FT : EU issues ultimatum to Johnson on Brexit plan

EU issues ultimatum to Johnson on Brexit plan
British PM pressed for customs concession ahead of crunch talks with Irish counterpart

Boris Johnson has been issued with an ultimatum by EU leaders ahead of crucial Brexit talks with Ireland’s prime minister Leo Varadkar: accept that Northern Ireland can remain in the EU customs union or there will be no withdrawal agreement.

The British prime minister will meet Mr Varadkar for private talks in the north-west of England on Thursday, with both sides far apart and with diplomats in London and Dublin pessimistic of progress ahead of an EU leaders’ summit next week.

Some British officials admitted the talks on a Brexit deal could be broken off on Friday, given Mr Johnson’s refusal to accept the EU’s demand that Northern Ireland must stay within the bloc’s customs union.

“We’re not expecting a breakthrough,” said one UK official ahead of the talks between the British and Irish prime ministers. “There is just a view that if they are in a room together for two hours perhaps we might be able to see a way through.”

The meeting comes with Anglo-Irish relations at their lowest ebb since the Northern Ireland troubles. Constant rows over how to avoid a hard Irish border after Brexit have placed huge strains on the close but historically troubled relationship.

In Downing Street the view is now strongly held that the EU is playing for time, paying lip service to the idea that a Brexit deal might be possible while making demands that are impossible for Mr Johnson to accept.

One ally of Mr Johnson said the chances of a deal before Britain’s scheduled departure date of October 31 were “about 5 per cent — and that’s on the optimistic end of the spectrum”.

Mr Johnson’s team believes that the EU will argue soon that “time has run out” for agreeing a revised withdrawal agreement and will then push the British prime minister into seeking a Brexit delay — against his will — to enable a general election.

Mr Johnson’s Brexit plan involves keeping Northern Ireland in the UK customs area, while placing the region under the EU’s single market rules.

It would result in a customs border on the island of Ireland, although the British prime minister says checks on goods could take place away from the frontier.

But Dublin supported the so-called backstop provision in the withdrawal agreement finalised by his predecessor Theresa May and the EU, under which the UK would be in a customs union with the bloc to avoid a hard Irish border.

Mr Johnson rejected the backstop because it could bind the UK into close ties with the EU, and Dublin is open to the idea of just Northern Ireland being in a customs union with the bloc.

Mr Varadkar told the Irish parliament on Wednesday he had several objections to Mr Johnson’s plan.

“Part of the difficulty at the moment is that the position of the UK government is that Northern Ireland must leave the EU customs union and be part of the UK customs union no matter what the people of Northern Ireland think,” he said.

“That is its position and that creates a grave difficulty for us because we want there to be a deal that respects the wishes of the people of Northern Ireland and the people in this republic too.”

Mr Varadkar was reflecting recent polling that suggests people in Northern Ireland would favour staying in the EU customs union.

Irish officials said the British prime minister must move first if there is to be a Brexit deal. “We can’t do it without customs on the table,” said one.

But Mr Johnson’s team argues that he has already made concessions by proposing that Northern Ireland remain under EU single market rules covering agriculture, food and manufactured goods, and that it is Mr Varadkar’s turn to move.

Jean-Claude Juncker, European Commission president, told MEPs on Wednesday that he did not exclude a Brexit deal being reached.

But Michel Barnier, the EU’s chief Brexit negotiator, told MEPs that Mr Johnson’s idea of managing a new customs border on the island of Ireland was “largely based on exemptions, derogations, on technology that has yet to be developed”.

Mr Barnier also rejected Mr Johnson’s proposal under which Northern Ireland’s Democratic Unionist party could wield an effective veto in the Stormont assembly on whether the region should stay aligned with EU single market rules.

Mr Johnson’s aides expect at some point that the EU will offer the idea of a “time-limited Northern Ireland-only backstop dressed up in consent” — in other words, keeping the region in the bloc’s customs union unless both nationalist and unionist parties in the Stormont assembly agreed to leave it.

