Where finance and media intersect with reality


Spot Markets Live Transcript, 20/10/23 (M&A pipeline, Cbank funding models and Poland latest)

WhatsApp Image 2023-10-20 at 15.12.05
Izabella Kaminska11:29

Morning from Warsaw, Poland SMLers, where I was moderating a CFA panel yesterday about Poland’s economic policy outlook.

Ben Harrington11:31


Betaville back in the house!

Little old Betaville

Izabella Kaminska11:32

So yep, Im in warsaw. It was actually super fun this panel because nobody agreed with anyone and one point I thought there might be a fight.

Ben Harrington11:32

Causing trouble and cracking jokes is the name of the game

Izabella Kaminska11:32

Ben Harrington11:32

Oooh sounds interesting Izzy

Izabella Kaminska11:32

But we will come back to Poland in a bit.

Today Julian is off. Apparently he has some sort fo “life” or something, which means a few days up until Christmas will be no gos.

So nice to have Ben back

How’ve you been?

Scooping around as usual?

Ben Harrington11:33

Good thanks … been on a few olidays

Izabella Kaminska11:33

Anywhere exotic?

Ben Harrington11:33

Cadaques in Catalonia

Perpigina … in French Catalonia


I meant

I highly recommend both

also into the Lot region in the summer

Izabella Kaminska11:34

Very nice. But we’re not here to talk “Wish were you here”

Ben Harrington11:34

Why not!

Izabella Kaminska11:34

(That’s an iconic boomer travel reference)

So What should we start with?

Ben Harrington11:35

Looking out the window now it really does feel like the end of the summer

Izabella Kaminska11:35

There’s quite a lot of notable news this morning. I know Julian and Dario focused on Tesla yesterday, but I’m kind of obsessed with Japan at the moment.

The BOJ announced another five-year funds providing operation as well but JGBs are moving higher all the time and I think there’s now more official talk about the bank dropping its negative rate policy sooner rather than later.

Over in the UK, retails sales have come in worse than expected because of warm weather, but the net public borrowing figures – while still enormous – were better than expected.

German PPI however… Aye caramba.

BERLIN, Oct 20 (Reuters) – German producer prices posted their biggest year-on-year decline in September since data collection began in 1949, spurring hopes for further easing of inflation in Europe’s largest economy.

Producer prices fell slightly more than expected in September, decreasing by 14.7% on the year, the federal statistics office reported on Friday.

If germany sneezes who else catches a cold?

(Hint, warsaw)

Btw Rabble, hello there. Do make yourself known.

These sessions always work best with interaction

Ben’s what the market picture today?

Ben Harrington11:37

It’s looking a bit gloomy across Europe

Dax down about a 1pc

same with the Cac40

and Footsie off 0.7pc

Izabella Kaminska11:37

But the big news in the UK is the Tory thrashing overnight.

Ben Harrington11:38

Yes but not sure what the market impact of that is quite yet

Izabella Kaminska11:38

Here’s the Politico story on it

Labour won two Conservative safe seats in a double by-election victory overnight.

Voters in Mid Bedfordshire and Tamworth swung significantly to Labour, in what is a woeful result for Prime Minister Rishi Sunak and his Tory party.

Mid Bedfordshire, the former seat of Boris Johnson ally Nadine Dorries, saw a 20.5 percent swing, transforming the 24,664 Tory majority into a 1,192 Labour one. The new MP is Alistair Strathern, 33.

In Tamworth, the seat of disgraced former Conservative MP Chris Pincher, also saw a huge swing of 23.9 percent, with a 19,634 Tory majority turned into a 1,316 one for Labour, electing Sarah Edwards, 35, as the new MP.

Speaking specifically about the Tamworth result to the BBC, British election wizard John Curtice said “no government has hitherto lost to the principal opposition party in a by-election a seat as safe as Tamworth.”

Speaking on both the results, Curtice told the BBC that we are seeing the “top 10 of worst Conservative performances against the Labour Party.”

Hang on, Ben’s about to get scoopy and we ain’t got enough rabble in the house, So i am going to pop off quickly to do a tweet

Ben Harrington11:38

A tweet?!

Izabella Kaminska11:38

Oh yeah, oops

I meant an X

or whatever it is

11:40That’s done now

There is one other thing i’d like to flag before we get into the heavy duty stuff.  My old boss Paul Murphy at the FT has come out with one hell of a yarn for the FT Magazine this week.

Do check it out.

It’s an absolutely bonkers story about how a would-be crypto bond villain seasteader went totally paranoid and tried to contract an assassin to bump a Thai official who was preventing him from realizing his seasteading utopia dream.

Ben Harrington11:40

I haven’t read it yet

need to find an hour or so and comfy sofa

to sit down and read it properly

Izabella Kaminska11:41

With that out of the way let’s crack on to the real news… Ben what have you got?

