The FTSE 100 is playing catch-up today after being closed for May Day, with the blue chips ticking up a third of a percent to move ahead of 8,600 before trimming gains. BP shares rose while Shell fell as the latter was reported to be looking at buying the former...I discussed a couple of weeks ago how BP could be the mega-merger deal of the year. BP has been periodically tipped as a takeover target, but nothing has transpired. A year ago Abu Dhabi National Oil Company (ADNOC) was reportedly looking at buying BP but decided against pursuing a takeover. But news of Elliott’s stake has reignited rumours about a possible deal and now it seems Shell has been sniffing around, although quite what that would imply for Sawan's capital discipline is unclear. It would be a break with the strategy, you feel. BP’s low valuation and assets mean it’s got value but the question for Shell is whether it make those work as efficiently as its own. It would be a monster of a deal, indigestion would be inevitable, but given the existential pressures facing the industry, consolidation seems inevitable too. We have seen some megadeals in the energy sector lately. Exxon Mobil completed its $60 billion purchase of Pioneer Natural Resources in May last year, a move to become the biggest player in the Permian basin in the US, while Chevron is progressing on its $53 billion Hess (HES) deal. I don't think that either would be in a position to take out BP; a UK-friendly merger seems the most likely option if it were to go ahead.

Deliveroo agreed to a takeover from US-listed DoorDash for £2.9bn, a 44% premium to the close price on April 4th, the last pre-offer price. Good brand recognition – perhaps DoorDash can generate free cash...it’s been a dog of a stock, not one that will be sorely missed. Meanwhile ABF confirmed it is talks about merging with its Kingsmill bread brand with Hovis, which is owned by investment group Endless. 

It was a mixed session for European markets yesterday. Germany’s DAX rose 1.12%, marking a ninth straight gain and a new high since mid-March, boosted by Rheinmetall (+3.4%) amid expectations of higher defence spending under Germany's new conservative coalition. The CAC 40 in France dropped 0.55%, led lower by Kering (-4.4%). European indices are tracking a bit lower this morning with US futures weaker. China data was soft overnight.

The Bank of England will (almost certainly) cut rates this week – its first meeting since the Liberation Day tariffs, which are negative for growth and inflation in the UK. Markets are well priced for a 25bps cut – the standard cut – but we could see the BoE go bolder...arch hawk Catherine Mann voted for 50bps earlier this year and it’s not out of the question. Inflation fell more than expected to 2.6% in March, which provides ample cover for the BoE. Why should Britain have rates at 4.5%, the same as the US and double the 2.25% in the Euro area, given the risks to growth and the pressure on the economy that is so self-evident? There is no reason to wait, we might as well cut hard and fast. It will be interesting, even if they don’t go for 50bps, how they signal a slightly more aggressive approach – the problem is of course that they have failed with inflation such that they are nervous about credibility etc...but the time to move is now. Watch for the statement to drop a reference to ‘gradualism’. The market is poised for this and if it does NOT drop this reference it could be a hawkish tilt that the market is not quite expecting (sterling positive). On the side of the doves – tax hikes killing employment, energy prices falling, a stronger pound and tariffs. On the side of the hawks, natural caution and services inflation still at 4.7%, albeit down from 5% the month before. The other problem is that the ONS is not delivering good data, which complicates the picture for rate-setters. 

Oil fell sharply after OPEC+ agreed to raise production, opting to increase output by 411,000 barrels a day in June, following a similar decision for May. Goldman Sachs lowered its forecast for WTI to $56 a barrel in 2025 and 2026. Peak bearishness on oil may not yet be in yet but it’s a win for inflation dynamics and therefore is positive for volatility since low inflation pressure makes it easier for Trump to push harder on tariffs, all else being equal. Which it isn’t, of course, but I think low inflation is good for the President. I think it’s important to remember that tariffs are on pause, not shelved.  

US equities closed lower Monday, ending a nine-day winning streak - The S&P 500 fell 0.64%, Nasdaq declined 0.74%, and the Dow was down 0.24%. Palantir dropped 9% in after-hours trade despite beating revenue forecasts and hiking its guidance. Berkshire Hathaway declined 5% after Warren Buffett's announced he will step down. Trump threatened tariffs on non-US films...it’s going to raise costs for Netflix and others if they make content abroad...Disney reports this week.  

Palantir was super-strong but sold off sharply despite a beat and raise...sky high expectations with too much priced in at 600x earnings multiple. But the bulls really like this stock. Is every bit of good news priced in? Reload time? 

Ford reinforced the tariff story with the carmaker pulling guidance and reporting a $1.5bn hit from tariffs. AMD reports today – chips and tariff story. Arm Holdings is tomorrow. 

Finally, the Fed meets this week and will push back against calls to cut rates - but with growth cooling we can expect the wait-and-see approach morph into a more progressive easing bias...Waller has already teed up the pivot.