That idea was floated on Wednesday in The Times and was immediately denounced by the DUP, which props up Mr Johnson’s government at Westminster. “It will go nowhere,” said Sammy Wilson, DUP Brexit spokesman.

Unless Mr Johnson takes on the DUP and agrees to put Northern Ireland in the EU customs area, the Brexit talks appear doomed to failure.

In Brussels attention is already turning to the length and terms of any Brexit delay the EU might offer the UK.

>>> US Close Dow +0.70% S&P +0.91% Nasdaq +1.02% Russell +0.47%

Closing Stock Market Summary

The S&P 500 gained 0.9% on Wednesday after a report indicating China's willingness to reach a partial trade deal seemingly improved investor sentiment. The broad-based rally, led by large-cap technology stocks, lifted the Dow Jones Industrial Average (+0.7%) and Nasdaq Composite (+1.0%) to decent gains. The small-cap Russell 2000 (+0.5%) rose modestly. 

The reported terms included China agreeing to buy more agricultural products from the U.S. in exchange for no further tariff increases on goods imported from China. Bloomberg received this information from an unnamed official with "direct knowledge of the talks," and the Financial Times followed up with news that Beijing could increase its soybean purchases by 10 million tons annually.

Despite the caveat that structural trade issues were reportedly not in China's interest to resolve this week, all 11 S&P 500 sectors were undeterred for most of the day. The information technology sector (+1.5%) led all sectors in gains, with the other ten groups rising between 0.3% (real estate) and 1.1% (energy).

This was a quick rebound from Tuesday when the market began to doubt that progress would be made after the U.S. blacklisted 28 Chinese firms and imposed visa bans on Chinese officials tied to human rights abuses. A late-session report from Reuters indicated that Beijing has indeed lowered its expectations due to the blacklisting damaging goodwill, causing stocks to lose steam into the close.

Understandably, many investors were hesitant to trade on the pre-meeting news and the lack of surprising details in the minutes from the Sept. 17-18 FOMC meeting. Trading volume was noticeably low at the NYSE and Nasdaq.

At the very least, there was some relief that China may not retaliate against the U.S. and that there could be a chance that there will be no tariff rate increases on Oct. 15 and Dec. 15 as is currently planned. The outperformance of the trade-sensitive Philadelphia Semiconductor Index (+1.7%) reflected this view.

Some story stocks included Johnson & Johnson (JNJ 129.23, -2.61, -2.0%) and American Airlines (AAL 27.07, +0.81, +3.1%). JNJ was ordered to pay $8 billion in a case involving its Risperdal drug. American Airlines pre-announced in-line third quarter results and delayed the return date for its Boeing (BA 374.96, +0.86, +0.2%) 737 MAX to Jan. 16.

U.S. Treasuries finished the session on a lower note. The 2-yr yield increased four basis points to 1.46%, and the 10-yr yield increased five basis points to 1.59%. The U.S. Dollar Index finished little changed at 99.13. WTI crude declined 0.1% (-$0.03) to $52.63/bbl. 

Reviewing Wednesday's economic data:

  • Wholesale inventories increased 0.2% m/m in August (consensus +0.4%), on top of an unrevised 0.2% increase in July. Wholesale sales were flat in August after increasing 0.2% in July.
    • The key takeaway from the report is that it could prove difficult for wholesalers to gain pricing power given that inventory growth remains well ahead of sales growth on a yr/yr basis.
  • August Job Openings and Labor Turnover Survey showed that job openings declined to 7.051 million from a revised 7.174 million in July (from 7.217 million).
  • The weekly MBA Mortgage Applications Index increased 5.4% following an 8.1% increase in the prior week.

Looking ahead, investors will receive the Consumer Price Index for September and the weekly Initial and Continuing Claims report on Thursday.