Ben Harrington11:41

Well .. given the market backdrop I’m surprised by how buoyant the dealmaking environment has been over the last couple of weeks

Izabella Kaminska11:41

Oh that’s interesting.

Ben Harrington11:42

Bonds are collapsing and there is terrible strife in the world

but companies are still doing deals

Izabella Kaminska11:42

Like what, Ben?

Ben Harrington11:42

Last week, for example, one of the biggest deals of the year was announced in the US. Exxon Mobil’s $60 billion takeover of shale group Pioneer.


Izabella Kaminska11:43

And I had not even registered that

Sounds like a whopper

Ben Harrington11:43

It is whopper!

Izabella Kaminska11:43

It is mainly strategics buying strategics?

Are private equity firms locked out of the M&A market because of the tight funding situation?

Ben Harrington11:44

Well you would have thought so …

But that isn’t the case

Apollo last week agreed to buy London-listed The Restaurant Group, operator of Wagamama, for £506 million.


Izabella Kaminska11:45

That’s a bit surprising

Not a fan

Ben Harrington11:45

yeah neither am I

but I am a bit of a food snob

Izabella Kaminska11:45

Like seriously. Who really wants to sit on the same table as everyone else?

reminds me of school

Ben Harrington11:46

And this week there have been a string deals announced in the UK

Izabella Kaminska11:46

go on…

Ben Harrington11:46

CoStar Group’s £99 million bought of OnTheMarket, the property website, and Apax’s £203 million acquisition of Kin + Carta, the technology advisor.


Izabella Kaminska11:47

Still quite buoyant then?

Ben Harrington11:47


So no surprises then there is tons speculation circulating the London market about a number of FTSE 100-listed companies, such as M&G and Aviva.

Izabella Kaminska11:48

Didn’t Mark Kleinman write that 6 months ago?

Ben Harrington11:49

Yeah – the Kleinmanator kicked off the rumour mongering back in Spring with his scoop about Macquarie hiring Morgan Stanley to work on a bid for M&G.


Izabella Kaminska11:49

As a reminder:


UNCOOKED: Market gossip as Betaville receives it. This scuttlebutt has just come in and hasn’t been checked with all of Betaville‘s well-informed RARE sources let alone formal journalistic channels (public relations executives, bankers etc). The rumour might be total codswallop, rubbish or nonsense – but then again there may be something in it, so it’s worth airing on Betaville

Ben Harrington11:49

The assumption was Macquarie went pens down for six months

Izabella Kaminska11:49

RARE: Market gossip that has been tested with some of Betaville‘s USUALLY WELL-INFORMED sources. In fact, Betaville might have spent several days or weeks working on this story. However, the rumour hasn’t been tested through formal journalistic channels (public relations executives, bankers etc). The scuttlebutt might be complete rubbish – but then again there may be something in it, so it’s worth airing on Betaville.

Ben Harrington11:49

after Kleiny’s tale

but now there are UNCOOKED bid rumours circulating about another party from the US being interested

Izabella Kaminska11:50

Seems unlikely Macquarie would want the pension side of M&G

Ben Harrington11:50

yeah you are right

Previously there was gossip life insurance consolidator Phoenix could be a partner on the deal but now there is talk Rothesay, a pensions insurance specialist, might be interested in that bit of the M&G business.

Izabella Kaminska11:52

Anything more spicy?

Ben Harrington11:52

Well insurance is a bit bland I realise but the takeover of one of Britain’s largest firms might be considered “spicy”

Izabella Kaminska11:52

Which one’s that?

Ben Harrington11:52


Izabella Kaminska11:53

Really, Aviva?

Ben Harrington11:53

Yeah  there has been UNCOOKED rumours circulating about an unknown bidder taking an interest in buying the whole group as the shares are currently flirting with a five year low. The talk in the market is that an American bank and a European bank are advising an rival insurance firm on possible takeover bid.

Izabella Kaminska11:53

[There is a possible risk i get kicked out of my hotel room around now]

Ben Harrington11:53

Oi oi

Will hold the fort

Izabella Kaminska11:54

[in which case i will leave Ben to go solo, until i reanchor in the lobby]

Ben Harrington11:54

There is plenty happening in Europe, too. Compagnie Maritime Belge recently confirmed little old Betaville’s UNCOOKED alert about its plans to take the company private.

Izabella Kaminska11:54

Never heard of them.


Are they a shipping company?

Ben Harrington11:55

Sorry I meant they are planning to take Euronav private

They are a Belgium shipping dynasty

Euronav is the shipping company

Izabella Kaminska11:56

So what else is going on on the continent

Ben Harrington11:57

Well there are fresh UNCOOKED bid rumours about a take private of Temenos, the Switzerland-listed banking software company. It’s been talk about as a takeover target for the last 18 months but now people following the situation are suggesting EQT is keen on the business after looking at it last year.

