How To Win Bidding War For Mining Giant Anglo American? | The Pulse with Francine Lacqua 04/26/24
News makers and market movers.
This is the pulse with friends who like.
Good morning and welcome to The Pulse on
Tom Mackenzie in London.
Here’s what’s coming up on today’s
program.
Stocks get a boost from big tech after
Microsoft and Alphabet impress.
The focus shifts to PC data out today as
traders call those rate cut bets.
The yen is the weakest in 34 years,
closing in on 157 US dollar.
The BOJ holds rates steady but gave no
way to giving no hints to another hike.
Plus offer rejected.
Anglo American says a $39 billion
takeover bid from rival BHP
significantly undervalues the company.
When we dig in to the details, let’s
check in on markets there in the
European markets map, giving us an
indication that European stocks could
end up with their first weekly gain in
four.
It’s the old school part of the sectors
that’s kicking in the miners,
particularly here in the UK, in the
Footsie 100 alongside the input coming
through from technology with the hand
off, of course, from Asia, but more
importantly, the Microsoft and Alphabet
stories that we will be decoding for you
throughout this hour.
Let’s flip the board, cross our set
then, as we see largely green on the
screen across the European stocks
picture, we continue to focus, of
course, on the Japanese yen 156 right
now, the gains losses, I should say, of
about a 10th of a percent.
It’s fluctuating right now, one 5565 We
monitor this.
We are on, of course, intervention watch
governor away to not pushing back on the
softness that we’ve seen in the
currency.
Of course, any intervention would come
through from the Ministry of Finance and
they may or may not announce that if and
when it comes, of course, the inflation
data out of the US crucial for us on a
number of fronts.
But of course it ties into the Japan
story for 98 right now on the US to you
the GDP print of course softer than
expected but the price gauge coming
through in the data yesterday picking up
causing some to suggest that maybe we’re
edging towards stagflation in the US.
A big question mark over that, though.
Of course, copper broke through 10,000.
It’s nine at 9991.
Really interesting, of course, given the
potential tie up or at least the
attempted tie up between BHP and Anglo,
the price of copper currently at 1.3%
and that is timing in to the mining
space.
Let’s flip the board and have a look
pre-market then of the big tech names
and the beats that came through very,
very solid sales coming through from
Alphabet.
And you can see pre-market a jump there
of close to 12%.
Their investments are paying off,
particularly within the cloud business.
And really interestingly, of course,
coming through with their first ever
dividend.
The other stocks that we’re looking at,
of course, include the story around
Microsoft also coming through with a
beat and also the cloud story, their
consequential gains of 4%, pre-market
for Microsoft.
Intel, a very different story.
They’re continuing to struggle as they
continue to play catch up.
They’ve invested heavily, of course, in
building out the foundry business in the
US.
Investors seemingly need more convincing
that that turnaround program is going to
pay off for Intel.
That stock looking to losses of close to
8% and briefly snap coming in with a
beat as well.
The appetising part of the business
coming through for SNAP.
Let’s briefly look as well at the
currency space with the focus, of
course, on the Japanese yen at a 34 year
low versus the US dollar, but also at
lows versus, of course, the euro, the
Aussie dollar as well.
One 5555 right now on the Japanese yen.
So it has paired some of the earlier
losses.
We’ve been hearing, of course, from
Governor Awada.
He did not push back on the softness
we’re seeing in the currency.
He didn’t give an indication as to when
the next hike may come through from the
BOJ.
Most traders still expecting another
hike at least one more later this year
from that central bank.
Let’s get to the tech story then.
Strong API demand has been cited as a
key driver for positive earnings, of
course, from Microsoft.
Now Alphabet is what Alphabet CFO Ruth
Porat had to say about the company’s
results.
We are very pleased with our financial
results for the first quarter, driven in
particular by strength in search and
cloud, as well as the ongoing efforts to
durably re-engineer our cost base.
Okay.
At this point, we bring in, of course,
Bloomberg’s Alex Webb for the deep dive
and what we’ve been seeing from both of
these companies, what it tells us as
well about the investments around what
kind of what kind of stood out to you,
Alex, from both Microsoft and Alphabet,
it really looks like AI is now providing
sort of a meaningful tailwind.
It’s not the main thing driving their
businesses, but it is starting to make a
difference.
I think about seven percentage points of
Microsoft’s cloud growth came from A.I.
Google, which had long but has long been
the laggard in the cloud behind
Microsoft and Amazon.
It is now posting pretty chunky profits
in that cloud business.
The market was expecting 600 or so
million dollars of profit.
It posted $900 million of profit from
Google Cloud.
That is a lot of it to do with the fact
that Google is one of the really two big
players in the space and it is
benefiting from that.
Darktrace not nearly the same size and
scale of Microsoft Alphabet, but really
interesting in terms of the read across
the board broader story about this goes
UK listed.
There’s an offer to take it over.
In fact, they’ve agreed to just give us
the details and I think for me as well
at least you can push back on this, but
for me it seems like it’s another
example of one of the crown jewels.
