of the trading session, caught between the rise in oil prices and sales of government bonds which are fuelling a surge in yields to their highest levels in decades. The resumption of clashes in the Strait of Hormuz has, in fact, reignited fears of inflation and interest rate hikes, leading to a rise in global borrowing costs for both governments and businesses. The MSCI Asia Pacific Index is down 2 per cent and has dragged the global MSCI All Country World Index to its lowest level in nearly a month. Yields on 10-year US Treasuries, on the other hand, are close to a three-year high at 4.81 per cent and appear to be heading towards 5 per cent. Meanwhile, the Japanese 10-year bond yield is above 3 per cent, at a 30-year high, whilst the Australian 10-year yield has risen to 5.198 per cent, its highest level in over 15 years. In Europe, German Bund futures have fallen by 0.35 per cent to their lowest level since 2011, whilst French OAT futures have dropped by 0.37 per cent to an all-time low. Thus, the FTSE MIB in Milan is trading in the red; the same is true of the CAC 40 in Paris and the DAX 40 in Frankfurt. Across the Atlantic, too, futures are pointing to a lower opening for Wall Street.

At a macro level, attention remains focused on the US labour market data due on Friday. Analysts at MPS point out that, over the last 12 months, figures for new jobs in the US have been rather volatile. For August, the consensus forecast is for an increase in new jobs (+55,000); a figure well above the consensus could confirm that July’s contraction was merely a one-off; conversely, another negative reading would heighten fears of a possible sharp economic slowdown. The labour force participation rate is also worth monitoring, as it was the main driver behind the fall in the unemployment rate in July. A further decline could confirm underlying weakness in the labour market.

On the Milan main market, oil stocks continue their rally as the price of oil keeps rising: Eni is leading the gains and is among the best performers on the market. Amplifon is performing well, with Morgan Stanley initiating coverage with an “overweight” rating and a target price of €14.9. Buying interest in tech stocks, with Stmicroelectronics among the top performers on the market. Focus on Stellantis following the release of August vehicle registration figures the day before.

Lottomatica Group has been hit by heavy selling on the Milan Stock Exchange following the announcement of the mega-merger with the Spanish company Cirsa, which, by contrast, is soaring in Madrid. The Italian group’s shares are the worst performers on the FTSE MIB. The deal creates the world’s second-largest listed operator in gaming and sports betting, “with a leading position in Italia and Spain and a pro forma adjusted EBITDA of around 2 billion”. Despite the market’s reaction, the deal has been welcomed by analysts. “We view the deal positively,” commented Intermonte. “The agreement appears to us to be well-structured from a financial perspective and consistent with Lottomatica’s track record on capital allocation.” Cirsa, in fact, “is being acquired at a lower multiple than that at which Lottomatica trades, making the transaction intrinsically accretive to earnings and cash flow per share”. Among the aspects to monitor, Intermonte highlights the risk associated with the possible sale of Blackstone’s stake on the market, which is, however, considered “manageable” by analysts at Equita. “We view the deal as attractive, as it opens up a less mature market such as Spain, definitively consolidates the position in Italia and generates opportunities for visible synergies without compromising an attractive return for shareholders,” the experts add. The positive aspects of the deal, concludes Banca Akros , are “geographical diversification and the potential development of online opportunities for Cirsa”.

Oil prices continue to rise: the November futures contract for Brent has broken through the $95 mark per barrel, whilst WTI has broken through the $90 mark. Both contracts had risen by over $4 on Tuesday, marking Brent’s biggest gain since 24 July and WTI’s since 23 July. Gas prices are also on the rise, with natural gas in Amsterdam trading at over 73 euros per megawatt-hour. On the foreign exchange market, the euro/dollar rate is little changed at 1.1580. The yen rose after Bank of Japan Governor Kazuo Ueda left the door open to a rate rise as early as this month. The Japanese currency is trading at 184.77 to the euro and 159.60 to the dollar.