(ZH) JPM: The Squeeze Is Mostly Over; The Market Is Vulnerable As Most Funds

JPM: The Squeeze Is Mostly Over; The Market Is Vulnerable As Most Funds Are Now Overweight Stocks

 

One month ago, when looking at the overall level of short interest across the market, we reported that according to JPM, the "most painful part of the short squeeze may be yet to come", and sure enough, aided by an unprecedented amount of central bank intervention, the market has since surged, in no small part due to ongoing covering of short positions.

However, one look at the NYSE short interest data reveals something troubling: there are still many shorts out there.

 

What is JPM's take? In a note released on Friday night, JPM's Nikolaos Panigirtzoglou has several important observations, the main of which is that CTAs and risk parity funds - which appear to have driven March’s equity rebound - are both significantly overweight equities. As a result he points to figure 2 below as an indication of a "more vulnerable equity market relative to a month ago, with all of the above types of funds currently overweight equities apart from discretionary macro hedge funds which appear to be still close to neutral."

However, "not all shorts are covered. The short base in US equity futures has yet to be covered by spec investors."

He also notes that the short base in S&P500 stocks, i.e. number of shares shorted as % of total shares outstanding, remains elevated and unchanged from its mid February high. Finally, retail investors remain negative and that they sold equity mutual funds over the past two weeks and YTD.

Here is his full take:

The equity market continued to grind higher over the past month driven by further covering of short positions and by CTAs and risk parity funds in particular increasingly their equity exposure markedly intra month. This intramonth swing by CTAs and risk parity funds is best seen in Figure 1 and Figure 2. Figure 1 shows how close the CTA return index has been following the S&P500 index during the second half of March vs. the two indices moving in opposite direction during the first half. Figure 2 goes beyond CTAs and depicts the equity beta of various fund types during the first half of March, i.e. pre- FOMC vs. the second half of March, i.e. post FOMC.

 

Indeed, Figure 2 shows that it was CTAs and risk parity funds that exhibited the biggest increase in equity exposures intra month. CTAs in particular appear to have switched from a significant short equity exposure during the first half of March to a significant long equity exposure during the second half. Risk parity funds more than doubled their equity beta from around 0.4x to 1.1x. In contrast, balance mutual funds or discretionary macro hedge funds saw little change in their equity beta during March. Discretionary macro hedge funds were flattish before and after the FOMC. Balanced mutual funds, which benefited the most from March’s equity rally, were quite long equities before and after the FOMC meeting. Equity Long/Short hedge funds saw a modest only increase in their equity beta shifting from a rather neutral equity beta before the FOMC to a significant overweight post FOMC.

 

 

 

In all, the picture of Figure 2 points to a more vulnerable equity market relative to a month ago, with all of the above types of funds currently overweight equities apart from discretionary macro hedge funds which appear to be still close to neutral.

 

But not all of our position indicators have normalized. The short base in US equity futures has yet to be covered by spec investors. The short base in S&P500 stocks, i.e. number of shares shorted as % of total shares outstanding, remains elevated and unchanged from its mid February high (Figure 3).

 

This year’s previous outflows from equity ETFs have yet to fully reverse, as inflows stalled over the past two weeks. Retail investors sold equity mutual funds over the past two weeks and YTD. And the ammunition from retail investors is even larger than we mentioned a couple of weeks ago. With quarterly reporting funds now available for Q4, it appears that retail investors injected a significant $437bn into money market funds during the second half of 2015. One needs to go back to Lehman crisis to see such accumulation of money market funds. And an additional $16bn was injected into money market funds in the first two months of the year. This previously cumulated firepower could propel equities in the coming months assuming supporting macro and policy news.

His conclusion:

In all, the above evidence suggests that not all shorts have been covered. These prevailing shorts are perhaps the reason the equity market has been trading rather short despite elevated equity betas by the hedge fund types of Figure 2. We had argued before that an alternative way to gauge equity market positioning is to examine the response of equity markets to news, where we think of ‘news’ as surprises relative to expectations. In an idealized world, an environment where equity investor positions are heavily long should see equities responding by more to negative news than to positive news. In an environment where investors are short equities, we think the opposite should be happening, i.e. equity prices should be less responsive to negative news and more responsive to positive news.

