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| Pound bounces back as Raab talks up chances of Brexit deal – as it happened | |
| (about 1 hour later) | |
| So stock markets are down today amid heightened trade tensions between the US and China, as new tariffs kicked in. | |
| It’s been a better day for the pound, which has risen 0.6% against the dollar to $1.3148 after Brexit secretary Dominic Raab expressed confidence that a deal with the EU could eventually be reached – although investors remain wary. Sterling tumbled two cents against the dollar on Friday, its biggest daily drop this year to a low of $1.3053, after Theresa May admitted talks had reached an impasse after the EU summit in Salzburg. | |
| This has put her leadership under mounting pressure ahead of the Tories’ annual conference, which starts on Sunday in Birmingham. | |
| Oil prices have jumped today, after the Opec oil cartel resisted calls from Donald Trump to increase output to get prices down at the weekend. Looming US sanctions against Iran in November will restrict supply further. Brent crude is up 2.4% at $80.70 a barrel. | |
| Good-bye – we will be back tomorrow. | |
| Kate Swaine, partner at international law firm Gowling WLG says about the deal: | |
| It is interesting to witness the marriage of such distinct brands in order to create another multinational luxury goods conglomerate. Although Michael Kors already owns Jimmy Choo, the addition of Versace is a major expansion for the group. They are not yet on the scale of LVMH or Kering but clearly have ambitions to expand their reach in the luxury goods sector. | |
| As reported earlier, Versace, the Italian fashion house founded by Gianni Versace 40 years ago, has been sold to US handbag and clothing brand Michael Kors for $2bn (£1.5bn), according to the Italian newspaper Corriere della Sera. | |
| Donatella Versace, the brand’s vice-president and artistic director, has called an all-staff meeting for Tuesday to announce the deal. | |
| Neil Saunders, managing director of GlobalData Retail, says: | |
| That Michael Kors should court Versace is no great surprise. The American company has long desired to transform itself into a house of luxury brands, a process it started with last year’s acquisition of Jimmy Choo. Versace comes with a much bigger price tag of $2.35 billion, almost double the $1.2bn price that Michael Kors paid for Jimmy Choo. However, it would also put a big-hitting brand with true global status into Michael Kors’ stable. | |
| Other than the desire to become a bigger conglomerate, the rationale for buying another luxury label is perhaps less sound. In our view, while progress has been made, Michael Kors has not rebuilt its core brand to the same extent as other players like Coach: its offer is still confused and is nowhere near as rounded nor polished as many other luxury players. This shows up in the company’s sales figures where growth has been driven by an upswing in US consumer sentiment and spending, rather than because the brand is generating much better traction. | |
| The choice of Versace is interesting. If the deal goes through it would certainly push the group into the big league in terms of its profile in the luxury space. It also means that the company would be a player in many different categories from fragrance to home to pets, thereby giving the group a true lifestyle position. However, it is also the case that despite its profile, Versace has struggled to grow sales. As such, Michael Kors is not buying a perfectly performing brand, it is buying a brand that needs work and some repositioning. | |
| As much as we believe Michael Kors past experience with its own brand will help it make the changes required, these shifts will cause short-term disruption and might mean that the true benefits from the acquisition will take a number of years to deliver through. We also believe that some of the work required on Versace, which includes toning down some of the brasher elements of the brand which are now out of step with the more subtle tone preferred by modern consumers, are precisely the issues with which Michael Kors has struggled and is yet to satisfactorily resolve. | |
| Wall Street has just opened. The Nasdaq is down 0.6% and the Dow Jones is 0.3% lower. | |
| Back to the US-China trade dispute, which has moved closer to becoming a global trade war with the implementation of the latest tariffs today. | Back to the US-China trade dispute, which has moved closer to becoming a global trade war with the implementation of the latest tariffs today. |
| Geoffrey Yu, head of UK investment office at UBS Wealth Management, said: | Geoffrey Yu, head of UK investment office at UBS Wealth Management, said: |