We have a few of them around tech in the
UK being snapped up by by a foreign buy
this time from the US.
Yeah I mean look the with Darktrace when
they went public there was some, there
was a bit of a conversation which as
they go public in the UK, so they go
public in the US.
And of course that founding investor was
Mike Lynch who has been facing continues
to face a certain amount of legal
difficulty in the US.
Some wonder whether that therefore
informed the decision to listen.
UK So if you are a private equity firm
you can see a pretty clear path perhaps
to generating return on this.
You take it private for a few years.
It also has very little leverage.
It’s a net cash position in the moments
you could add a bit of leverage and then
take it public in the US in a few years
time where you benefit from the high
multiples of which certainly most tech
stocks in the US allies trade.
Okay, Alex, great.
Thank you very much on on the Darktrace
store.
And of course that start getting a big
lift on the back of that news, agreeing
to sell themselves to Tom.
I provide that.
And of course the details around the
Microsoft and Alphabet stories.
Alex Webb with the details.
Let’s bring in at this point Mike
Bhandari, the global head of Multi Asset
at BNP Paribas Asset Management and
Bloomberg’s Justine Utley.
Thank you very much, both of you, for
joining us on this Friday.
It might not start with you and the
question of tech and really fascinating
in terms of the dividend and the buyback
coming back from Alphabet.
And if you can talk about individual
stocks.
But nonetheless, to me, there’s an
interesting story coming, which is that
these are now cash generating
businesses, income generating
businesses, as well as that growth
component.
Are we looking at a new theme around
stock investing?
What does it tell us about the way these
changes are come through?
I think you’re absolutely right.
I think that it is really interesting
that that we are starting to see some
dividends from these companies.
And and I think for me really
underscores, if you will, the importance
of of the cash flow picture for these
companies.
I mean, if you think very broad brush,
but returns on assets are really a
function of two things.
Your discount rate that you apply to
your cash flows and cash flow is
comprised of earnings and and dividends.
So it’s interesting to see that that mix
shifting a little bit more towards
Edwards dividends.
But I’d say broadly
for us in 2020 for that cash flow
picture is really very important.
You know, I think the outlook on
discount rates and we can talk about
that a little bit later on if you like,
but I think there’s been quite a lot of
uncertainty around around where discount
rates go, where policy moves in the US.
But but also, of course, in Japan this
morning.
And so and so that cash flow picture is
very important, I think, for us at BNP
Paribas Asset management areas where we
see good cash flows and areas where we
want to invest are indeed US tech,
Japan, European banks and parts of Asia.
I think those are the areas where we’re
seeing been adjusting some of your
exposure and we want to unpack that with
you.
Certainly.
Let’s bring in just Eileen just finally
at this point, Justine, is there a
sustainability to the uplift the air in
tech is giving to these equity markets
at this point?
Yeah, it’s interesting because I feel
like Alphabet and Microsoft, I mean,
their earnings was really sort of the
epitome, the best version of the
Magnificent Seven story, which is that
they’re essentially kind of riding these
structural trends and to an extent where
they’re almost not as vulnerable to the
ups and downs of the business cycle.
But I think you’re kind of seeing to the
from the market reaction to earnings
this week.
You know, for instance, the reaction to
Med’s earnings, that in a way, because
the market has a route, has already
rallied so much going into this earnings
season that the bar for a positive
surprise for a positive market reaction
is actually quite high.
And so I think, you know, the positive
reaction we’re seeing to these two tech
giant’s earnings is a sign that, I mean,
kind of despite those high expectations,
they still managed to beat that.
Maybe we need to reformat finally, the
Magnificent Seven category, given some
of the idiosyncrasies around some of
these names.
I’m just going to thank you.
I’ll come back to you with more
questions on the macro at some point.
But, Maya, in terms of in terms of the
expectation from some that the earnings
story and we had.
Justine was nodding to this 70% or so of
S&P companies to come through with a
beat.
But the stock reaction, the market
reaction has been a bit more mixed.
Can can the earnings story propel these
markets higher amid a concern about
higher for longer on rates?
Well, I mean, I think you’re absolutely
right.
I mean, not only have have, have, have
have beats been been reported, but I
guess what’s interesting is misses have
been punished quite badly in
particularly in Europe.
So I think to us that sort of
emphasizes, if you will, the importance
of of those earnings coming through.
As I said before, I think areas where
we’d be looking for good earnings and
earnings perhaps above the street.
European banks, for example.
Right.
I mean, we’ve got is it 3%, three and a
half percent earnings expected this
year?
We think there’s there’s considerable
upside prospectively to that as we have
a structural shift moving out of
negative interest rates with with good
balance sheets and pretty attractive
valuations to boot.
Similarly with Japan, I mean, Japan has
stood out to us really for the last six,
seven months has been one of the few
areas where earnings at an index level
have have continued to continue to rise,
almost bucking the trend of other areas
where earnings have been a bit softer
and important to say it’s been more much
more to our minds than than just the
yen.
