FTSE 100 and Asian markets higher as weak US data prompts rate cut speculation, activist Cevian takes stake in Smith & Nephew

“The FTSE 100 made a strong start on election day but its gains had far more to do with events on the other side of the Atlantic,” says AJ Bell Investment Director Russ Mould.

“Broad-based gains across the index followed weak jobs data from the US and a soft reading from the country’s services sector.

“This was taken as an indication the Federal Reserve may start cutting interest rates sooner rather than later, with the labour market closely watched by Jerome Powell and his colleagues.

“The dollar fell which, along with the shifting rate expectations, helped power Asian markets to big gains, with one broad-based Asian index* reaching its highest level in more than two years. Dominant regional name Taiwan Semiconductor Manufacturing Company traded above one thousand Taiwanese dollars for the first time.

“Closer to home, there was some relief that mainstream parties appeared to be mounting a concerted effort to thwart the far-right Rassemblement National’s hopes of gaining a majority in the French parliament.

Smith & Nephew

“Activist investors often circle a struggling company so the news Sweden’s Cevian has taken a stake in medical devices firm Smith & Nephew shouldn’t come as a huge surprise.

“Cevian has previously taken positions in UBS, Vodafone and Aviva in an attempt to force change and the case for doing so at Smith & Nephew is presented by a near-40% decline in the share price over the last five years.

“The positive share price reaction to Cevian taking a position in Smith & Nephew demonstrates the market thinks an outside catalyst for a shake-up of the business would be no bad thing.

“The company was severely affected by the pandemic as elective procedures like hip and knee replacements were cancelled, reducing demand for its orthopaedic products. Lockdown also hit the company’s supply chain, as it did for many businesses.

“However, its post-Covid recovery has been faltering and an improvement plan announced in 2022 has not yet resulted in a material improvement in earnings and profitability. This hasn’t been helped by a weak showing in the US market.

“Cevian is likely to hold management’s feet to the fire and may look for more ambitious targets than set out under the existing improvement plan. It could also push for a rationalisation of the company’s portfolio, which encompasses sports medicine and wound care alongside orthopaedics.”

*MSCI AC Asia Pacific ex-Japan index

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