| Today marks the latest step in the simmering US-China trade spat, as we see the Trump administration’s new tariffs on an additional $200bn of Chinese exports take effect. This clearly represents a further escalation of the threat to China and its economy, and, especially considering that China has scrapped plans for further trade talks, we expect things will get worse before it gets better. As we inch further towards the precipice of a fully-fledged global trade war, financial markets will no doubt react swiftly, looking for further downside. | Today marks the latest step in the simmering US-China trade spat, as we see the Trump administration’s new tariffs on an additional $200bn of Chinese exports take effect. This clearly represents a further escalation of the threat to China and its economy, and, especially considering that China has scrapped plans for further trade talks, we expect things will get worse before it gets better. As we inch further towards the precipice of a fully-fledged global trade war, financial markets will no doubt react swiftly, looking for further downside. |
| However, the narrow focus on Sino-US relations is obscuring consideration of how an emerging trade tariff war could stimulate a fiscal drive from China. With a reasoned domestic response, what currently seems a damning situation could actually spark a re-orientation of China’s economic model. Granted, the leadership will have to accept short-term sufferance, but over the medium- to long-term, we see the potential for positive surprises. | However, the narrow focus on Sino-US relations is obscuring consideration of how an emerging trade tariff war could stimulate a fiscal drive from China. With a reasoned domestic response, what currently seems a damning situation could actually spark a re-orientation of China’s economic model. Granted, the leadership will have to accept short-term sufferance, but over the medium- to long-term, we see the potential for positive surprises. |
| Sterling has risen as much as 0.9% against the dollar to $1.3161, and 0.4% against the euro to 89.42p. | Sterling has risen as much as 0.9% against the dollar to $1.3161, and 0.4% against the euro to 89.42p. |
| Sterling has bounced 0.6% against the dollar today after Friday’s sell-off, lifted by upbeat comments from Brexit secretary Dominic Raab. It’s trading at $1.3158 at the moment, and is up 0.4% at 89.42 pence against the euro. | Sterling has bounced 0.6% against the dollar today after Friday’s sell-off, lifted by upbeat comments from Brexit secretary Dominic Raab. It’s trading at $1.3158 at the moment, and is up 0.4% at 89.42 pence against the euro. |
| Raab expressed confidence that a Brexit deal could be struck – but analysts said the comments were unlikely to support the pound for long. | Raab expressed confidence that a Brexit deal could be struck – but analysts said the comments were unlikely to support the pound for long. |
| On Friday, sterling posted its biggest daily drop this year, falling as low as $1.3053, after Theresa May admitted that Brexit talks had reached an impasse, after a humiliating EU summit in Salzburg. | On Friday, sterling posted its biggest daily drop this year, falling as low as $1.3053, after Theresa May admitted that Brexit talks had reached an impasse, after a humiliating EU summit in Salzburg. |
| Back to the CBI survey. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says it suggests that the “modest stimulus to growth in production from sterling’s depreciation is fading”. | Back to the CBI survey. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says it suggests that the “modest stimulus to growth in production from sterling’s depreciation is fading”. |
| The drop in the total orders balance was driven partly by a decline in the export orders balance to an 11-month low of +5, from +9 in July. Admittedly, growth in total orders is weakening from a high rate; the overall balance still is consistent with year-over-year growth in manufacturing output of about 2%. | The drop in the total orders balance was driven partly by a decline in the export orders balance to an 11-month low of +5, from +9 in July. Admittedly, growth in total orders is weakening from a high rate; the overall balance still is consistent with year-over-year growth in manufacturing output of about 2%. |
| But the official manufacturing data has been much weaker than the surveys this year, with output falling by 0.1% quarter-on-quarter in Q1 and by a further 0.9% in Q2. In addition, growth in export orders usually lags movements in sterling by about one year; the exchange rate’s relative stability over the last year, therefore, has started to take the edge off growth in exports. | But the official manufacturing data has been much weaker than the surveys this year, with output falling by 0.1% quarter-on-quarter in Q1 and by a further 0.9% in Q2. In addition, growth in export orders usually lags movements in sterling by about one year; the exchange rate’s relative stability over the last year, therefore, has started to take the edge off growth in exports. |
| Past form suggests that the export orders balance will fall to about -5 by the end of this year. Meanwhile, the chance that overseas customers re-jig their supply chains increases with every day that passes without a Brexit deal. As a result, we doubt that the manufacturing sector’s recovery is about to get back on track. | Past form suggests that the export orders balance will fall to about -5 by the end of this year. Meanwhile, the chance that overseas customers re-jig their supply chains increases with every day that passes without a Brexit deal. As a result, we doubt that the manufacturing sector’s recovery is about to get back on track. |