Yen has been a factor, but it’s more as
more and more so this the Japan equities
story than just softer yen.
Just in terms of the market reaction,
the repricing around the Fed and the
data yesterday out of the US with softer
GDP.
But prices continue to pick up 1.6% on
GDP.
The estimates have been for two and a
half percent.
And then within that mix, the CPI or the
PC number, I should say, picking up and
we have the official call later today,
where are we in adjusting to that new
narrative?
Does the soft landing scenario that many
had been betting on at the start of this
year need to be sidelined?
Yeah, And I think, you know, if you kind
of dig beneath the surface, I think the
results were maybe not as extreme as one
might think.
For instance, like GDP was sort of like
influenced by the lower federal
government spending and kind of the
piece was influenced by a lot of like
non-market prices categories.
But I think the big picture, I mean, you
can tell from how markets are repricing
those rate cuts, right?
I mean, they’re just pricing them out,
pushing them back and back.
And I think so big picture, the story is
still that inflation has been way hotter
than expected.
And so and at the same time, economic
growth has been way stronger than
expected.
But I guess, you know, it does kind of
point to maybe a troubling trend that
might have implications for the election
coming up as well.
I mean, if you do see kind of growth
starting to slow by inflation, maybe not
cooling as quickly, stagflation is not a
headline that Biden is going to want to
see.
And it doesn’t look like he’s going to
benefit, at least at this point,
according to the market pricing front,
from a rate cut, because that looks like
it’s not going to come through till
December.
That of the bets, of course, the
election in November.
Justin, thank you very much indeed from
our markets team, of course, breaking
down what we’ve been seeing broadly
across these equity markets and of
course the call there and the lines in
terms of how a repricing around the
Federal Reserve might.
Bhandari from BNP Paribas Asset
Management is going to stay with us and
we’ll get more of our calls in terms of
how to position in these markets across
asset as well.
Coming up, more volatility in the yen,
of course, after the BOJ holds rate
steady.
We continue to monitor for possible
intervention.
That is next.
This is bloomberg.
Welcome back.
So the Bank of Japan holding, of course,
on interest rates.
A dovish pause is the way the Bloomberg
economics have characterized it.
And we did not get any sense from
Governor Awada in his press conference
that he was going to push back on the
weakness in the Japanese currency.
One 5633 Right now it’s been a little
bit jumpy just in the last couple of
minutes also.
But the volatility coming through from
this Japanese currency, of course, we
continue to be on intervention watch.
The call from Bloomberg is that one 5760
is the crucial line to watch when it
comes to this Japanese currency.
And of course, the inflation data out of
the US later today could also be
consequential in terms of where this
currency goes from here.
As I mentioned, the press conference,
the BOJ governor away to giving no hint
of further tightening.
They’ve been expectations from some that
they might start, for example, that
didn’t happen.
For more on this, let’s bring in
Bloomberg’s Rachel Evans still with us.
Right pleased to say is Maya Bhandari
from BNP Paribas Asset Management, who
has some views on Japanese equities and
the currency space as well.
Rachel, let’s start with you.
The moves that we’ve seen just in the
last few minutes on Japanese yen on the
back of the way the press conference.
Where do things stand right now in terms
of our expectations around this
currency?
Yeah, I mean, I think it tells you just
how nervous everybody is kind of in the
wake of the press conference, we didn’t
see, as you were pointing out, as much
pushback as you might anticipate, given
how much weakness we’ve seen in the end.
And I think that speaks to where the
Bank of Japan views its role in the
currency.
It is a ministry of finance, a policy
tool, not something that the Bank of
Japan necessarily weighs in on.
But that really means that we’re kind of
in this sort of no man’s land, wondering
as in when the Ministry of Finance is
going to intervene.
There’s a lot of speculation that could
come today.
We do have key inflation data out in the
US around 130 UK time, 830 in the US.
That will give us a really good sense of
how the Federal Reserve is going to come
at its own interest rate policy.
And if the Fed isn’t able to cut because
inflation stays too strong, that’s a
problem for Japan as it means that that
yield divergence is not going to get any
closer.
Does it pull forward be BMJ hikes in
that scenario?
Yeah, So I think I think it’s an
interesting question because that was a
lot of the topic of conversation earlier
this week when we were thinking about
the Bank of Japan meeting coming today.
Would they be extra hawkish or maybe
even pull a surprise hike just because
we have seen that yen weakness being so
significant because the data coming out
of the US is really not helping the case
of Federal Reserve cuts.
You know, just yesterday the GDP data
had some very sticky price inflation
data within it and that prompted like a
big move in treasuries, further curbing
of expectations for Fed cuts.
So it’s not been easy for Japan on that
front.
Okay, Mike, you’re leaning in to the
Japanese equities story.
How contingent is that on week again?
I mean, I think India, weak again plays
a role.
We’ve seen the price action just just
overnight in the top and the Nikkei but
that is, if you will, a thread that
isn’t consistent.