  • Nasdaq Composite +19.1% YTD
  • S&P 500 +16.5% YTD
  • Dow Jones Industrial Average +12.9% YTD
  • Russell 2000 +9.7% YTD

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • QGEN -18.9% (reaffirms Q3 EPS, sees revenue below guidance; also announces CEO transition; CEO Peer M. Schatz to depart to pursue new opportunities), DZSI -17.9%, DPZ -4.8%

Select EU financial related names showing weakness:

  • DB -2.5%, ING -2.2%, SAN -2.1%, BCS -1.4%, LYG -1.2%, HSBC -0.8%

Other news:

  • AMBA -12.4% (on report that the Department of Commerce will blacklist its customer Hikvision)
  • CVM -4.4% (attributed to cautious Stat News report from Adam Feuerstein)
  • AQN -3.3% (commences underwritten marketed public offering of 21,520,804 common shares)
  • SDC -2.1% (rebounding from yesterday's 8% pullback; co commented after the bell on analyst initiations)
  • BA -1.5% (WSJ article stating dispute between US and European regulators could further delay Boeing (BA) 737 Max 8's return to flight)
  • JAZZ -1.3% (CFO Matthew Young to resign effective as of October 25 to pursue a leadership opportunity with a privately-held healthcare company)

Analyst comments:

  • PBYI -7.5% (downgraded to Sell from Neutral at Goldman)
  • NKTR -7.1% (downgraded to Sell from Buy at Goldman)
  • FTSI -3% (downgraded to Underperform from Neutral at BofA/Merrill)
  • PTEN -2.6% (downgraded to Neutral from Buy at BofA/Merrill)
  • HP -2% (downgraded to Neutral from Buy at BofA/Merrill)
  • TERP -2% (downgraded to Equal Weight from Overweight at Barclays)
  • ORCL -1.3% (downgraded to Hold from Buy at Jefferies)
  • JBHT -1.2% (downgraded to Neutral from Positive at Susquehanna)
  • BEN -1% (initiated with Underperform at BMO Capital Markets)
  • LOW -0.7% (coverage downgraded/assumed to Mkt Perform from Outperform at Raymond James)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • HA +5.2% (reports Sept traffic +3% yr/yr on an increase of 0.7% in capacity; raises Q3 estimates for operating revenue per ASM), HELE +4.9%

Select metals/mining stocks trading higher:

  • HMY +4.9%, GFI +3.3%, MUX +2.5%, AU +2.4%, GDX +1.5%, GOLD +1.3%, GLD +0.8%, SLV +0.8%, . 

Other news:

  • NIO +11% (provides Q3 delivery results -- total deliveries +35.1% qtr/qtr)
  • ERIC +1.2% (US officials have suggested issuing credit to Nokia (NOK) and Ericsson (ERIC) so those companies can compete with Huawei)
  • NOK +0.8% (US officials have suggested issuing credit to Nokia (NOK) and Ericsson (ERIC) so those companies can compete with Huawei)
  • CE +0.5% (indicated higher on reports that the company may consider a breakup)

Analyst comments:

  • NAT +8.1% (upgraded to Buy at BTIG)
  • SWTX +1.8% (initiated with a Buy at Goldman; initiated with an Overweight at JP Morgan)

>>> US Early premarket gappers

Early premarket gappers

Gapping up:

  • NIO +9%, HA +5.2%, HMY +4.9%, GFI +3.3%, NAT +3.2%, AU +1.5%, GDX +1.4%, MUX +1.3%, GOLD +0.9%, CE +0.6%, GLD +0.6%, SLV +0.6%

Gapping down:

  • QGEN -19.1%, QGEN -19.1%, DZSI -17.9%, AMBA -10%, AQN -3.3%, DB -3.2%, BA -2%, MT -2%, ING -2%, JAZZ -1.3%, NVDA -1.3%, ORCL -1.1%, BEN -1%, SDC -1%, AAL -0.9%

FT : Nissan names China unit head Makoto Uchida as chief executive

FT : names China unit head Makoto Uchida as chief executive
Carmaker in bid to end ‘toxic’ boardroom battle after 2018 arrest of Carlos Ghosn

Nissan has named Makoto Uchida, the head of its China operations, as the company’s new chief executive, according to people with knowledge of the decision, in an effort to end a boardroom civil war that was unleashed by the 2018 arrest of Carlos Ghosn.