| The Italian fashion house Versace could be sold “within hours” to Michael Kors, the US fashion group, according to Italian newspaper Corriere della Sera. | The Italian fashion house Versace could be sold “within hours” to Michael Kors, the US fashion group, according to Italian newspaper Corriere della Sera. |
| The deal is expected to value Versace at $2bn. Blackstone, which owns a 20% stake, is selling its entire holding while the Versace family, which owns the rest of the company, will stay involved, Reuters reported. The fashion house was founded by Gianni Versace in 1978. | The deal is expected to value Versace at $2bn. Blackstone, which owns a 20% stake, is selling its entire holding while the Versace family, which owns the rest of the company, will stay involved, Reuters reported. The fashion house was founded by Gianni Versace in 1978. |
| In Germany, manufacturers have also become more gloomy, worrying over the US-Chinese trade tensions and the impasse in the Brexit negotiations. The Ifo survey, also out this morning, showed that business sentiment improved in all sectors apart from manufacturing. You can read the survey here. | In Germany, manufacturers have also become more gloomy, worrying over the US-Chinese trade tensions and the impasse in the Brexit negotiations. The Ifo survey, also out this morning, showed that business sentiment improved in all sectors apart from manufacturing. You can read the survey here. |
| Ifo economist Klaus Wohlrabe said: | Ifo economist Klaus Wohlrabe said: |
| Despite the good mood, uncertainty is gradually growing among companies. | Despite the good mood, uncertainty is gradually growing among companies. |
| The CBI industrial trends survey, of 409 firms, revealed that output growth slowed in the three months to September, but remained above the long-term average. | The CBI industrial trends survey, of 409 firms, revealed that output growth slowed in the three months to September, but remained above the long-term average. |
| Output expanded in 10 out of 17 sub-sectors, with growth driven mainly by the mechanical engineering, food, drink & tobacco, plastic products, and metal products sectors. Despite the fall in orders, manufacturers expect output growth to pick up over the next three months. | Output expanded in 10 out of 17 sub-sectors, with growth driven mainly by the mechanical engineering, food, drink & tobacco, plastic products, and metal products sectors. Despite the fall in orders, manufacturers expect output growth to pick up over the next three months. |
| Leach added: | Leach added: |
| Efforts on all sides must be geared towards securing the Withdrawal Agreement and - crucially - the transition period. This will provide temporary but essential relief for businesses of all sizes and sectors. | Efforts on all sides must be geared towards securing the Withdrawal Agreement and - crucially - the transition period. This will provide temporary but essential relief for businesses of all sizes and sectors. |
| Looking ahead to the Autumn Budget, business rate reform, coupled with movement on capital allowances, could help encourage productive investment against this uncertain backdrop. | Looking ahead to the Autumn Budget, business rate reform, coupled with movement on capital allowances, could help encourage productive investment against this uncertain backdrop. |
| After the smaller-than-expected dip in German business morale, which analysts say points to solid economic growth in the third quarter, here in the UK factory orders weakened in September, according to an industry survey. | After the smaller-than-expected dip in German business morale, which analysts say points to solid economic growth in the third quarter, here in the UK factory orders weakened in September, according to an industry survey. |
| The CBI’s monthly factory orders balance fell to a four-month low of -1 from +7 in August, and its gauge of export orders hit its lowest level since last October. | The CBI’s monthly factory orders balance fell to a four-month low of -1 from +7 in August, and its gauge of export orders hit its lowest level since last October. |
| Anna Leach, the CBI’s head of economic intelligence, says: | Anna Leach, the CBI’s head of economic intelligence, says: |
| While manufacturing order books remain strong and output is still growing, Brexit uncertainty continues to cloud the outlook. | While manufacturing order books remain strong and output is still growing, Brexit uncertainty continues to cloud the outlook. |
| Heightened fears of a ‘no deal’ Brexit scenario have prompted some firms to move publicly from contingency planning to action. | Heightened fears of a ‘no deal’ Brexit scenario have prompted some firms to move publicly from contingency planning to action. |
