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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

London Stock Exchange rejects Hong Kong takeover approach – business live

The Stock Exchange in the City of London.
The Stock Exchange in the City of London. Photograph: Matt Dunham/AP

Finally, the FTSE 100 has extended its recent gains, closing 22 points higher at 7,367, up 0.3%.

The London Stock Exchange was among the top risers, up 3.6% at £75.14.

That implies the City is expecting further takeover drama, either from the now-rebuffed HKEX or another major rival.

On that note, goodnight! GW

Afternoon summary: Bid battles and Brexit hopes

Time for a quick recap:

Updated

HKEX: We'll keep engaging with LSE shareholders

Newsflash: The Hong Kong Exchanges and Clearing has responded to the LSE’s rebuttal - and is refusing to go away quietly.

HKEX says it is disappointed that its London rival won’t “properly engage”.

It also defends its proposal, saying it is in the “best interests of shareholders, customers and global markets”.

They say:

The Board of HKEX continues to believe that the proposed combination with LSEG represents a highly compelling strategic opportunity to create a global market infrastructure leader.

Intriguingly, HKEX says it has held “constructive” initial discussions with regulators and policymakers (it doesn’t say where, but presumably they include London?).

And despite the LSE’s refusal to engage further, HKEX says it plans to continue engaging with shareholders....

Updated

This is interesting.....

Looks like Donald Trump’s message has got through to Americans - we’ll find out at next week’s Fed meeting whether Jay Powell is among them...

US consumer confidence rises

Despite recession fears, and the US China trade war, American consumer confidence has gone up!

The Michigan Consumer Sentiment index, just released, has risen to 92.0 for September, beating August’s 89.8. That’s also better than the 90.9 which Wall Street expected.

Still down on July’s punchy 98.4, but it may calm worries that the US economy is weakening. Of course, if consumers are less gloomy, there’s less need to cut interest rates as Donald Trump is demanding on an almost daily basis.

Here’s some reaction:

The New York Stock Exchange.
The New York Stock Exchange. Photograph: Johannes Eisele/AFP/Getty Images

The US stock market has made a muted start to the final trading day of the week.

The Dow Jones industrial average is up 62 points, or 0.23%, in early trading at 27,245. Mining stocks, financial companies and industrial firms are among the risers.

That reflects optimism that the US-China trade war is thawing, now that Beijing has dropped new tariffs on American soybeans and pork imports.

Here’s our news story on the LSE-HKEX (non) merger:

Zimbabwe’s eye-watering interest rate hike, from 50% to 70%, is presumably an attempt to calm its inflation rate, which is acceleratingly alarmingly.

According to official data, Zimbabwe’s inflation rate almost doubled in July, to 175% year-on-year. Unofficial estimates suggest it is much higher, as shortages of food and fuel leave citizens facing sharply higher prices every day.

Now this is a rate hike:

Here’s Roger Barron, M&A Partner at law firm Paul Hastings, on the London Stock Exchange’s move:

“It’s unsurprising that they have rejected this approach as the fact it was unsolicited means that the bidder must have known it wouldn’t have been popular – if it had they would have tried to agree a recommended bid and maintain confidentiality.

It’s perhaps also surprising that they didn’t make this announcement sooner.”

Updated

The LSE’s firm rejection of HKEX’s takeover approach isn’t a surprise, says Neil Wilson of Markets.com.

He writes:

Unattractive, offering a puny dowry and coming with volatile and unpredictable parents, HKEX never looked like the ideal bride. No great surprise to see the LSEG board has politely but firmly rejected the HKEX bid.

The letter to HKEX is not full of praise. In fact the letter from chairman Don Robert scolds HKEX for making public the highly speculative bid only days after telling LSEG.

So now that the LSE has dismissed HKEX’s charms, will someone else try their luck?

Wilson suggests a US suitor could be hovering in the wings:

The question now is whether the Americans come in with a counter offer. Shares are holding around the £73 level, suggesting there could be some interest. A knockout premium would be the price, but as we saw with Sky/Comcast, it’s not that far-fetched if the prize is deemed of enough strategic importance.

Why the LSE has rejected Hong Kong overtures

The LSE has also sent a blisteringly critical letter to the HKEX, explaining why its approach has been soundly rejected.

And they’ve released it to the City.

