- SoftBank filed to list Arm in New York, cementing the blow to London.
- Investors will largely be cautious over China’s slowdown and the chances higher interest rates in the US will linger for longer.
- BHP Billiton is keeping a close eye on China’s next policy moves as it assesses demand for commodities.
- Glimmer of good news for UK public sector borrowing, but government still has little wiggle room for tax cuts.
- Microsoft’s takeover of Activision Blizzard is put back on the table after UK regulators reject initial deal.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’SoftBank’s filing to list Arm in New York will cement disappointment that London has been shunned, even though the decision was announced back in March. Arm was very much seen as a British success story, but SoftBank is pulling no sentimental punches here and wants the best bang for its buck. The Japanese conglomerate had been holding out for the best market conditions and although they look a little more clement compared to the volatility which hit the tech sector last year, recent summer weakness is clearly pushing the firm to list Arm sooner rather than later. The obsession with all things AI is still super-strong and the semi-conductor designer will be using AI as its calling card to entice investors as it heads towards the launch. Arm technology is already powering many AI applications and it plans to be instrumental in the next wave of innovation.
The news of Arm’s listing helped lift stocks in Asia, leading to expectations of higher morning trade in Europe. Investors are anticipating that more initiatives will be announced in China to help the struggling economy. So far, the support in lowering borrowing rates has underwhelmed, so hopes are being pinned on further interest rate cuts, an increase in government spending and more balm to help soothe the bruised property sector. It may be wishful thinking, but the expectation of more significant stimulus is helping give a little more support to stocks. However, oil prices have dipped back, reflecting uncertainty in terms of future demand in China and uneasiness about the impact on the US thirst for oil, if higher interest rates linger for longer, causing the economy to slow down further.
The mining giant BHP Billiton is keeping a super-close eye on policy measures to help China’s fragile new home sector which is the weak spot in terms of demand for raw materials, according to its latest update to the market. However, other sectors have held up better, such as infrastructure and car manufacturing which have helped keep commodity demand relatively robust. India appears to be the only country with reliable buoyant growth, as Western economies struggle with the lag effect of higher interest rates, an outlook which has prompted a fall in BHP’s share price today.
There is a glimmer of good news for the UK government, with public sector borrowing coming in £1.7 billion below the forecast by the independent Office for Budget Responsibility for July. But although the government hasn’t had to borrow quite so much as expected, the debt burden is still very weighty compared to last year, which gives the government very little wiggle room to offer relief for taxpayers in the Autumn or the Spring. The monthly total came in at £4.3 billion, a whopping increase on the same month last year and the fifth biggest deficit in July since comparable records began back in 1993. The uplift in tax receipts is encouraging, especially for self-assessed income and the cost of interest payable on the government debt also undershot forecasts. But with higher interest rates beginning to bite, and employers becoming more cautious about hiring workers, the tax take may disappoint later this year. Yields for longer-dated government bonds have also risen over the last few months, as interest rate expectations have shot up due to the stubborn nature of inflation, which are also set to come back to bite in terms of higher debt interest spending. So, although there may be reason to be cheerful this month, a gloomier snapshot of on the public sector finances may be on the way.
The long tortuous road being travelled by Microsoft in its attempt to acquire Activision Blizzard continues, with the tech giant now putting a fresh re-structured bid on the table for the competition regulator to assess. Although the Competition and Markets Authority has confirmed it blocked the original takeover deal, it’s now investigating the new submission. The CMA has been arguably the staunchest opponent of the acquisition among regulators worldwide citing its concern that the deal will severely restrict competition in the growing cloud gaming market, where users take out subscriptions to stream games, rather than buying them off the shelf. Under this new deal, Microsoft won’t be able to obtain cloud rights for existing Activision games or any new games released during the next 15 years. The idea is to stop Microsoft making big hits like Call of Duty exclusive to its platforms but with those cloud rights sold off to Ubisoft entertainment, it would dilute Microsoft’s power over the next decade and a half.
We won’t know until the beginning of October if these stringent new rules will allow Microsoft to leap over this latest British regulatory hurdle, but it certainly seems as though significant compromise may have been reached. With other barriers to the deal in the EU and the US now overcome, Microsoft is eyeing up the home stretch, but there is no guarantee another obstacle won’t be hurled in its path.’’
