International Consolidated Airlines Group (IAG) was one of the day's biggest fallers yesterday on the FTSE100 as investors moved away from anything that cannot be seen as rock solid in the short term. The airline lost 9.2p to 162.6p after Willie Walsh, the airline's chief executive, said it was in talks with potential buyers of bmi baby, but he was not confident of a sale. However this presents an opportunity for investors to get in while value is there - as the deal price reduction under the BA/Lufthansa agreement will cover financial costs of shut-down (redundancy payments, existing contract renegotiation and passenger compensation.) IAG expects this to be completed by the year end and in our view it is crucial these businesses are wound down quickly so as to minimise drag to BA.
Of course IAG bore the brunt of a day when global markets finally realized that even though the ECB/Germany has shown itself to be adept at usurping elected governments in all other areas, it has failed to deal with the problem at hand (we have done that to death so I leave it there). Now people power looks set to unravel part of the Eurozone’s hopes for getting out of danger. Holland and France look set to question austerity measures at the very least and water them down, and in all reality this will put a huge amount of pressure on poor old Spain. Will all this also sway the Fed in the US to make a move and print more notes?
All this means heightened FX problems are back on the agenda for airlines across the globe as investors start to move funds around again looking for that seemingly non-existent safe haven. But rejoice as it also means that oil has taken a tumble – or has it!
US oil prices slipped slightly on Monday: New York's main contract, West Texas Intermediate (WTI) crude for delivery in June, lost 77 cents to close at $103.11 a barrel. Brent North Sea crude for June inched down five cents, settling at $118.71 a barrel in London trade.
European equities tumbled and China’s PMI remained below the all-important 50 mark at 49.1 from 48.3 and yet oil only slightly corrected. In Europe, Eurozone private-sector activity sank the most in five months in April, another sign of recession – indeed it fell from 49.1 in March to 47.4 in April…
This information tagged against the slight correction of oil prices again strengthens the argument to look into oil speculation. In March we showed how speculators were adding a clear margin on the price of heating oil and jet fuel and now we see that crude is not falling with economic output once again. One wonders what is needed for a serious correction of oil prices, but new socialist French and Dutch governments pulling out of austerity measures and dumping Spain into the mire might well do the trick. We might not have long to wait.
More economic woes mean lower oil prices – but is the drop in line with the markets?