The LSE’s chair, Don Robert, begins by chastising HKEX’s chair, Laura Cha, and CEO Li Xiaojia, for going public with their proposed merger, saying:

We were very surprised and disappointed that you decided to publish your unsolicited proposal within two days of our receiving it.

Robert then argues that:

1) There is no strategic merit for the LSE group in combining with the HKEX.

The high geographic concentration and heavy exposure to market transaction volumes in your business would represent a significant backward step for LSEG strategically.

For that reason, the LSE thinks it’s ongoing deal to buy Refinitiv makes more sense.

2) The deal could fall foul of regulators, and certainly wouldn’t be approved quickly.

He says:

Your proposal would be subject to full scrutiny from a number of financial regulators, as well as governmental entities under, for example, the UK Enterprise Act, the CFIUS process in the US, and the ‘golden powers’ regime in Italy. There is no doubt that your unusual Board structure and your relationship with the Hong Kong government will complicate matters.

3) The offer, a mix of cash and HKEX shares, is risky - due to the protests in Hong Kong.

We see the value of your share consideration as inherently uncertain. The ongoing situation in Hong Kong adds to this uncertainty.

4) The offer, worth £31.6bn, “value falls substantially short of an appropriate valuation” of LSEG (currently worth £25bn).

This all means a big thumbs-down from the LSE:

Taking all of these factors into account, the Board unanimously rejects your proposal. Given the fundamental flaws in your proposal, we see no merit in further engagement.

LSE rejects Hong Kong takeover approach

The Stock Exchange of Hong Kong.
The Stock Exchange of Hong Kong. Photograph: Nicolas Asfouri/AFP/Getty Images

Newsflash: The London Stock Exchange has just roundly rejected the takeover proposal from its Hong Kong rival.

In a terse statement to the stock market, the LSE says it has considered the £32bn proposal made on Wednesday, and concluded it is fundamentally flawed.

Not only that, the LSE sees “no merit” in holding talks with Hong Kong Exchanges and Clearing!

It says:

Further to the announcement on 11 September 2019, the Board of London Stock Exchange Group plc (“LSEG”), together with its financial and legal advisers, has now considered the unsolicited, preliminary and highly conditional proposal from Hong Kong Exchanges and Clearing Limited (“HKEX”) to acquire the entire share capital of LSEG (the “Conditional Proposal”).

The Board has fundamental concerns about the key aspects of the Conditional Proposal: strategy, deliverability, form of consideration and value. Accordingly, the Board unanimously rejects the Conditional Proposal and, given its fundamental flaws, sees no merit in further engagement.

LSE adds that it remains committed to its takeover of financial data service Refinitiv -- a deal which is meant to turn the exchange into a challenger to Bloomberg.

HKEX had said that its offer was conditional on the Refinitiv deal being abandoned.

More to follow...

Updated

EIU: China's goodwill gesture

Nick Marro, Global Trade Lead at The Economist Intelligence Unit, says China’s decision is a clear sign of goodwill.

He believes that dropping the new tariffs on pork and soybeans could help deliver progress at the US-China talks next month. But a full trade deal still looks a long way away.

Here’s Marro’s take:

  • Re-opening the Chinese market for US farmers is a big priority for the US trade team, and so China eliminating the tariffs on US soy and pork products is a pretty genuine sign of goodwill. It’ll also be helpful in building more positive momentum before the trade talks planned in October.
  • Allowing for more imports could also help China deal with its rising food price woes, particularly as the African swine fever outbreak worsens. That said we still expect pork imports to only modestly offset the inflationary impact of that disease, as most pork consumption in China is driven by domestic supply.
  • We’re still not optimistic about the prospects of a trade deal, with even an interim agreement only papering over the deeper structural issues at the heart of the relationship. Regardless of what happens with these tariffs, we still expect other issues--such as in technology and finance--to weigh on US-China relations in the longer term.

Updated

China adds soybeans and pork to tariffs exemptions list

Soybeans being harvested in Brownsburg, Indiana.
Soybeans being harvested in Brownsburg, Indiana. Photograph: Michael Conroy/AP

Some important news is coming out of China on the trade war.

Beijing has decided to add more US agricultural products to the list of goods that are exempted from its latest tariffs.

And crucially, pork and soybeans -- two key exports - are on the list. That’s according to the Xinhua news wire, citing official sources.