| Russ Mould, investment director at stockbroker AJ Bell, is also not impressed with the deal, describing it as an “odd move with a potential culture clash and a poor outcome for UK investors who don’t want to hold overseas-listed shares”. | Russ Mould, investment director at stockbroker AJ Bell, is also not impressed with the deal, describing it as an “odd move with a potential culture clash and a poor outcome for UK investors who don’t want to hold overseas-listed shares”. |
| Randgold is an entrepreneurial business with a highly-respected boss in Mark Bristow. It has a track record of being able to succeed in difficult parts of the world and generating value for shareholders. | Randgold is an entrepreneurial business with a highly-respected boss in Mark Bristow. It has a track record of being able to succeed in difficult parts of the world and generating value for shareholders. |
| The miner has never rushed into making acquisitions until they could clearly add value; it has always tried to generate additional value through exploration and has maintained a tight focus on cost control. | The miner has never rushed into making acquisitions until they could clearly add value; it has always tried to generate additional value through exploration and has maintained a tight focus on cost control. |
| Barrick is the exact opposite – it is a big corporate machine which has paid the price for making bold moves at the top of the commodities cycle, resulting in significant impairment charges on acquisitions and large debt levels. | Barrick is the exact opposite – it is a big corporate machine which has paid the price for making bold moves at the top of the commodities cycle, resulting in significant impairment charges on acquisitions and large debt levels. |
| It has previously come under fire for excessive executive pay and shareholders have seen their value of their investment slowly dwindle away as the company failed to deliver strong returns from its asset base. | It has previously come under fire for excessive executive pay and shareholders have seen their value of their investment slowly dwindle away as the company failed to deliver strong returns from its asset base. |
| UK shareholders are arguably being dealt a poor hand with the merger. | UK shareholders are arguably being dealt a poor hand with the merger. |
| It’s also bad news for the London stock market, Mould argues. | It’s also bad news for the London stock market, Mould argues. |
| The London stock market listing is being cancelled and Barrick isn’t paying any premium to combine the two companies. The London market overall is also being punished as it will lose its largest gold miner, leaving only one company of scale on the exchange, being silver and gold producer Fresnillo. | The London stock market listing is being cancelled and Barrick isn’t paying any premium to combine the two companies. The London market overall is also being punished as it will lose its largest gold miner, leaving only one company of scale on the exchange, being silver and gold producer Fresnillo. |
| Meanwhile, Canada’s Barrick Gold has agreed to buy FTSE 100-listed Randgold Resources in a $18.3bn deal to create the world’s largest gold company. | Meanwhile, Canada’s Barrick Gold has agreed to buy FTSE 100-listed Randgold Resources in a $18.3bn deal to create the world’s largest gold company. |
| Shares in Randgold are up 6% on the news to £52.15, making it the second-biggest riser on the FTSE 100 after broadcaster Sky. The new company will be listed in New York and Toronto and will be run by Randgold boss Mark Bristow, while Barrick chairman John Thornton will chair the merged business. | Shares in Randgold are up 6% on the news to £52.15, making it the second-biggest riser on the FTSE 100 after broadcaster Sky. The new company will be listed in New York and Toronto and will be run by Randgold boss Mark Bristow, while Barrick chairman John Thornton will chair the merged business. |
| He said: | He said: |
| Randgold has the agility and swift-footedness of a younger and smaller company, much like Barrick in its early years, While Barrick has the infrastructure and global reach of a large corporate company. | Randgold has the agility and swift-footedness of a younger and smaller company, much like Barrick in its early years, While Barrick has the infrastructure and global reach of a large corporate company. |
| However, some analysts were sceptical. Kieron Hodgson at Panmure said: | However, some analysts were sceptical. Kieron Hodgson at Panmure said: |
| Our opinion is that the proposed merger, instead of being based on merit, strength and strategic integration, is more akin to the proverbial ‘two drunks supporting each other at closing time’. | Our opinion is that the proposed merger, instead of being based on merit, strength and strategic integration, is more akin to the proverbial ‘two drunks supporting each other at closing time’. |
| The all-share deal values Randgold at £4.58bn or £48.5 a share, according to Thomson Reuters data. | The all-share deal values Randgold at £4.58bn or £48.5 a share, according to Thomson Reuters data. |