 

Over the past six weeks, we had an equal amount of positive vs. negative economic surprises in both the US and Eurozone which in the absence of a position overhang should have been consistent with flat equity markets. Instead the MSCI World Index is up by 10% over the past six weeks.

 

Figure 5 suggests that the MSCI World index has been more responsive to positive economic news and less responsive to negative news in recent weeks, pointing to overhang of short equity positions. According to Figure 5, the equity market has been trading short since the  end of January but this negativity peaked in the third week of February.

 

In other words, while most program, quant and macro funds are no longer short, the question is whether the momentum higher will spook the last set of net shorts: those traders who remain short spec futures, and retail investors, who are more short the overall market than normal.

FT : Forecasts for European profits growth at 7-year low

Forecasts for European profits growth at 7-year low

Growth forecasts for European corporate profits have plunged to the lowest level since the financial crisis as the region languishes in an earnings recession.
Some investors warn the disappointments will continue, holding back Europe’s equity markets and undermining confidence.

Consensus forecasts for earnings per share growth among European companies have dropped to 0.5 per cent for 2016 — the lowest level since the first quarter of 2009, says UBS.
This follows two successive quarters of negative earnings growth, according to Bloomberg data. Earnings fell 39 per cent year on year in the third quarter of 2015 and dropped 71 per cent in the fourth quarter, according to data from the Bloomberg European 500 Index.
Analysts’ forecasts on earnings have also been consistently too optimistic, leading to big disappointments. This has not helped the equity markets, with European stocks down 10 per cent since the start of the year.
Matthew Beesley, head of global equities at Henderson Global Investors, said: “The earnings outlook is very gloomy. I can’t see where the upside is coming from because there is no engine for growth in the world.”
Mr Beesley adds that companies have cut costs to the bone, with little room for further reductions, which will make it harder to deliver profits. At the same time, sales and revenues are suffering from weak global demand.
There are also political headwinds in Europe, with some investors worried about the potential destabilising impact from the UK’s Brexit vote and the political stalemate in Spain.

Net positive surprises on earnings per share fell to 2 per cent in the fourth quarter of 2015 — one of the lowest levels since the numbers were first compiled seven years ago, according to UBS, which tracked more than 500 of Europe’s biggest companies. Net positive surprises are positive surprises minus negative surprises on earnings forecasts.
However, some investors and analysts say Europe may be at a turning point, with the earnings recession likely to end in the current second quarter or the next.
Nick Nelson, head of European equity strategy at UBS, said: “We may be past the worst. This could be the bottom on the earnings front, assuming commodity prices continue to rise and the macro backdrop improves.”
John Stopford, co-head of multi-assets at Investec Asset Management, said: “We think we have hit the lows on earnings. We expect to see some earnings growth, helped by the rise in the oil price and stabilising commodities.”
Some investors are also positive on Europe because they think an accommodative European Central Bank, which is expected by some to ease monetary policy further, will boost demand for goods and services.
Companies may also benefit from low cost pressures, with subdued inflation, historically low bond yields and constrained labour costs helping to lift the profit bottom line.

FT : Drugmakers race to prescribe preventive migraine remedies

Drugmakers race to prescribe preventive migraine remedies

Migraines are one of the most common illnesses worldwide, affecting about 1 in 7 people and more than 30m in the US alone. Many suffer without effective treatment to control their debilitating headaches.
“I can think of only a few examples of holy grails in medicine, which have existed for thousands of years, and this is one of them,” says Sean Harper, the top scientist at Amgen, a large biotech company developing a drug for the condition.