It says:

“China supports relevant enterprises buying certain amounts of soybeans, pork and other agricultural products from today in accordance with market principles and WTO rules.”

This means the tariff on both goods will drop back to 25% (imposed last year). Beijing had just hiked the levy on both goods at the start of September, to 30% for soybeans and a sizzling 35% for pork.

This is the latest in a string of small concessions from both sides, which suggests that relations may be thawing ahead of new negotiations next month.

China had already exempted 16 US products from its latest tariff hike, prompting Donald Trump to delay America’s latest tariffs for a fortnight.

Overnight, Treasury secretary Stephen Mnuchin said Washington hopes to make “meaningful progress” when it sits down with officials from Beijing in October.

He told CNBC he is “cautiously optimistic” about chances for a deal, saying:

“We don’t want a trip that’s just a series of discussions. We want to make meaningful progress.

Wow. The pound has now gained nearly one and a half cents against the US dollar this morning, to a seven-week high of $1.2465.

This means it’s gained five whole cents since hitting a three-year low at the start of September.

Michael Brown, senior analyst at Caxton FX, suggests caution:

Sterling has rallied to its highest levels against the euro and dollar since late-July this morning, having gained more than 1% in reaction to the news that the DUP may be softening their stance on the Irish backstop.

However, the pound remains vulnerable, with politics set to continue dominating and the Brexit landscape shifting as quickly as ever.

Credit Suisse turns bullish on UK stocks

The strength of the pound is pulling the FTSE 100 down this morning. It’s lost 22 points or 0.3%, because a stronger sterling hurts multinationals’ overseas earnings.

But otherwise, now could be a good time to buy UK shares, according to analysts at Credit Suisse.

They’ve turned bullish on UK stocks this morning, arguing that valuations look relatively cheap now that a no-deal Brexit looks more likely.
They told clients:

“Given the most recent developments (...), we believe that investors should now be overweight of the UK, but more importantly in US dollar terms and still selectively.

“We would buy UK international earners in dollar terms that are cheap versus their peer group.”

Credit Suisse predict the FTSE 100 could have risen to 7,600 by the middle of next year - up from 7,329 today.

They suggest specialty chemical firm Johnson Matthey, pest controller Rentokil and cigarettes maker British American Tobacco as attractive stocks.

Pound hits $1.24 on Brexit hopes

The pound has hit its highest level since late July this morning, on growing optimism that a no-deal Brexit can be avoided.

Sterling has jumped by three-quarters of a cent to $1.2406, a seven-week high.

The pound-dollar exchange rate
The pound-dollar exchange rate Photograph: Refintiv

The rally comes as investors grow more confident that a Halloween Brexit horror can be avoided.

The Times has caused a stir this morning, reporting that Northern Ireland’s DUP is softening its position - and could accept Northern Ireland accepting some EU rules after Brexit. That might allow a reshaping of the current Backstop agreement.

However, DUP leaders Arlene Foster has rubbished the idea....

But there have been rumours for several days that Boris Johnson could be considering a Northern Ireland-only backstop to replace the current UK-wide one [this is the insurance policy in case a UK-EU free trade deal isn’t reached].

Another development: cabinet ministers have been urging Johnson to ask Brussels for an extension, rather than disobey the parliamentary vote instructing him to seek more time if a deal can’t be reached (the Telegraph reports here).

Our Politics Live blog has all the action:

European bank stocks are rising this morning, lifted by the ECB’s new stimulus package.

Financial companies are the top risers on the Stoxx 600, up 0.8% on average. This backs up the argument that the new two-tiered system for negative rates, and the more generous TLTRO loans programme, will help the banks.

Updated

Mark Haefele, chief investment officer at UBS Global Wealth Management, also has doubts about the ECB’s firepower.

The ECB has committed to keeping rates at current levels or lower until it sustainably achieves its inflation target. But the effectiveness of forward guidance rests on central bank credibility. The ECB’s inability to achieve its inflation target a decade after the global financial crisis may undermine its credibility.”

Updated

Kit Juckes of Société Générale writes that Mario Draghi is going out swinging, but perhaps not connecting as he used to:

Mario Draghi reminds me of an ageing boxer, still up for the fight but unable to pack the same punch as he used to. The currency fell yesterday on the news of a rate cut and an open-ended bond-buying programme, but it’s clear that it isn’t open ended unless the ECB can widen the pool of bonds they buy.