So you know I think Japanese equities
don’t have a particularly consistent
relationship, if you will, with with the
yen.
But I would say for us with Japan, there
are three or four key support.
So the first is is earnings which and
the cash flow is just to what we were
discussing earlier remain really strong
and what we’re confident that continues.
Second is a really strong bottom up
story.
You know, shareholder reform coming
through that we think has legs,
structural legs, if you will.
Third, very importantly, we like the
sector composition.
So, you know, Japan gives you exposure
to active manufacturing companies with
high operational leverage, but it also
gives you exposure to sort of tech names
at a very different valuation points.
So we like the sectoral mix of Japanese
equities and you get all of that a to
our minds, a really good evaluation.
So on a forward price to earnings basis,
for example, the topics is that a 15%
discount to global equities, if you look
at price to book a price to sales, that
goes up to 50%.
So so you get a number of of of
positives into our minds at an
attractive valuation point.
And I think valuations are something
that we’re all struggling with certainly
in equities.
Yeah, not certainly not a lot units.
I’m not alone on that question.
My pandemic, thank you very much indeed.
You got to run off to bring back radio
right now.
So we’re losing you for the moment.
But going over the team on radio, my but
of course, the global head of
multi-asset at BNP Paribas asset
Management the view there on the
Japanese stock story and how the yen
ties into that I’m managing editor and
rates Rachel Evans staying with us
coming up Airbus shares full after
reporting soft results.
We bring you that story and the
exclusive interview as well.
That will be coming up after the break.
We’re going to get more lines now,
though, from Rachel Evans to kind of
work through some of the key themes for
these markets.
We, of course, focus in on the inflation
data out of the US later today.
And we talked about the relevance of
that to the Japan story.
Rachel, what is standing out to you
above and beyond Japan that is a
consequence for these markets as we head
potentially to the first weekly gain for
European stocks in, what, four weeks?
Yeah, no, I mean, I think kind of like
the Bank of Japan has really been the
backdrop for this week.
But every.
Now looking forward to next week.
Next week we have the Federal Reserve
meeting and the question is how that is
going to reshape the market environment.
Treasuries have been having a terrible
rally all year.
Bond investors came into this year
expecting gains, expecting the Fed to
cut and they have been disappointed
again and again.
And you started seeing that come through
in some of the rhetoric from Fed
speakers.
In recent weeks, you’ve had Jerome
Powell talking about, you know, maybe
now’s not quite the right time.
You’ve had other Fed speakers talking
about that inflationary outlook.
Stocks have actually been pretty good
through all of that.
You’ve seen the inflationary sort of
picture adding potentially in to
expectations for margins in the stock
world.
So I think, you know, it’s going to be
very interesting to see how the sort of
the Fed walks that line between trying
to sort of curb inflation sufficiently
without curbing growth.
And I think that’s where yesterday’s GDP
numbers were really worrying because you
did see growth starting to take a dive.
If you see yields, if you see that, that
sort of that was a PC print coming
through today and a hawkish, hawkish
commentary from Fed chair Japan at that
meeting next week, which some expect,
what does that do to the sell off in the
bond market?
You were unpacking that for us.
Yields are a little down, a little bit
lower.
One or two basis points across the curve
today is that is there’s an appetite for
clipping that yields from investors.
There’s a tension there.
Where do you see yields moving?
Is there a line that you’re focused on?
Yeah, well, I mean, increasingly it was
5%.
We’ve gone through that on the two year
now, so we’re having to revisit our
calculations of how far we could go.
And to me, that the line in the sand to
watch is really that the cycle peaks
that we had in yields last October,
that’s when we saw the ten year going
three, 5%.
I think it was the first time in 16, 17
years before it quickly reversed and we
saw that nice rally into year end.
That’s where I’m watching.
We’re still, you know, sideways of that
in the ten year.
But I think if we do see the data come
in hot today, if we do see Powell
basically saying that we may not get a
cut this year, you know, going from 150
basis points of cuts at the beginning of
this year to zero by the end of the
year.
I mean, that’s a huge, huge swing.
And I think, you know, yields have
backed up a long way, but they still
could go a lot.
Rachel Evans, thank you very much
indeed, managing editor for some rates
on Bloomberg.
Of course, plenty more coming up.
This is Bloomberg.
Embassies in the red this morning after
the company reported some results in the
latest quarter.
Let’s bring in Blue box Benny Kamel, who
leads our aviation coverage.
What’s going on, Benny?
Well, you know, Abbas has had a very
good run this year.
Let’s not forget that the stock had been
up quite substantially since the start
of the year.
And in no small part that has to do with
what’s going on at Boeing.
This week was a bit of a split screen
sort of event.
We had Boeing earnings on Wednesday.
We had Airbus on Thursday.
And yes, the Airbus numbers weren’t as
good as people had expected.
They maintain that target for the year.