“There’s just no effective preventive therapy for migraine that’s worth taking,” he adds.
Although there are drugs intended for those who suffer migraines occasionally, there are far fewer options for “episodic” or “chronic” sufferers that experience an attack on more than 10 days a month.
Instead, these patients try to cope by avoiding factors that can trigger attacks, such as alcohol and stress, and by taking over-the-counter painkillers such as ibuprofen. Many are forced to take significant amounts of time off work.
However, that could be about to change as four drug companies race to develop a generation of “prophylactic”, or preventive medicines, designed to be taken regularly to reduce the number of attacks.
Last week, Alder BioPharmaceuticals, a tiny biotech group based in Washington state, reported results from a mid-stage study that showed its drug, codenamed ALD403, reduced the average number of migraine days by 75 per cent in a third of patients after three months.
If it can replicate those results in a larger study the drug is likely to be approved by the US Food and Drug Administration. Shares in the company jumped more than 50 per cent after the announcement, giving it a market capitalisation of almost $1bn.
Alder is hoping to grab a large chunk of the market for the new class of migraine drugs, which analysts say could generate as much as $10bn a year in peak global sales.
But the group faces a battle with three goliaths of drugmaking: Amgen, Eli Lilly and Teva, the Israeli drug group.
The companies are in the latter stage of developing medicines similar to Alder’s, which target a chemical known as calcitonin gene-related peptide or CGRP; it helps control the width of blood vessels and plays an important role in managing pain.
Scientists first identified the significance of CGRP in migraines in the 1980s, but earlier drugs developed by US-based Merck and Boehringer Ingelheim were abandoned amid signs that they caused liver damage. This latest crop appears to have few safety issues, according to data from clinical trials.
But some investors and analysts fear that with four companies chasing the same patients, the market for CGRP inhibitors could become crowded.
Randall Schatzman, Alder’s chief executive, disagrees, arguing that up to 13m US patients could benefit from taking one of the new migraine drugs. “It is not as crowded as some people are expecting it to be,” he says. “There’s plenty of room for multiple players.”
As is often the case when multiple drugmakers are running neck and neck, the companies developing CGRP inhibitors are keen to tout the relative benefits of their medicines.

Mr Harper argues that the advantage of Amgen’s drug, codenamed AMG 334, is that it is taken via a once-a-month injection that patients administer themselves. Meanwhile, Alder’s drug is delivered intravenously once a quarter, although it is also working on a quarterly injection.
“What patients really want is to grab an auto-injector out of their fridge once a month, to inject themselves, and to throw the rubbish in the trash,” he says.
Michael Yee, a biotech analyst at RBC Capital Markets, says intravenous delivery, which must be carried out at a doctor’s surgery, means that even if Alder’s drug is the most effective it will only be given to the sickest patients.

Mr Schatzman prefers to see it as a benefit: “All the 800lb gorillas are going down the same highway with a once-a-month injection,” he says, referring to the size of his much larger competitors.
Eli Lilly, meanwhile, is aiming to become the first group to win approval to use its CGRP inhibitor to treat cluster headaches, a rarer condition with about 200,000 sufferers in the US, but one where patients are still underserved by existing medicines.
“The enthusiasm in the field is warranted, and we’re trying to stay ahead of the pack in a very competitive space,” says John Lechleiter, Eli Lilly’s chief executive.
However, recent negotiations between drugmakers, the US government and insurers that pay for medicines show the best medicine may not necessarily win.
Last year, Express Scripts said it would no longer cover an expensive hepatitis C medicine made by Gilead for many of its patients. Instead, it recommended a drug from AbbVie, which is widely seen as inferior, after securing a big rebate from the drugmaker.
Mr Yee says: “Ultimately this will come down to some aggressive marketing and rebating.”

Reuters - Alaska Air nears deal to buy Virgin America for over $2 billion: sourc

Alaska Air nears deal to buy Virgin America for over $2 billion: sources http://reut.rs/222hSrl

Alaska Air Group Inc (ALK.N) is nearing a deal to acquire Virgin America Inc (VA.O), the ninth-largest U.S. airline by passenger traffic, for more than $2 billion, having outbid JetBlue Airways Corp (JBLU.O), people familiar with the matter said on Saturday.

The acquisition would herald the first U.S. commercial airline merger since US Airways and American Airlines combined in 2013 to form the world's largest carrier. It would boost the size of Alaska Air's home market by allowing it to expand into lucrative hubs such as San Francisco and Los Angeles.

Alaska Air is set to pay between $56 and $58 per share to acquire Virgin America, the people said. A deal could be announced as early as Monday, the people added, asking not to be identified because the agreement had not yet been finalized.

Alaska Air, Virgin America and JetBlue did not respond to requests for comment.