Izabella Kaminska11:57

Oh that sounds ????

Ben Harrington11:57

And Ireland-listed Irish Residential Properties REIT is another European business in the limelight. There are UNCOOKED rumours circulating it has attracted takeover interest following an activist campaign to push for a sale of the business

Izabella Kaminska11:58

Interesting, given the REIT sector has been absolutely smashed over the last 18 months

Ben Harrington11:58


maybe bottom fishing buyers are stepping of the woodwork

there is another story about REIT in the US

Izabella Kaminska11:59

Which one’s that?

Ben Harrington11:59

Apartment Investment and Management Company.

The company has been carrying out a strategic review. Westdale is said to be one of the bidders in the sale process as well as a consortium led by the management of Apartment Income REIT Corporation.

Izabella Kaminska12:00

So shifting gears a bit

Julian offers the following dispatch from the apparently sub-optimal conditions on the train from Euston to Liverpool:

China pumped the most liquidity into its financial system via short-term monetary tool on record, suggesting policymakers are keen to keep funding costs low to bolster the economy.

This comes as the problems in the real-estate sector get worse by the day.  Evergrande however was apparently tinkering with the terms of its restructuring.

Oct 20 (Reuters) – China Evergrande Group (3333.HK) said on Friday it was revising the terms of a proposed offshore debt restructuring deal to meet the firm’s situation and creditors’ demand, without providing details.

Evergrande, which is at the centre of China’s property sector debt crisis, said late last month that its billionaire founder was being investigated over unspecified crimes.

It has also said it was unable to issue new debt – a crucial step in a restructuring – due to an ongoing investigation of its main unit.

Ben Harrington12:01

This sort of stuff is above my pay grade!

Izabella Kaminska12:01

you protest too much

Ben Harrington12:01

I’m just down on grub street

Izabella Kaminska12:01

But speaking of bond yields…

Deutsche’s Jim Reid always has such good charts

As he notes, cash has now outperforming almost all fixed income

From his note:

With this week’s bond sell-off there is now no fixed income asset that has outperformed USD cash amongst the main assets we use in our monthly performance review. The last holdout was US HY and with this week’s bond sell-off, the return of the iBoxx US HY index has dipped below the return of US T-bills YTD. US HY has been seen to be a strong performer this year, but it shows how difficult it is for any duration to perform in a sell-off, especially in a heavily inverted curve environment where carry is negative for government bonds relative to cash.

Today’s CoTD is an abridged selection from our performance review showing where T-bills rank YTD in USD terms. As discussed, it now eclipses all our main global fixed income indices. To outstrip it you have to go into selected equities, Oil or Gold. Clearly, the NASDAQ (+28.1%) has trounced everything and has taken the S&P (+13.8%) with it. However, the equal weight S&P 500 has underperformed cash at just under 1% return YTD in total return terms. The interesting thing is if you’d told most people at the start of the year that 10yr yields would be around 5% by October, not many people would have wanted to own the NASDAQ given the near one-to-one negative correlation to yields in prior quarters. So AI has helped create a dramatic decoupling.

That leaves you with oil or gold

Izabella Kaminska
Headline RedBox Fixed Income
Izabella Kaminska12:03

This seems noteworthy too

Ben Harrington12:03

Seems like they are tracking the US bond market

or is that a reaction to the possibility of Labour taking power

from the Tories

Izabella Kaminska12:04

No, it’s a broader phenoemon

btw do you even remember 1998?

Ben Harrington12:04


I was re-taking my A-levels

Izabella Kaminska12:04

Because I do. It was the peak Blairism era of Oasis and Blur

So the difference this time, relative to back then, is we have much less growth potential

And the BoE’s Andrew Bailey admitted that much himself

12:06The concern really, at this point, is how we manage to keep inflation in check without collapsing growth. And can we slingshot our way out of the doldrums. Funnily enough, the Truss argument is making its way back again. And the ridiculously high bond yields are increasingly proving her point.

For the UK, this time, teh difference is that sterling is still relatively stable

Let me find a chart


Ben is so overcome he fell off his chair and broke it into a 1000 bits.

Ben Harrington12:08


that was painful

Izabella Kaminska12:09

Anyway, point is, this time is different to 2022 because sterling not crashing and the bond yield spike is happening everywhere

And @john brings up an important point

this was the moment of independence for the BoE

and that is a good segue into the broader chat of what’s happening with cbanks today

Ben Harrington12:10

what do you mean Izzy


Izabella Kaminska12:10

Well, the latest worry is about how cbanks can maintain their independence when making losses. While they like to go on about how losses don’t matter, they do ultimately fallback on taxpayers.