| Paul Mumford at Cavendish Asset Management says the 2% plus rise in oil prices is good news for smaller UK oil and gas companies. | Paul Mumford at Cavendish Asset Management says the 2% plus rise in oil prices is good news for smaller UK oil and gas companies. |
| Should Brent crude continue to trade in a range between $70/barrel and $80/barrel the outcome looks good for smaller UK oil and gas companies. It will prove a boon for cash flows and forecasts as every extra dollar at that point goes straight through to cash flow. As well as taking the pressure off highly-geared companies, this would boost the value of reserves making it easier to obtain finance for exploration and development. | Should Brent crude continue to trade in a range between $70/barrel and $80/barrel the outcome looks good for smaller UK oil and gas companies. It will prove a boon for cash flows and forecasts as every extra dollar at that point goes straight through to cash flow. As well as taking the pressure off highly-geared companies, this would boost the value of reserves making it easier to obtain finance for exploration and development. |
| However, even if Brent crude falls below this ideal and into the $60/barrel, many of these smaller companies will still remain quite profitable. The situation in the sector is very different to what it was during the last oil spike; companies have worked hard to get operational costs way down, and many have taken advantage of the sustained high price to lock-in a price for the immediate future. Whereas these companies were previously trading on razor margins and vulnerable to small falls, they are now far more resilient and can comfortably stomach falls all the way down to $60/barrel. | However, even if Brent crude falls below this ideal and into the $60/barrel, many of these smaller companies will still remain quite profitable. The situation in the sector is very different to what it was during the last oil spike; companies have worked hard to get operational costs way down, and many have taken advantage of the sustained high price to lock-in a price for the immediate future. Whereas these companies were previously trading on razor margins and vulnerable to small falls, they are now far more resilient and can comfortably stomach falls all the way down to $60/barrel. |
| Should Brent crude go south of $60/barrel, then we start to enter trouble and worry territory (although many will still remain profitable down to $50barrel). Conversely, should the price continue to rise above $80/barrel could be counterproductive in that it could cause an overcorrection, triggering volatility. All in all, however, so long as we are able to keep the price above $70/barrel, the outlook is very rosy. | Should Brent crude go south of $60/barrel, then we start to enter trouble and worry territory (although many will still remain profitable down to $50barrel). Conversely, should the price continue to rise above $80/barrel could be counterproductive in that it could cause an overcorrection, triggering volatility. All in all, however, so long as we are able to keep the price above $70/barrel, the outlook is very rosy. |
| The trade tensions between the US and China are weighing on European stock markets. The Chinese, south Korean and Japanese markets are all closed for public holidays today, so Hong Kong’s Hang Seng index and the Australian stock market were the biggest losers in Asia. These are the latest moves in Europe: | The trade tensions between the US and China are weighing on European stock markets. The Chinese, south Korean and Japanese markets are all closed for public holidays today, so Hong Kong’s Hang Seng index and the Australian stock market were the biggest losers in Asia. These are the latest moves in Europe: |
| UK’s FTSE 100 index down 0.2% | UK’s FTSE 100 index down 0.2% |
| Germany’s Dax down 0.4% | Germany’s Dax down 0.4% |
| France’s CAC down 0.2% | France’s CAC down 0.2% |
| Italy’s FTSE MiB down 0.6% | Italy’s FTSE MiB down 0.6% |
| Spain’s Ibex down 0.4% | Spain’s Ibex down 0.4% |
| Oil prices have hit a four-year high after Opec declined to boost production at the weekend, despite Donald Trump’s call for action. Brent crude, the global benchmark, hit their highest level since November 2014 this morning, rising more than $2, or 2.7%, to $80.94 a barrel. It is still up 2.4% at $80.70 a barrel. | Oil prices have hit a four-year high after Opec declined to boost production at the weekend, despite Donald Trump’s call for action. Brent crude, the global benchmark, hit their highest level since November 2014 this morning, rising more than $2, or 2.7%, to $80.94 a barrel. It is still up 2.4% at $80.70 a barrel. |
| This has prompted some to forecast a spike to $90 or even $100 around the turn of the year. | This has prompted some to forecast a spike to $90 or even $100 around the turn of the year. |
| "The likelihood of an oil spike and crash scenario akin to the one observed in 2008 has increased."--BAML as oil hits $80 | "The likelihood of an oil spike and crash scenario akin to the one observed in 2008 has increased."--BAML as oil hits $80 |