The unanimous decision by the board to promote the 53-year-old executive follows a three month search for a successor to Hiroto Saikawa, the handpicked appointee of Mr Ghosn who was himself ousted in mid-September.

Mr Saikawa’s sudden dismissal, said people close to the board, laid bare the extent of a “toxic” internal battle for control of Nissan that had effectively paralysed the company’s ability to concentrate on its core business, its recovery plan and on repairing relations with its alliance partner, Renault.

“Today it’s a disaster. Everything is out of control. Nobody seems to be in command and that cannot last long,” one of those people said. “Now it’s enough.”

Mr Uchida, who has spent more than a decade at a Japanese trading house before joining Nissan in 2003, was chosen from a shortlist of six candidates that also included Jun Seki, the former China head in charge of the recovery plan, and Ashwani Gupta, an India-born former Renault executive. Mr Gupta has also been named Nissan’s chief operating officer.

Following the arrest of Mr Ghosn last year and the breakdown of ties with Nissan’s French partner Renault, the nomination committee had embarked on a search for a new leader with firm management skills to stem a collapse in profits and an international mindset to revive the 20-year alliance.

Another key condition was an individual who could make a decisive break not only from the Ghosn era but also from destabilising faction politics within the company.

FT : BlueCrest’s emerging market traders decamp to Geneva

BlueCrest’s emerging market traders decamp to Geneva
Moves led by department head have echoes of post-crisis exodus to Switzerland

A team of fund managers at BlueCrest Capital, the publicity-shy investment firm headed by billionaire trader Mike Platt, is relocating to Switzerland, a rare move in an industry that a decade ago saw an exodus of traders to the lower-tax centre.

BlueCrest’s emerging market credit team, comprising a handful of traders based in New York and London, is currently in the process of moving to Geneva, said two people familiar with the firm’s plans.

The relocations have been driven by a desire by the New York-based head of the team to move to Switzerland, the people said. The switches are expected to be completed by the end of the year.

BlueCrest declined to comment.

In the aftermath of the financial crisis, Swiss cantons offered tailored tax deals in an effort to attract hedge fund managers from London — where they were facing a top rate of income tax of 50 per cent and more stringent regulations stemming from Brussels. Alan Howard, co-founder of Brevan Howard, and former JPMorgan trader Mr Platt both moved from the UK to Geneva, taking senior staff with them.

However, a cut in the UK’s top rate of income tax and the introduction of tougher regulation for Switzerland-based funds — as well as complaints from some traders that they found life in the country dull — have since seen that flow of managers dry up and in some cases go into reverse. Mr Platt moved to Jersey in 2014 and Mr Howard moved back to London two years ago.

Following the move by BlueCrest’s traders, the firm’s wider emerging markets team will be split between New York, Geneva and Singapore, said a person with knowledge of the move.

BlueCrest was once one of the world’s biggest and best-known hedge funds, managing as much as $36bn of assets in 2012. Its flagship BlueCrest Capital International macro fund, which bet on moves in global bonds and currencies, returned 45 per cent in 2009 and grew to $14bn at its peak.

However, the firm’s assets shrank to about $8bn following lacklustre performance and the spin-off of Systematica, the quantitative funds arm. At the end of 2015, BlueCrest announced that it would return outside investors’ money and become a private investment partnership managing several billion dollars in assets, a large chunk of which would be Mr Platt’s wealth.