IN an ideal world, cbankers are fully self funded and don’t have to go cap in hand to any Treasury

on the contrary, they send dividends to the Treasury

but with growing concern about funding, this leaves them open to independence attacks. And certainly the big debate is how tehy can cover their costs without impacting policy at the same time.

Over in the ECB, the big thing on the table now is a possible hike in the minimum reserve ratio to 10%.

This would be on a zero rate basis. And an opportunity for the ECB to make some arbitrage again, by not paying the banks the high interest rates they’re supposedly charging the market

But in reality it amounts to a tax to keep the cbank independent.

Politicians, however, might view it differently. And tehre are already ECB policymakers warning that it’s not up to the ECB to tax banks in this way. Rather it’s up to governments. We heard that most recently from Belgium’s Wunsch.

Ben Harrington12:14

How does this plot thicken?

Izabella Kaminska12:15

So there are other things the ECB could do. One popular idea, floated by the likes of Willem Buiter, is for the ECB to issue its own bills

But that would be very very controversial, and likely to be interpreted as a joint financing mechansim for the eurozone by the back door.

Markets would love it, as it would probably create a super high quality liquid asset, and actually provide some cohesion to the eurozone fiscal picture. But can you imagine how the respective treasuries would feel?

SO it’s unlikely to happen.

Ben Harrington12:16

What about the Bank of England


Izabella Kaminska12:16

Really interesting.

Largely unreported, the BoE has stealth changed its funding model

It’s gone from a cash ratio deposit system to a bank levy

why is that important? Again, because it’s about how the Bank raises cash to fund itself and to remain independent

the old cash ratio model, was eating ever greater chunks into the Bank rate

the way it works, is that the Bank rate (which is a deposit rate), is help back from a small section of funds so that the cash on deposit can be used to invest in gilts, and the proceeds used to fund the BoE.

But that model is not ideal when your main policy transmission mechanism is a deposit rate.

Ben Harrington12:18

Didn’t Paul Tucker float the idea of not paying banks any interest

Izabella Kaminska12:19

Yes, he did. Exactly. Though that’s in the context of a total restructuring of how cbanks operate. Him and Merv have floated this idea of the “pawnbroker for all seasons” model instead.

But that’s a different story to a large extent.

With the Bank Levy, the BoE will be able to raise the funding it needs without cutting the remuneration on bank reserves, and this is important, as it will be levy on profits generated rather than a preemptive cut which may impede credit and liquidity ciruclation through the economy.

So if the ECB goes down the reserve hike route, this could be a big opportunity for banks in the UK. It will definitely be better and cheaper (i suspect) to operate in the Uk. So there’s that brexit divergence for you.

Ben Harrington12:21

That’s all rather interesting

but tell us more about Poland

aside from the election

what’s the food like?

Izabella Kaminska12:22

The situation in Poland is pretty fascinating

12:23While the ruling right-wing party of Jaroslaw Kaczynski technically won the vote, they failed to get enough of a majority to rule. So the opposition is likely to be in power. But there are still some technalities before they take office, not least the fact they have to win a vote of confidence, and their coalition is mainly only united by their mutual hatred of the Law and Justice party.

However, as an impartial observer, what I will say is that for someone who is supposedly a terrible anti-democratic authoritarian, Kaczynski has not questioned the vote, and has on the contrary promised to lead an active opposition.

but there’s lots of crazy stuff going on. And the main talk is all about the incoming PURGE.

Ben Harrington12:25

Does this mean Donald Tusk (who sounds a bit like another Donald) is back in power?

Donnie T

Izabella Kaminska12:25

Donald Tusk is the anti- Donald T. He’s the preferred Brussels man in Poland.

It looks very likely he will be PM, but not definite

Ben Harrington12:26

@Helmholtz – what does Seignoirage mean?

Izabella Kaminska12:26

there are some other contenders, specifically from the new “Third way” party, and you’ll glad to know one of those contenders is also a former actor.

But really the key thing is what the new government will do to the old PiS loyalists. The news today is dominated by talk that PIS officials (who the opposition have long claimed are criminals) are in the midst of disposing of all sorts of “evidence” that could be used against them.

This sort of tit for tat “you’re either in power or in prison” politics is not really very healthy in my opinion.

Especially considering this (chart via Fitch):

12:28Poland is now officially the biggest defence spender in the EU. And personally having a highly polarised and non functional government in that context, is not a great idea.

Ben Harrington12:29

That’s all very interesting but what about the food?

Izabella Kaminska12:29

And i think on that note we can probably leave it there

not least because i have to go and get some food

before i get on my flight home

but anyway thank you again for joining, we will be back on MOnday with Julian

Goodbye from me!

Ben Harrington12:30

See ya

thanks for having me

Izabella Kaminska12:30

thanks everyone

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