Burlingame, California-based Virgin America went public in the U.S. stock market in 2014 as an offshoot of billionaire Richard Branson's London-based Virgin Group. Launched as a low-cost U.S. airline, it became famous for its mood lighting, comfortable leather seats and media-rich inflight entertainment system.

Based in Seattle, Alaska Air and its partner regional airlines serve more than 100 cities in the United States, Canada, Costa Rica and Mexico. It has a market capitalization of $10.2 billion.

Virgin America accounts for about 1.5 percent of U.S. domestic flight capacity, while Alaska Air and its subsidiary Horizon Air account for 5 percent, Deutsche Bank analyst Michael Linenberg wrote in a recent research note. JetBlue accounts for 6 percent, according to the note.

"It's inevitable that we would see some form of combination (among smaller airlines) as they strive to find a way to compete with the larger carriers," said travel industry analyst Henry Harteveldt.

Government regulators are expected to scrutinize the deal between Alaska Air and Virgin America for potential overlap in routes and airport slots.

Mega-mergers in the past decade have reduced the U.S. industry to four top players that control more than 80 percent of the market.

The Wall Street Journal reported earlier on Saturday that Alaska Air had emerged as the likely winner of an auction for Virgin America.

>>> Centrica hires JPMorgan to advise on potential tie-up with Engie - Sunday Ti

Centrica hires JPMorgan to advise on potential tie-up with Engie - Sunday Times

Centrica is believed to have engaged JPMorgan to advise on options regarding a potential deal with the gas and oil production unit of France-based Engie, The Sunday Times reported. UK-based Centrica, which owns British Gas, and state-backed Engie have entered early-stage negotiations on a tie-up which might take the form of a joint venture, the unsourced report said.

Centrica and Engie jointly own the Cygnus gasfield in the North Sea, the report said, noting that a number of North Sea players are discussing merger deals in an attempt to reduce their costs.

Sunday Times

>>> Servair sale sees Newrest emerge in poll

Servair sale sees Newrest emerge in poll 

French catering group Newrest is the favourite to take over Servair, the onboard catering operation due to be sold by French Dutch carrier Air France KLM, according to a French language weekly. Le Journal du Dimanche reported that Newrest is favoured over competing Austrian Do & Co and Gategroup of Switzerland.

An unidentified Servair union official told the JDD that the two players have much in common but working conditions diverge. Newrest operates both in the inflight meal sector and in airport concessions and the report noted it would promote growth at Servair.

Earlier mooted suitor Gategroup is itself in the throes of a restructuring process and recently acquired Inflight Service for more than EUR 200m. As to Do & Co, the paper dubbed it an outsider.

The report said Newrest had looked at Servair and then opted against a bid. Now, however, it is looking again but will not buy in at a price that is exorbitant. Reports have tagged a EUR 500m price tag on Servair. The name of the party granted exclusivity should be made public soon.

Journal du Dimanche

NY Post : Softbank eyes control of Marissa Mayer’s Yahoo assets

Softbank eyes control of Marissa Mayer’s Yahoo assets

SoftBank President Nikesh Arora is a busy guy these days — the head of Japan’s global telecom giant is in “active” discussions with Yahoo’s board, which includes Chief Executive Marissa Mayer.

“They are figuring out a solution for the whole,” said a source, adding, “Things are quite active.”

On the Money’s tipsters say there are quite a few permutations of a deal between SoftBank and the Yahoo board, but say talks are slow-going.

SoftBank is in the catbird seat if it can make a deal with Yahoo, according to sources.

The telecom company already owns a 36.4 percent stake in Yahoo Japan. Yahoo, meanwhile, owns 35.5 percent.

SoftBank also has a 32 percent stake in Alibaba Group Holdings, while Yahoo has a 15.5 percent slice, with Jack Ma retaining 5 percent.

Should SoftBank acquire Yahoo’s piece, it would own 47.5 percent of the whole.

However, a source says, “Jack Ma does not want SoftBank as a controlling shareholder” in Alibaba.

Meanwhile, SoftBank joined private equity firm Silver Lake as an investor in Hollywood super agency WME/IMG last week.

Would SoftBank, owner of Sprint, want Yahoo sold to Verizon?

Could WME help SoftBank figure out content for Sprint?