It’s not at all clear that the impact on the economy will be significant and it’s crystal clear that the baton needs to be handed to fiscal policy sharpish.

"Dracula" Draghi accused of sucking savers' money away

German newspapers are horrified that the European Central Bank is launching a new stimulus programme.

Bild, the tabloid, has dubbed Draghi a ‘dracula’ who has sucked billions of euros from thrifty German savers (they claim).

They warn:

The horror for German savers continues: ECB chief Mario Draghi (72) wants to tighten the zero interest rate policy even more!

German tabloid Bild
German tabloid Bild Photograph: Bild

It’s not surprising to see such concerns. Saving rates are at record low levels, which is clearly unpopular in Germany where the savings rate is double that of the UK.

But analyst Fred Ducrozet argues that today’s criticism is misplaced. He says the ECB actually helped German banks yesterday (by changing how its negative interest rates will be applied to bank reserves).

Austrian central bank chief criticises stimulus package

Austrian central bank governor Robert Holzmann
Austrian central bank governor Robert Holzmann Photograph: Bloomberg TV

Boom! The newest member of the ECB’s governing council has gone public with his concerns over Draghi’s stimulus package.

Governor Robert Holzmann, the new chief of Austria’s National Bank, has confirmed that some eurozone central bank governors pushed back against the moves agreed yesterday. He believes the plan could be a mistake.

According to Holzmann it was a “very intensive but also very constructive council meeting” in Frankfurt yesterday.

Some policymakers clearly felt that monetary policy had done about as much as it could.

Holzmann told Bloomberg:

Essentially it was the question about how effective will a new monetary easing be.

And in a clear challenge to the departing Draghi, Holzmann suggests that his successor, Christine Lagarde, could amend the stimulus.

“As things change -- also this forward guidance and the policy may change -- not tomorrow, not the day after tomorrow, but I wouldn’t think it’s there for the next decades.

One problem with that theory: Lagarde, like Draghi, is certainly on the dovish wing of global policymakers.

Introduction: ECB's stimulus package lifts markets despite backlash

Mario Draghi, President of the European Central Bank, yesterday
Mario Draghi, President of the European Central Bank, yesterday Photograph: Sean Gallup/Getty Images

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Shares are advancing higher this morning after the European Central Bank delivered a wide-ranging, and controversial, stimulus package yesterday.

In his last major act as ECB president, Mario Draghi restarted the Bank’s quantitative easing programme, with a new plan to buy €20bn of bonds each month.

He also cut its deposit rate (paid on commercial bank deposits at the ECB) deeper into negative territory, and introduced a new two-tiered system to protect bank profits.

The ECB also sweetened its cheap loans programme, to encourage banks to lend to the real economy, and made a new, tougher, pledge to leave borrowing costs at record lows until inflation has risen.

ECB policy measures

The move pushed equities and bond prices higher, as investors welcomed these fresh measures to ward off a recession.

Japan’s Nikkei has jumped 1% overnight, and European markets are expected to nudge new six-week highs too.

But the move was also controversial -- with Draghi facing a revolt from several members of his own governing council.

France’s Francois Villeroy de Galhau, the Netherlands Klaas Knot and Bundesbank President Jens Weidmann of Germany all pushed back against parts of the programme - in vain.

As Bloomberg explains:

Those three governors alone represent roughly half of the euro region as measured by economic output and population.

Other dissenters included, but weren’t limited, to their colleagues from Austria and Estonia, as well as members on the ECB’s Executive Board including Sabine Lautenschlaeger and the markets chief, Benoit Coeure, the officials said.

This backlash suggests that some central bankers believe monetary policy is reaching the end of the line.

Draghi himself warned that governments need to raise their spending to lift economic growth, rather than relying on monetary policy to do all the heavy lifting.

With the eurozone economy looking weak, and Germany possibly in recession, he declared:

It is high time for fiscal policy to take charge.

European finance chiefs are meeting in Helsinki today - we’ll see if they respond to his call.

The agenda

  • All day: Informal Ecofin meeting of EU finance ministers in Helsinki
  • 10am BST: Eurozone trade balance for July
  • 1.30pm BST: US retail sales for August
  • 3pm BST: University of Michigan sentiment survey for September

Updated

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