Wheat prices soar as Russia pulls out of grain deal, banks rally on windfall tax relief, EasyJet shares jump on takeover speculation

“The Bank of England and US Federal Reserve have yet another thing to think about ahead of their respective interest rate decisions later this week as Russia pulls out of a Ukraine grain deal,” says AJ Bell Investment Director Russ Mould.

“Wheat prices are soaring off the back of the move on fears the breadbasket of Europe might be squeezed and this only adds to an existing set of inflationary pressures. Commodity prices, which had receded in relevance somewhat since the summer, are now back at the top of the agenda.

“It all adds up to an increasingly difficult tightrope for monetary policy makers on both sides of the Atlantic to walk as they look to bring inflation under control without doing too much economic damage in the process.

“Reports suggesting a windfall tax on the banking sector is unlikely helped give shares in the likes of NatWest, Lloyds and Barclays a lift on Monday.

“The current backdrop for the banks contains both the sunny rays of higher rates and the positive implications for profitability alongside some very dark storm clouds reflected in the big provisions they took to guard against a rise in bad debts in their recent results.”

Easyjet

“Reports that EasyJet could be a takeover target for International Consolidated Airlines make perfect sense.

“The pandemic has created concerns about the future of business travel, with companies globally realising they don’t need to hold so many meetings in different locations. It’s far easier, cheaper and more environmentally friendly to hold many conversations over Teams or Zoom than get on a plane.

“Therefore, companies like International Consolidated Airlines need to rethink their future sources of revenue as they may find that business travel doesn’t match pre-Covid levels.

“Owning EasyJet would significantly boost International Consolidated Airlines’ position in the leisure market and give it access to many prized airport landing slots.

“The key challenge is funding such a deal. International Consolidated Airlines is already ladened with large debts and shareholders may prefer it to pay down these borrowings rather than spend billions on buying another airline such as EasyJet.

“Shares in EasyJet earlier this month traded at their lowest levels since 2011, which is the market’s way of saying it believes the company’s recovery from the pandemic will be very slow.

“Many airlines will have been watching EasyJet’s share price collapse and weighing up their options. An opportunistic takeover bid now could net them a bargain in the long term, but equally it’s a bold move to take given the gloomier economic outlook which could cause further disruption to earnings over the coming year.

“Wizz Air has been linked as a potential suitor for EasyJet in the past and there is also logic behind a tie-up of those two companies. Eastern Europe-focused Wizz Air could strengthen its position in Western Europe by owning EasyJet. Additional airlines may also find a good rationale for owning EasyJet. This suggests International Consolidated Airlines will face competition from other parties should it decide to make a move on the low-cost airline operator.”

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