Pharma news leads FTSE higher

The FTSE has started the day on the front foot, helped by a rally in pharma giant GlaxoSmithKline and a temporary absence of negative Brexit news. US futures indicate that Wall Street might have a good start to the day too ahead of the key Fed rate meeting later today and helped by renewed trade optimism.

Fed rate hike priced in

The Fed’s rate meeting today will be one of those where it is damned if it does and damned if it doesn’t. President Trump has kept up his barrage of requests for the central bank to stop raising rates to help the US economy keep up momentum and prevent markets from sliding. Though there is scope for the central bank to change its plans – it has been indicating for months that there would be a hike in December – keeping rates unchanged might backfire because it would be interpreted that the Fed is losing its independence from politics and that it is paying too much attention to the turbulence in the stocks and bond markets. It would also imply that the economy is no longer expanding at the same pace which would again be interpreted as a sell signal. For the time being the markets are pricing in a 25 basis point hike and at least two more next year, any other decision will trigger significant turbulence.

Glaxo Pfizer hook up boosts pharma shares

Glaxo shares rallied nearly 7.2% after the pharma giant agreed to combine its consumer health unit with US peer Pfizer in a deal that will create a company that will have global sales of about $9.8 billion. While the deal sounds great on paper it has undertones of a similar transatlantic deal between Bayer and Monsanto which ended up with buyer’s remorse on Bayer’s side and massive selloffs of bought units. What will work in Glaxo/Pfizer’s favour is that the two firms plan to spin off the new unit within three years to create a massive consumer health company that sells established brand names on both sides of the Atlantic from antacids to toothpaste. The remainder of Glaxo’s current operations will become a separate new business that sells prescription medicines and vaccines.

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