German inflation rises to 2.2%; eurozone sentiment improves
The just-released flash estimate of German inflation in November wraps up a good day for hawks at the European Central Bank, said Carsten Brzeski, global head of macro at ING. With headline inflation accelerating and economic sentiment stabilising, opposition against a 50 basis point rate cut at the December meeting will grow stronger.
German headline inflation came in at an annual rate of 2.2%, up from 2% in October. Back in September, headline inflation was still at 1.6%. Another inflation measure, harmonised to compare with other EU countries, stayed at 2.4%, unchanged from October.
Today’s rebound in German inflation was mainly the result of less favourable energy base effects, while at the same the timing of school vacation during the fall season inserted downward pressure on headline inflation.
Looking ahead, the stickiness of inflation at slightly too high a level still looks set to continue as favourable energy base effects will continue petering out while wages are increasing. However, with the current turning of the labour market, wage growth should come down more significantly than previously thought, leading to more disinflationary pressures next year. As a result, we continue to expect inflation to remain within the broad range of between 2% and 2.5% in 2025.
With today’s surprise (meagre) improvement in eurozone sentiment and now German inflation, some ECB members might start doubting both the October rate cut decision and the opening to even larger rate cuts at the December meeting.
Folowing last week’s declining PMIs, the European Commission’s economic sentiment indicator brought a small positive surprise.
The indicator ticked up to 95.8, from 95.7 in October. Industry showed a small improvement, while sentiment in services and among consumers dropped. Price expectations in industry increased to their highest level this year, while price expectations in services came down.
Brzeski added:
What remains is the genuine idea of almost all ECB officials that the rate-cutting cycle will continue. The only question is for how long and how far. Yesterday’s remarks by Isabel Schnabel clearly stressed the hawkish case, which is one of a very gradual process of cutting rates. However, even more important than the debate about 50bp or 25bp at the December meeting is the question of how far the ECB will eventually go with rate cuts. Here, Schnabel tried to mark her preferred terminal rate of between 2% and 3%, while Philip Lane’s comments earlier on suggested that the ECB could clearly go below any neutral interest rate level next year.
In any case, having been slow to address rising inflation and arguably late in stopping rate hikes last year, the ECB now appears determined to get ahead of the curve and return interest rates to neutral as quickly as possible. For the doves, this is a no-brainer, and for the hawks, the argument might be that getting rates back to neutral quickly could be enough to avoid another episode of unconventional monetary policy with quantitative easing and negative interest rates further down the line. Today’s macro data releases in the eurozone, however, should encourage the ECB hawks to object to a 50bp rate cut in December and the case for a 25bp rate cut is growing.
In fact, a 50bp rate cut decision would be a security move to preempt any potential risks for the eurozone economy coming from the next US administration’s potential economic policy choices. A 25bp rate cut decision would rather follow the cautious meeting-by-meeting approach, though running the risk of not yet getting ahead of the curve. We will wait for tomorrow’s eurozone inflation numbers to finally make up our minds.
Here’s our full story on Direct Line shares surging by 43% following news of Aviva’s £3.3bn offer for the company to create an insurance giant.
UK hospitality group Loungers to be bought by US firm Fortress
The cafe bar business Loungers has agreed to be bought by a US investment group in a deal that values it at about £338m.
Fortress Investment Group said it had made an offer for the UK hospitality group through a newly formed investment vehicle.
Loungers is the latest London-listed company to strike a deal with an international private equity group. Operating the Lounge, Cosy Club and Brightside brands, it has 280 venues across the country.
Fortress has offered 310p for each Loungers share, which represents a premium of about 30% to its closing price on Wednesday.
The deal values the entire share capital of Loungers at about £338.3m, the companies said.
Posh olive oil, tinned fish and even salt are now du jour, says Waitrose
Forget designer fashion and jewellery, trendy versions of pantry staples such as extra virgin olive oil, balsamic vinegar and tinned fish have become middle-class lust objects for home cooks, according to a new report.
A food cupboard stocked with chic glass bottles, jars and decorative tins (in the front row at least) has become a status symbol, according to Waitrose’s annual food and drink report.
For example, demand for premium extra virgin olive oil has grown by 15% this year, while for apple cider vinegar the figure is 6%. Meanwhile, sales of Cornish salt flakes are up by 79% year on year.
Elinor Griffin, the supermarket’s oils & vinegar buyer, said people were “proudly showcasing” their pantry staples in their kitchens. “Whether it’s a gorgeous bottle of olive oil or raw apple cider vinegar, or artisanal flavoured salts, it’s a great way to spark conversation and show off your chef credentials,” she said.
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City regulator offers to water down ‘name and shame’ rules after pressure
In other news… The City regulator has bowed to pressure over plans to “name and shame” some companies it investigates, offering watered-down proposals that would give firms 10 days’ notice and consider the “potential negative impact” of revealing the identities of companies under inspection.
The Financial Conduct Authority (FCA) put forward new proposals on Thursday after months of intense criticism from businesses, which have tried to thwart the watchdog’s plans to be more transparent with the public and whistleblowers when it is investigating potential wrongdoing across the City.