At the time Mr Platt said the fund’s market bets had been constrained by institutional investors’ demand for lower-risk products, and that the change would allow him to take more risk.

Since then BlueCrest has made annual returns net of fees of 50 per cent in 2016, 54 per cent in 2017 and 25 per cent last year, said a person who had seen the numbers. Mr Platt is ranked 38th in this year’s Sunday Times Rich List with an estimated £3.7bn fortune.

FT : Crispin Odey hit in volatile September for hedge funds

Crispin Odey hit in volatile September for hedge funds
UK manager lost 12.7% in European fund as stock and bond moves made for challenging month

Hedge fund manager Crispin Odey is among managers nursing losses after a choppy few weeks that saw large moves in bond and stock markets.

Mr Odey, founder of London-based Odey Asset Management, lost 12.7 per cent in September in his European hedge fund, according to numbers sent to investors and reviewed by the Financial Times. That left his fund down 18.1 per cent for the year.

September proved a major challenge for hedge funds, many of which have been riding rising stock and bond markets this year.

A violent rotation out of shares that had been performing well and into cheap value stocks — which had previously largely been neglected in favour of faster-growing companies, for instance in the technology sector — hit some equity hedge fund managers. There was also a spike in crude prices mid-month following strikes on Saudi oil processing facilities, that was quickly reversed.

Mr Odey’s fund has been running bets against financial stocks including insurer Lancashire Holdings, the fund’s biggest equity market position, according to a letter to investors seen by the FT. Financials rose strongly in September, however, and Lancashire’s shares jumped nearly 9 per cent. Meanwhile, the British pound, against which Mr Odey has also been betting, climbed against the dollar.

Offsetting some of the losses was Mr Odey’s large bet against Metro Bank, whose shares plunged after the lender pulled a £200m bond offering. An Odey spokesman declined to comment on the fund’s positioning.

Mr Odey’s fund endured three calendar years of losses, including a drop of nearly 50 per cent in 2016, before rebounding 53 per cent last year, when it was one of the world’s top-performing hedge funds.

This month, it had regained 4.5 per cent as of the middle of last week, reducing year-to-date losses to 14.4 per cent.

September also saw large moves in government bond markets. US 10-year Treasury yields soared from 1.51 per cent to 1.91 per cent by the middle of the month after a bout of improved economic data, before falling back as concerns about the growth outlook returned. Yields fall as prices rise.

Among hedge fund strategies hit were computer-driven trend-following funds, which have been running large bets on falling bond yields, according to numbers sent to investors.

Man Group’s AHL Diversified lost 7 per cent during the month, reducing gains this year to 14.6 per cent, while its Evolution fund fell 4.3 per cent, leaving it up 8.9 per cent. New York-based Gresham Investment Management’s Alternative Commodity Absolute Return fund fell 7.9 per cent, leaving it down 7.7 per cent for the year.

Among macro managers, Brevan Howard, run by billionaire trader Alan Howard, was hit after a strong run of performance. The fund, which had been betting on falling bond yields, lost about 2 per cent, reducing gains to about 8 per cent.

Some funds were able to profit from the sharp market moves. Renaissance Technologies, the $60bn hedge fund business founded by Jim Simons, was up 2.5 per cent in September in its Institutional Equities fund, bringing its year-to-date performance to 10.5 per cent.

One investor in the quant hedge fund said it had benefited from being overweight utilities and from its investments in sectors such as healthcare and materials.

Greenlight Capital, the value-focused hedge fund founded by David Einhorn, also did well, posting an 8.4 per cent return in September. The fund is up 24 per cent this year after a brutal end to 2018 that saw it post its worst-ever performance.

Some funds were also able to profit from bargains they picked up during the market fallout from Argentina’s president Mauricio Macri’s surprise defeat in primary polls in August. London-based Promeritum Investment Management, for instance, made gains on Egyptian and Ghanian bonds. It was up 1.2 per cent last month and is up 8 per cent this year.