So, you know, all in all, there’s enough
to look forward to, but there’s probably
a bit of buying on the on the
disappointment of the first quarter and
that’s why you’re seeing the stock drop.
Okay, Benny Hill, thank you very much
indeed.
The stock down 2.3% as we speak.
Coming up, Anglo American rejects BHP
takeover offer.
We bring you the details and the
contacts next.
This is Bloomberg.
Stocks getting a boost from big tech
after Microsoft and Alphabet impress the
focus shifting to PC data out today as
traders pare back those rate cut bets.
The yen swings close to 157 per US
dollar.
The BOJ holds rate steady with governor
away there, giving no hints to another
hike plus offer rejected.
Anglo American says a $39 billion
takeover bid from rival BHP
significantly undervalues the company.
We dig into the details and bring
analysis.
Good morning to the pulse.
Welcome to the pulse on Tom Mackenzie
here in London.
Standing in of course, for Francine
Lacqua checking in new markets for you
with of course, a lens and a focus on
the Japanese yen.
There’s been some volatility in the last
20 minutes or so around this currency.
Not a big surprise given that there is
intervention.
Watch, Of course, maybe a bit of fat
finger trade coming through for the yen
continues to weaken at down 5/10 of a
percent versus the US dollar over a five
year period.
By the way, over a five year period.
This currency is down close to 40%
versus the US dollar 156 our team at
Bloomberg.
So that one 5760 is the line to watch
for intervention.
And of course the inflation data out of
the US will be consequential for that.
For 98 currently on the two year back
below that 5% level, a move of just one
basis point.
And of course we watch across the curve
for the reaction to that inflation data
in the US.
The Fed decision next week and the
commentary from Jay Powell of course
will be consequential.
Copper back above 10,000, up 1.6%.
And of course that ties into this Anglo
BHP story and we’ll get the details on
that as well, where this lead to more
CapEx spending within the sector, 10,000
and above for copper currently.
To that story, then Anglo American Board
has unanimously rejected a $39 billion
takeover proposal from industry giant
BHP, saying it quite significantly
undervalues the company even before the
107 year old miner shut down the office.
And Africa’s government has signalled
its opposition to the proposal.
And of course they have a lot of skin in
the game when it comes to this story.
For more reaction from there, I’m joined
by Bloomberg’s Jennifer Zappa in
Johannesburg.
Jan, what has Anglo American said?
Yeah.
I mean, Tom, not surprisingly, they
have, as you mentioned, unanimously
rejected the proposal.
But the statement is really telling, if
we just read part of it, they said the
BHP proposal is opportunistic and fails
to value Anglo-Americans prospects while
significantly diluting the relative
value upside participation of Anglo
American shareholders relative to BHP
shareholders calling it unattractive,
highly unattractive is what they say,
and also noting the fact that it would
create a lot of uncertainty, which has
been a lot of the discussion around this
proposed deal since we first found out
about it on Thursday.
So now the question is what does BHP do
next?
And as you mention, a lot of the
discussion too is about how is South
Africa and the South African government
and the shareholders here, particularly
in particular, are they going to respond
to what is a very complicated structure
with this company?
And Jed, you’re there in Jo’burg.
What has the South African response been
to this takeover bid?
Well, I think what’s important to note
is that South Africa’s state pension
fund is one of the biggest shareholders
in Anglo.
And of course, Anglo is very significant
to the Johannesburg Stock Exchange And
the BHP proposal, as you may have noted
at the top of the show, is hinges on the
fact that BHP wants Anglo to spin off
the South African assets.
Anglo has a storied history in this
country, employs thousands of people.
And Anglo has already been going through
job cuts and restructuring.
And so the question is what happens
next?
We actually heard from Mantashe, who we
spoke with a few weeks ago about the
elections, but he’s saying that he is
not in favour of BHP bid for Anglo.
He says he’s not speaking on behalf of
the Government, but saying that his
experience with BHP in the past has not
been positive.
And we also heard from the state pension
fund and noting how critical the South
African mining is to the economy and
really to all the stakeholders and the
jobs that it creates in the country.
It’s also a major export for South
Africa.
So this is very complicated and will
likely face a lot of scrutiny from all
players as they’re going to have to pay
close attention to really how this
evolves.
Okay, gentlemen, besides joining us out
of Johannesburg, offering back, of
course, on the South African response to
this attempted takeover.
Jan, thank you very much indeed.
At this point, let’s bring in Ben Davis.
We stay on this story.
Ben Davis, mining analyst at LIBERUM.
Ben, great to have you on the show for
your take on this.
Was Anglo right to reject this offer?
It was certainly expected by most of us
that they would.
I mean, the premium that was kind of
implied by the offer was only about 13,
14% on the close.
You know, for a company that’s been
around for 100 years and were trading
above that offer just as recently as
last year, it feels like a lowball bid
on top of the fact and kind of what
they’ve highlighted in their statement
that, you know, the structure was very
unattractive.
I mean, they were asked to spin out
Kumba and the Anglo platinum stake
holdings to their shareholders, which
would have created a huge amount of
flowback uncertainty.