Questions, questions…

(BI) STANLEY DRUCKENMILLER: 'This is the most unsustainable situation I have eve

STANLEY DRUCKENMILLER: 'This is the most unsustainable situation I have ever seen in my career'

With so many voices streaming at us through our televisions and computers, a person can’t be blamed for tuning out.

For the most part, tuning out is exactly what we should do. But sometimes it is very important that we pay attention…

By listening to Jeremy Grantham, Jim Grant and a host of other investors, a person could have avoided and profited the crashing of the tech bubble of the late ’90s.

By listening to Kyle Bass, Michael Burry and Prem Watsa, an investor could have avoided and even profited from the crashing of the housing bubble in 2008.

Today is another time when we all need to be paying attention. This time, the man we need to be listening to is Stan Druckenmiller.

For 25 years as a hedge fund manager, Druckenmiller compounded money at an annualized rate of return of 30%. Incredibly, he did it without a single down year.

Druckenmiller has a dire warning for all of us. One that requires action.

There is nothing for Druckenmiller to gain from providing this warning. He isn’t talking his book or trying to gain investor support — he isn’t promoting anything. He doesn’t even have a political agenda.

He is spending his own time and money to try to bring this issue to light because he believes it is crucial for the United States.

Druckenmiller simply believes that America is heading for a disaster, and he is trying to use his high-profile position to get people motivated to stop it.

What you need to know about Stan Druckenmiller is that his incredible investing performance was rooted in his skills in making macroeconomic forecasts.

When describing how he was able to compound money at such a crazy rate and not have a single down year, Druckenmiller said:

How did we do it? Very simple. While others were focusing on the present, we looked and focused on the future in terms of analyzing unsustainable situations.

And when I look at the current picture of expected tax revenues combined with benefits promised to future generations, this is the most unsustainable situation I have seen ever in my career.

The disaster that Druckenmiller sees coming for the United States is all about changing demographics and entitlement spending. They don’t add up to a sustainable situation.

In 1940, entitlement payments, which include everything from disability payments to Social Security to Medicare, amounted to just over 20% of annual government spending in the United States.

Today, entitlement spending has swelled to nearly 70% of the annual federal budget.

Things are about to get a whole lot more complicated. The 20-year baby boom that took place after World War II is now beginning to result in a retiree boom.

For context, Druckenmiller points out that in 2030, the average age of an American citizen will be older than the average age of a resident of Florida today.

This demographic trend is going to create an entitlement spending catastrophe.

The way the system works, the current workforce provides the tax revenue to support the current senior population. A huge rise in the retiree population relative to the number of people working results in a funding dilemma.

Since 1980, the number of working-age people the country has had has outnumbered those age 65 and over by a count of 5-to 1.

The country has had enough workers generating tax revenue to support the number of retirees.

By 2030, that ratio is going to drop to 2.5-to-1.

By 2029, there will be 11,000 new seniors arriving every day and only 2,000 new adults being added to the workforce to pay for them.

There is just no way that the workforce at that time is going to be able to fund the entitlements of these seniors.

This is a problem because those are commitments that have been made and will have to be paid.

Corporations are required to disclose on their balance sheet the future defined pension obligations that their employees have earned.

Those are very real liabilities for companies that are going to have to be paid, so they should be included.

The balance sheet of the United States, meanwhile, doesn’t account for the future payments that it has promised to its senior citizens. Again, like defined benefit pension payments, these are very real obligations.

They should be recorded as liabilities of the United States.

Here is how much the U.S. debt would increase, assuming no change in tax rates, if those obligations were included:

fiscal gapThe Daily Reckoning

That chart makes the size of the problem abundantly clear. There are a lot of people already very concerned with the amount of debt the United States has. Imagine how they would feel if they were aware that with these liabilities conclude the number is 20 times larger.

This is a case of simple math.

Either tax rates increase in a massive way or the payments to seniors have to be cut significantly. The status quo doesn’t work. There just isn’t going to be anywhere close to enough money coming in to fund the payments going out.

The country can’t borrow its way out of a funding issue of this size.

This issue that Druckenmiller is so passionate about is a huge problem. One with no possible solution that will be popular with the American voters.

Either higher taxes or lower benefits. Likely some combination of both. Both very unattractive options for big percentages of the voter base.

You can hear the politicians kicking this can further down the road, can’t you?

