- UK budget deficit worse than expected
- FTSE opens down 0.3% back below 7,700
- Follows worst day for US stocks since October
- Alphabet only riser in Magnificent 7
- Paramount and Warner explore $40bn merger
- Brent crude back below $80 per barrel
Derren Nathan, head of equity research, Hargreaves Lansdown:
“UK markets are unlikely to take any comfort from the news that November’s UK budget deficit of £14.3bn was £1.4bn ahead of consensus. This may also limit messrs Sunak and Hunt’s wiggle room to hand out further sweetners ahead of elections expected next year. The FTSE 100 has opened back below 7,700 after posting a 1% gain yesterday.
This follows the biggest day of losses since October for US indices. With broad based falls across all sectors there was little shelter for traders. Both the Nasdaq Composite and S&P 500 were down 1.5%. The move was driven by relatively light trading volumes. With the US markets still at close to record highs, this optimism is showing signs of fragility.
Of the so called ‘Magnificent 7,’ the only stock in the black was Alphabet, which reached a 52-week high. This followed reports that a restructuring is being considered in Google’s advertising business that dominates the company’s revenues. The advertising industry stands to be one of the earliest beneficiaries of the accelerated adoption of Artificial Intelligence (AI), which is already being used to generate and publish content on Alphabet’s platforms which also include YouTube. Investors are clearly tantalised by the potential efficiencies and cost savings AI may bring.
Meanwhile, two former heavyweights of the media world are looking to bulk up again by joining forces. Warner Bros Discovery and Paramount have held initial merger talks. They’re known for their traditional broadcasting networks which between them include HBO, CNN and CBS, but as streaming continues to dominate viewing figures this is a space that’s struggling. They’re combined market value of about $40bn would still be under 20% of Netflix’s.
Both names have, however, been sinking billions of dollars into their own streaming services which if combined could see them leapfrog Disney into third place in the subscriber number league table. They also have rich content slates with Warner Bros bringing Barbie to the big screen in 2023. Paramount’s biggest showing of the year was the latest instalment of the Mission Impossible franchise. Certainly, there’s a lot of synergies to be had here but with $67bn of net debt between them, it may not be a perfect marriage if a deal goes ahead.
Despite a joint effort by Washington and London to tighten enforcement of the price cap on Russian exports Brent Crude has slipped back below $80 per barrel.”
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