We saw it with Tongala a couple of years
ago.
That whole register nearly flipped
within ten days.
So to try and, you know, accommodate
that would be incredibly difficult.
What is the BHP rationale for pushing
for that restructuring that, as you say,
has all those complexities?
Yeah, it’s
it feels I mean, part of it is probably
a size issue, so it would be an easier
business to absorb.
But clearly it sends the signal that
they’re not interested in South African
assets.
They’ve already made that clear when
they spun out their other South African
assets with the South32 vehicle.
So I can see why the South African
government might be a little said to
them doing it second time around.
What would be Do you have a view on what
an attractive premium or an appropriate
or fair premium would be for this
business?
It would have to be.
It would be.
I mean, for us, we’re looking for at
least 30% to the close, I think to four
for that to be considered by the board.
But even then, it’s it is challenging
own.
The reason why Anglo flagged this is
being so opportunistic is that they have
massively underperformed the rest of the
sector over the past 18, 24 months or
so.
So, you know, this is ever since they
they’ve had like all mining companies
have had a bad run of operational
mishaps, some of them their own fault,
some of them infrastructure related in
terms of what’s actually happening in
South Africa.
So too.
Yeah.
For BHP it’s covered now is always going
to seem like a bit of a Yeah, timing was
a lot of speculation.
It won’t just be BHP making making a bid
for this for this company who would top
the list of other of other potential
contenders.
How much appetite is that within the
mining sector for this business?
So compared to where we were in 2012,
where people would just try to buy
anything and everything, it’s a lot
calmer.
We saw Glencore Teck last year.
They probably got their hands full with
that as that goes through the through
the regulators.
So it’s not a long list of people.
Probably Freeport and Rio Tinto are the
top two names, but Rio Tinto in my mind
is probably the one that is most willing
to do the deal.
They’ve said themselves, or certainly in
recent commentary that their build is
not buyers, particularly when it comes
to things like lithium.
But at the end of the day, Anglo
American is one of the very few assets
or companies around which is somewhat in
play that could be acquired at it, BHP.
I don’t think there’s that currently
that obviously has not been successful,
but if they come back with a bit more,
they’re not going to just let BHP get
their hands on it.
So I expect that tune will change quite
rapidly over the next couple of weeks.
So we watch for that from from Rio
Tinto.
How do you see this?
I mean, you touched, you touched on
that, you build to it.
How do you see this bend unfolding in
the weeks and months and months ahead?
I don’t it’s not going to get out of
control.
I don’t see you know, we’re not
expecting big cash bids or, you know,
real kind of where we were back in the
supercycle date kind of charge days.
But at the same time, you know, that
those copper assets are very much, you
know, there is a very bright minority of
them.
So, yeah, you expect the bid premium to
climb from here for sure.
What would a tie up between BHP and it’s
a big would this be big question mark
clearly still over this year.
What would a tie up between BHP and
Anglo mean for the broader copper
sector.
Yeah, it’s it’s one for, you know, what
the regulators would be considering.
I mean it would make BHP the clear
biggest copper by the world.
They’re already actually overtaking
Codelco because of his poor performance.
But yeah, they’re going to be
considerable in size.
Now would this be an issue from a
competition perspective, which some
people have flagged?
I don’t think so.
From a concentration perspective, they
would have no impact.
And the idea that they would try and
influence prices by pulling back
production is somewhat farcical.
But the Chinese might try and stick
their or in that they did with Glencore
and Xstrata with the tie up there.
They don’t have real teeth, but
obviously they buy most of the world’s
commodities so that they have some part
to play, including copper, which is
central to this back above 10,000 on on
copper, the highest levels that we’ve
seen for about two years.
What is the level that’s around pricing
of copper that gets CapEx back to levels
that that could start to see real
production flows coming through for this
metal?
Yeah, it’s you need you definitely need
good prices to get these.
Big projects off the ground these days.
Glencore has certainly signaled out,
saying that they want to see copper
sustainably above 10,000 before they
start trying to do green for copper
projects like El Cajon in Argentina and
so forth.
But at the end of the day, we are.
We recently did the CapEx analysis.
It’s incredibly highly correlated to
just whatever happens in the previous
years moves in terms of prices.
So absolutely, expect copper CapEx to be
up ten and 15% above consensus.
And and briefly on on prices, I don’t
know if you have an outlook for the rest
of the year, but does it does it look
stretched to this point?
Is that further upside for copper, do
you think.
Certainly in house view that it’s it’s
got it’s it’s overdone at the booth if
you look at a lot of the physical
fundamentals.
The other kind of short term indicators
like physical premium in China that’s
collapsed to zero.
There’s not appetite for physical metal
demand.
There’s plenty of inventories available.
There’s not really a concern at this
level.
It feels like a big aspect of push.
So when that mines, timing is always
difficult, you know, people have very
strong and long held beliefs that copper
is going high for longer, but this one
feels a bit premature.
