Afternoon wrap: Shell loses emissions court case, Amazon inks MGM deal

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A bit of a dreich day for European equity markets with nothing moving much at all. All the main bourses have traded flat. US markets are mildly higher as Wall Street’s bank chiefs testify in front of Congress. Oil recovered $66 as inventory data showed a bigger-than-expected draw in inventories as well as stocks of gasoline and distillates. US 10s at 1.55%, gold above $1,900 and Bitcoin is weaker in the afternoon session below $39k again.

The dollar caught a big bid into the London fix. Dovish comments from the ECB’s Panetta – too early to taper bond purchases – had already set the EUR on a downwards trajectory through the session. EURUSD retreated to 1.2210 where it seems to have found some support. GBPUSD has tried several times to breach 1.4120 on the downside today but the level is holding well. The dollar index had a run up to 90 but ran out of steam at 89.95.

Doubling Dutch emissions cuts: A court in the Netherlands has ruled Royal Dutch Shell must cut carbon emissions by more than twice the company’s current target of 20% by 2030. The Dutch ruling compels Shell to reduce emissions by 45% from 2019 levels by 2030. Currently, Shell has a goal of achieving this 45% target five years later in 2035, and to be net neutral by 2050.

Shares had been trading a little higher all day before the ruling saw them turn mildly negative, before turning back above the flatline towards the end of the session. Shell says it will appeal the ruling. It comes as Chevron and Exxon also face their own climate campaign fight in AGMs today. What does the ruling mean for Shell and peers?

It undoubtedly sets an important precedent that ties corporate actions to global and national policy in a way that has not been seen before. It’s acknowledgment that you cannot abstract the likes of Shell and other ‘polluters’ if you like from the legally-binding treaties and obligations nation states have signed up to. Similar judgments may start to emerge that compel polluters to better align their strategy with government policy (eg the Paris treaty). It could also have implications for other sectors (eg Utilities) though that is less clear right now.

It is not yet clear to what extent this really changes whether you want to own Shell stock right now. True it could face fines if it doesn’t meet the targets, rather than just shareholder disapprobation. It may also need to increase the near-term capex for ‘greening’. But really this is speeding up a process already in motion. Indeed, the recent investor vote on setting more ambitious carbon reduction targets highlighted the extent to which investors are fully behind Shell doing more, quicker, not less, slower. Which kind of says most investors will be comfortable with the ruling, in of itself. Worries about higher capex and lower returns are another matter. The quicker Shell moves on this, the sooner fund managers with ESG-criteria to box tick will take a kinder view to the stock. Shell will have to act on this, and it could speed up divestments and potential deal activity if it is looking to use its current scale to swallow up some green energy assets.

Ford shares rallied 7% as it announced a $30bn investment in electric vehicles through to 2025. Investors lapped up the ambition. The company says it expects 40% of its sales globally to be EVs by 2030. It’s the first investor day under new CEO Jim Farley and there seems to be a real buzz about Ford’s EV plans now – watch out Tesla.

Amazon shares were mildly higher as the company confirmed it is acquiring MGM for $8.45bn. Like just about any big Amazon deal, on the face of things this looks like bad news for competitors, all else being equal. It gives Amazon significantly more firepower in terms of its Prime streaming platform. The impressive catalogue from MGM (James Bond etc) will help Amazon drive further up-selling of content in the Prime mix. Owning MGM also allows Amazon to benefit from having more control in the content output from the studio, which puts more squarely in a straight fight for eyeballs with Netflix/Disney. Of course, we cannot like-for-like Netflix subs with Prime membership, but, on the margins, it could make Prime compete more fully for eyeball time, which a) makes it stickier with users and b) reduces consumer propensity to have another streaming service.

Netflix tracked the move in Amazon shares but this could be more about the broad 0.55% rally for NDX today. Disney shares rose 1%. Comcast rallied 3% as it’s not seen in a rush to do any further deals. We are seeing significant consolidation in the streaming space that acknowledges the requirement for scale in order to survive – only last week AT&T spun off Warner Media to merge with Discovery. A major deal but hardly transformational for Amazon.

Finally, meme stocks are back – GameStop shares rose 14% and are now up 35% on the week. AMC added another 12%. Both jumped yesterday as Redditors on /wallstreetbets renew their interest in their old favourites.