Fixing this is going to require some real sacrifice by the American people. That doesn’t sound like a very appealing platform upon which to get re-elected.

The finances of the entire world are run by short-term thinkers. Central bankers have been dead set on trying to inflate economies for a decade now using more and more aggressive easy-money policies.

janet yellenFederal Reserve Board Chair Janet Yellen testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on the "Semiannual Monetary Policy Report to Congress" in Capitol Hill, Washington February 11, 2016
Janet Yellen

To try to make the short term a little better, these central bankers have been perfectly willing to roll the dice on the long term.

The issue that Druckenmiller has raised will have to be dealt with. I’m sure it will be dealt with far later than it should be as politicians do kick that can down the road.

By doing that, they are only going to make the corrective actions that the country has to take more severe.

It is crucial that all of us realize that our long-term financial well-being really needs to be taken care of by one person. That one person is the man or woman you look at in the mirror in the morning when you are brushing your teeth.

We have to make sure we protect our wealth diligently and invest in assets that will retain their value when the consequences of all of this short-term thinking arrive.

Because eventually, they will.

Telegraph : Xavier Rolet: tie-up between LSE and Deutsche Boerse is best deal on

Xavier Rolet: tie-up between LSE and Deutsche Boerse is best deal on the table http://bit.ly/1UB0DOL

Although he may look every part the FTSE 100 chief executive – smart red tie, pocket handkerchief, discreet but expensive grey suit – Xavier Rolet is playing the role of evangelical preacher.

Just two weeks after putting the flesh on the bones of the proposed £21bn tie-up between LSE Group, owner of the London Stock Exchange, and Deutsche Boerse, its German rival, the chief executive of the British bourse is laying out with messianic zeal the merits of the deal.

Partly stung by some of the criticism against the mooted union, and partly because of his deeply held belief that the merger is the best option for the LSE, in his first full interview since the all-share deal was announced the Frenchman passionately defends the tie-up and what it means for the group he has run for the past seven years.

“Our strategy was always to extend from our domestic focus to become one of the small number of players that would be global. I’ve always said that I thought there would be a small number, three, maybe four, and we want to be part of them,” says Rolet, who was awarded an honorary knighthood last year.

After masterminding 16 acquisitions in the seven years he has been at the helm of the group, Rolet has widened the business from one largely focused on the LSE and its Italian sister Borsa Italiana to a fully integrated financial infrastructure business with strengths in intellectual property, capital formation and clearing and settlement.

Rolet argues in some detail that the latest deal, rather than an out-of-the-blue approach driven by his opposite number at the German exchange, as some have badged it, is the crowning moment of what he has been working to achieve since he took over from Clara Furse at Paternoster Square in May 2009.

Furse fended off bids from the Germans and from Euronext, as well as interest from the New York Stock Exchange and Nasdaq, but was widely criticised for keeping the LSE on a largely domestic footing, despite her acquisition in 2007 of Borsa Italiana.

Rolet says: “Before we got to the point where we had achieved competitiveness and relevance on a global scale, to do a deal like this as a merger of equals would have been unthinkable. Seven years ago, these guys were worth five times what we were worth.”

Rolet admits that the fact that LSE Group is now on the brink of a merger with Deutsche Boerse is far from a surprise. “For many years” he thought it would be the Germans who would make the approach, and he confesses that his opposite number in Frankfurt, Carsten Kengeter, who only took the helm of Deutsche Boerse last June, “reached out to me when he took the position… because it was obvious to him this was a winning combination.”

“But don’t think of us as passive,” he says, deflecting criticism that the LSE should have been more pro-active. “We had prepared ourselves for it because ultimately we want to be a global leader.”

Rolet is coy about how the more formal discussions began (although it is understood it was led by the Germans with an approach in late January) and instead terms the talks a “meeting of minds”. Ultimately, he says, “it’s like a marriage. Someone has to get on one knee, and ask the other, but you have to have signals on both sides that it’s going to work.”

The apparently happy union will see him stand down, however. Kengeter, who turned 49 on Thursday , will take the top job, with the LSE Group’s chairman, Donald Brydon, chairing the as yet to be named venture. In return, the enlarged entity will be domiciled, taxed and headquartered in London, something which Rolet fought hard for.