Okay.
Smart and timely analysis from Ben
Davis, mining analyst at LIBERUM.
And of course before that Bloomberg’s
Jen it’s up a saja on Anglo-Americans
rejection of BHP $39 billion takeover
bid and of course the view from South
Africa.
But this story, it seems, has legs.
A reminder, Jen will be leading our
coverage of South Africa’s election next
month.
Catch that special next Friday on Africa
Amplified.
Coming up, US Secretary State Antony
Blinken is meeting with President Xi
Jinping in Beijing.
He got the meeting, says the world’s
biggest economies spar on trade and
China’s continued support for Russia.
A couple of lines coming through from
that meeting as reported by the state
run TV network CCTV President Xi telling
Blinken that there is room for China US
ties to improve.
She says that China and the US should be
partners and not rivals.
He does acknowledge, though, according
to CCTV, that there are issues between
the two countries.
Plenty more coming up.
This has been.
Welcome back now.
US Secretary of State Antony Blinken has
been meeting with Chinese President Xi
Jinping.
A couple of lines crossing from that
meeting again, as reported by the state
run TV network CCTV.
President Xi telling Blinken there is
room for China US ties to improve.
Acknowledging that, of course there are
issues between the two nations
presidency saying China and the US
should be partners and not rivals.
Earlier, China’s top diplomat, Wang Yi,
warned Secretary Blinken that problems
are mounting between the two countries,
even as relations stabilize.
Relations
with China, U.S.
relationship is beginning to stabilize.
Across the areas, our two sides have
increased dialogue, cooperation and the
positive side of the relationship.
This is welcomed by our two peoples and
the international community.
But at the same time, the negative
factors in the relationship is still
increasing and building,
and the relationship is facing all kinds
of disruptions.
Okay.
For more, let’s bring in Bloomberg’s
Jill SAS, who’s been following all of
this for us from Hong Kong.
Jill, a lot of lines crossing the
terminal from this meeting.
He did get in the meeting, US Secretary
of State Antony Blinken.
So I guess that’s something to read into
in and of itself.
What is the latest?
Yeah.
TOM So as you just said, we’re just
starting to get some lines from this
meeting between Blinken and Xi Jinping.
It looks like these may just be some
opening remarks.
So still TBD.
It does seem like the meeting is still
going on.
But yes, some some thoughts about
cooperation.
There’s still room for improvement in
the US-China relationship.
Did think it was interesting that she
kind of opens there saying, you know,
that there has been some progress there
made in the last couple of months
because as you and I know, Tom is there,
as our audience knows as well, this has
been a very, very contentious
relationship during a very contentious
political year, particularly for the US,
which is gearing up for an election
later this year.
I mean, we’ve seen, you know, some
additional talks of potential sanctions
from the US on China, particularly as it
relates to maybe some Chinese businesses
that the US believes is still working to
supply Russia with funds in its war
against Ukraine.
So I think that there’s a lot here that
is, you know, very, very tricky.
But as of so far, I mean, look, Anthony
Blinken, he met with Xi when he was in
China last year.
So I think just the fact that he’s able
to secure yet another meeting with the
Chinese leader does indicate that
there’s, you know, still that level of
progress that’s continuing in this
relationship right now.
So on that level of progress then, and
of course, you provide all the all the
all the caveats around that in terms of
the efforts to stabilize this
relationship.
How much work has been done?
How much progress has there been in
terms of putting those guardrails around
this relationship, as the US likes to
phrase it?
Well, Tom, I think just the fact that
you continue to have really high level,
top level U.S.
officials that are traveling to China
does indicate that the U.S.
cares certainly about managing this
relationship.
I mean, from the U.S.
perspective, we’ve seen a lot being done
under the Biden administration to set up
those kinds of guardrails and actually
to kind of, you know, take action to
curb a lot of China’s technological
ambitions in particular.
I mean, just look at the number of, you
know, sanctions or restrictions on, you
know, China’s access to, you know,
external technology that have been
applied in recent recent months over the
last year, especially when it comes to
those high level advanced tech
semiconductors, that kinds of things.
I mean, there’s a lot that’s being done
from the U.S., from the U.S.
side to pressure China.
I mean, look, earlier today, you know,
and China has responded on this.
Earlier today, Blinken sat down for five
and a half hours with foreign minister
in China, Wang Yi, where where he
actually the foreign minister in China,
actually brought this up and said that,
you know, a lot of these curbs that the
U.S.
has placed in trying to sort of curb its
economic development is actually, you
know, maybe, you know, unnecessary.
I mean, this is a line that we’ve heard
repeatedly out of China.
So I think that that’s continues to be a
line of tension as well.
5 hours.
Yeah, that’s a substantial amount of
time, isn’t it, for the two to me.
And let’s see, and let’s hope that maybe
some progress is made on some of these
specialties is with the analysis on
these meetings.
Of course, the US Secretary meeting with
Chinese President Xi Jinping in Beijing.
To France now, Fitch and Moody’s due to
upgrade their ratings on France this
evening, one month after the country
revealed a larger deficit than expected
for 2023.
Bloomberg’s Caroline Connan looks at
whether this could put an end to the no
tax increase mantra of Macron’s
government and the potential
consequences of a downgrade.
Protests in France last year over
pension reform were political row for
President Macron.
Still rose.
Savings from it were not enough to keep
the fiscal deficit under control.
The gap jumped to 5.5% of GDP, far
higher than the official target, with
slower growth, meaning lower tax
receipts.
The finance minister will have to find
at least €20 billion in spending cuts in
the next budget.
So now what direction should we take?
Restore our public finances.
Go back to a deficit below 3% in 2027.
This is the commitment I’m making, a
commitment that’s unlikely to be met,
according to Moody’s.
A year ago, Fitch downgraded France one
notch, citing the high level of public
debt, which has jumped from around 65%
of GDP 20 years ago to over 110% today
issued a rating.
If you decide to downgrade France, of
course, that would be something that
would not be welcome and that would
prompt certainly the government to try
to act on it and to design an
expenditure reduction plan or maybe a
new tax increase, which is really also
October on to what the government has
been saying so far.
The pile of debt risks undermining
Macron’s economic credibility and could
fuel support for the far right party of
Marine Le Pen.
Her national rally movement is leading
Merkel’s party in the polls by more than
ten points as the June European election
approaches.
Probably scouting, going out, reporting
from Paris.
Coming up, traders bracing for US
inflation data out later today.
We have a preview next.
This is Bloomberg.
Welcome back.
Now, the yen briefly swung to gains
against the dollar after hitting its
weakest level in 34 years after the Bank
of Japan left interest rates on hold.
In a press conference, the BOJ’s
governor Awada gave no hint of further
tightening the currency currently at one
5656.
The weakness continues, but it’s been a
choppy session, to say the least.
Let’s bring in Van Ram from Bloomberg’s
AM live team for the analysis on this
van.
What do you make of what we’ve been
seeing around the currency, what we’ve
heard from Awada and the Bloomberg
economics team suggesting this
ultimately was a dovish hold, wrap it
all together for us and and explain the
market reaction to this, Ben.
Definitely.
It was a damage call from the Bank of
Japan.
Of course, as you mentioned, you know,
the yen briefly spiked higher, but those
gains, it just surrendered those gains
and send it back in losses.
Now, the market is in a heightened state
of jitters and we’ll get the PC for PC
data out of the US later this afternoon.
If the core PC data show accelerating
inflation,
then that means that the US Fed is going
to prioritize inflation over what they
call the over the softening in the
economy that we are seeing.
And that will mean higher real rates in
the US.
That in turn will push the U.S.
wiping.
Yeah, I go from here and you talk about
what’s 160 the coming weeks you’re gonna
tunnel.
So 160.
Yeah.
So we could be so we could be looking at
160.
That’s really interesting in terms of
further weakness.
And we know that the team, of course, at
Bloomberg have suggested that looking
back at commentary from Ministry of
Finance officials in Japan, one 5760
could be the line at which they at which
they intervene.
Ultimately, you think it gets to 168
potentially.
And the PCC, of course, as you say, it’s
going to be consequential in that out of
the US given what we saw on growth
yesterday, the price pressures that we
saw again picking up yesterday and then
the previous PC today, how do you see
all of that evolving there and the rate
expectations for the Fed, How
consequential is this print going to be
today?
It’s going to be hugely impactful for
the markets, because what we saw
yesterday was that the economy is
softening, but it’s still hugging the
trend growth.
That means that the long term trend,
trend growth in the U.S..
So at this point of the time, the Fed
has a dual mandate, one on employment,
one on inflation.
At this point of the game, they are
still going to prioritize inflation
because we have seen that those numbers
consistently point to stickiness and
inflation.
So at the moment they are going to
prioritize inflation
over unemployment, over economic
softness, and that will mean that the
markets will dry, rightly priced out any
chance of a rate cut in full.
If we get a very strong print later this
afternoon and that will mean that the
USD JPY will push higher.
But if they come in at one 5760 or
higher, then that will depend on the
speed of the move rather than particular
levels of the currency.
And mind you, the anywhere from the BOJ
are going to be looking at the yen, not
just against the dollar, but against a
basket of 30 currencies.
Okay.
Ben ram, with the strategic lens on that
pc data, we leave you a check of us
tech.
This is bring back.
Liberum mining analyst, Ben Davis, explains why he thinks BHP’s bid for Anglo American was a ‘low ball’ offer and what it could take for a deal to go through. BNP Paribas’ global head of multi asset, Maya Bhandari, also joins the show to discuss US tech, earnings season, and the impact of a weaker Yen against the dollar. “The Pulse With Francine Lacqua” is all about conversations with high profile guests in the beating heart of global business, economics, finance and politics. Based in London, we go wherever the story is, bringing you exclusive interviews and market-moving scoops.
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