“In exchange for some of these concessions we had to give something. And I offered it. I said, if that helps, I’ll fall on my sword.

“I love this company, and I had no intention or pre-conceived plan to go.”

He is also keen to amplify that his decision to go is not, as has been alleged, linked to any merger-related pay-off.

Some investors have privately questioned the choice of Kengeter to run the combined business, given he has only run the German exchange for nine months. Rolet stresses Kengeter’s pedigree, his knowledge of Mandarin, his intellectual ability.

“What I would and have said to shareholders is, give us, Carsten and I, a little bit of credit, based on track records. “If we suggest to you that there’s a meeting of minds, that the real strategy will be short-term accretion, cost synergies of €450m [£357m)] revenue synergies which we haven’t published yet… give us some credit for seeing that this is the best deal on the table.”

But while Rolet is full of praise for the deal that is on the table, he is full of venom for the one that might be. The prospect of the merger being gatecrashed by Intercontinental Exchange (ICE), the Atlanta-based business led by Jeff Sprecher which owns everything from the NYSE to the International Petroleum Exchange in London, does not appeal.

Although the Frenchman says over and over again he cannot comment on ICE because it has yet to table an offer (under Takeover Panel rules it has until early May to do so), time and time again during our hour-long conversation, Rolet makes veiled and at times direct comments about the prospects of what he refers to as the “interloper”.

“I don’t want just anyone, particularly not some 'slash and burn’ type organisation, to come in and kill all of the stuff we’ve done over the last few years,” he says. Using what ICE did to Euronext – spinning it out of the NYSE and relisting it– as an example, Rolet talks critically of Sprecher’s track record when it comes to equity exchanges, labelling its ownership of Euronext as a “disaster” having “eviscerated” the four platforms on which the pan-European exchange was originally found.

“It is not a company based in Atlanta… that is going to worry about the financing of European industry – whether they are S [small], M [medium] or blue-chips. It’s just not going to be part of their strategy. Which is why they chucked out Euronext. They kept the clearing business that they had, and they kept the derivatives engine. And that is not a strategy for British industry.”

He also feels that ICE or any other rival would be less kind to Aim, the LSE’s junior exchange, than Kengeter plans to be. The German has spoken fondly of Aim, and plans to open an equivalent in Germany to foster small company growth.

“I doubt that [Aim] would be part of the strategy of any frankly global exchange for the simple reason it doesn’t make any money. It would be one of the first things to be chucked. Our 1000 Companies programme, that costs money. Our Elite programme, that costs money. All that stuff would be chucked in the bin – but we care greatly about these things.” Rolet continually attacks the “silo” model that ICE and others adopt.

“We partner with our clients, we share the equity,” he says. “We don’t bundle up the capabilities we provide. The rest of the industry, particularly the Americans, say that if you want any of these products, you’ve got to buy the whole lot.”

What I want is a company that’s headquartered, taxed and governed in London. I think London deserves it
Returning to his favoured topic, the Deutsche plan, Rolet gives little away that has not already been announced, ahead of publication of the merger circular expected late next month.

He will not give detail on where job cuts will come to get to the €450m of cost savings, nor will he say what Qatar Holding, the LSE’s biggest investor, with a 10.25pc stake, thinks of the deal other than to confirm that he has spoken to the Qataris.

What he will say is that he thinks the venture, currently worth $30bn on a combined basis, could be worth as much as $50bn within a few years time. “I’m not giving you a timeline,” he says at first, before admitting “sooner than that” when asked if he means within five years.

“Cost synergies have been fully priced in. Revenue synergies have not been announced,” he teases. “We will become, as an industry, an investable asset class. Today, with a handful of exceptions, these are tiny companies which are largely illiquid. When the Shanghai Stock Exchange demutualises and lists, it’s going to be worth $75bn. That’s where the industry is going to play. If you’re $2bn, or $5bn, or $10bn, you’re invisible.

“What I want to leave is a company that’s headquartered, taxed and governed in London. I think London deserves it.”

Whether Rolet gets his way – and gets to deliver his much dreamed-of global exchange business to his adopted home city – is now up to the two exchanges’ shareholders, and an American interloper with deep pockets and a love of acquisitions.