The government had also threatened to intervene, with the City minister, Tulip Siddiq, having told the watchdog to rethink its plans, and suggested she could overrule the FCA.
Here’s our full story:
The asset manager Macquarie has launched a £700m offer to buy the waste management company Renewi in the latest takeover of a London-listed firm.
The two companies have reached a preliminary agreement on the financial terms of a deal that values Renewi at 870p a share, a 57% premium to its closing price of 554p on Wednesday night.
In a joint statement, they said the terms of the deal were final, and Renewi has agreed to provide Macquarie with access to its books so confirmatory due diligence can be conducted.
The agreement comes a year after Macquarie was thwarted in a previous attempt to take over Renewi, when an offer worth 810p a share was rejected.
Renewi, formerly known as Shanks Group until a 2017 rebrand, sold its UK municipal bin-collecting business to the rival Biffa earlier this year.
Macquarie said it had talked to three of Renewi’s largest shareholders in September – Coast Capital Management, Avenue Europe International Management and Paradice Investment Management – who between them own or control 19% of the company’s shares. As a result, the bank has received irrevocable undertakings from 15% of the shares in support of the offer.
Renewi said:
The board remains confident in Renewi’s prospects as a pure-play market leader in Europe’s most advanced recycling markets. The board is also confident in Renewi’s strategy and execution plan to deliver a step change in margins and cash flow. That said, the board has also carefully balanced the likely value creation from the continued delivery of Renewi’s strategic plan against the various risks faced by Renewi, the strong value crystallisation in cash at a meaningful premium to the current Renewi share price and the views of Renewi shareholders.
Accordingly, the board of Renewi has concluded that the proposal outlined above is at a value that the board would be minded to recommend to Renewi shareholders, should a firm intention to make an offer … be announced on such financial terms, subject to the agreement of all other terms and conditions of an offer. As such, the board has agreed to provide Macquarie with access to confirmatory due diligence.
Macquarie agrees £700m deal for UK-listed waste firm Renewi
In other takeover news, the Australian investment bank Macquarie has just agreed to buy the UK-listed waste management company Renewi for £700m.
Macquarie is paying 870p a share in cash, the companies said in a joint statement. It is billed as a “final possible offer”.
Macquarie had walked away more than a year ago after its 810p a share offer was rejected, but has returned.
Renewi shares jumped by nearly 43% to 795p on the news.
Renewi has sold its UK operations, and mainly operates in the Benelux countries. It is listed on the London stock exchange’s FTSE 250 and Euronext Amsterdam.
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Direct Line shares are still rocketing, now up by nearly 41% to 223.6p.
Insurance analysts William Hawkins, Darius Satkauskas and Michele Ballatore at Keefe, Bruyette & Woods said:
We are always cautious about the bidder’s curse, but we believe Aviva’s approach to Direct Line is strategically coherent, could offer considerable synergies, and is currently highly financially attractive.
The main risk for Aviva is that it seems to be stretching an already below-average solvency ratio, so any further generosity would need to come from shares. We can see an offer rising from the current 250p to around 300p.
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Jefferies analysts Philip Kett and James Pearse said they believe that “a higher offer might be forthcoming if the board considered engaging with Aviva”.
Direct Line has rejected its third bid this year, this time from a new suitor, Aviva, who in offering 112.5p in cash and 0.282 new Aviva shares values Direct Line at 250p per share.
Given that this is a relatively small uplift from the previous two offers, and the consideration is similarly split between cash and shares, we are unsurprised that the bid was rejected.
Previously, we suggested that the capital and expense synergies available to an acquirer mean that an offer of at least 270p would be more realistic. With this in mind, while we agree with Direct Line’s rejection of the offer, we do believe that a higher offer might be forthcoming if the board considered engaging with Aviva.
Peel Hunt analyst Andreas van Embden described Aviva’s offer as reasonable, but could be sweetened to up to 265p a share.
The offer is reasonable, in our view, discounts Direct Line Group (DLG’s) full recovery potential, and includes a bid premium in our view.
The rejection of Aviva’s proposal reflects the board’s confidence in DLG’s standalone outlook but we still believe engaging with Aviva makes sense.
Aviva could be persuaded to sweeten the deal to 260p-265p, which may help satisfy the DLG board. There is downside risk to DLG’s standalone strategy and retaining some upside in an Aviva-DLG combination could be an attractive proposition, which is worth exploring in our view.
Direct Line shares have rocketed on the news, rising by 39% to above 220p.
Van Embden added:
He said despite Direct Line’s healthy capital position, the recovery could be “bumpier than anticipated earlier this summer”.
Engaging with Aviva to fully explore their offer in more detail would make sense in our view.
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Matt Britzman, senior equity analyst at Hargreaves Lansdown, said:
Direct Line is playing hard to get, again, as the board rejects a tentative takeover offer from Aviva on the grounds that the 250p per share on the table significantly undervalues the company. It’s not a clean offer; the 250p would be split half as cash and half as Aviva shares, which always makes things a little more complicated.
Direct Line is no stranger to takeover offers, having rejected multiple attempts from Belgian insurer Ageas earlier in the year. There’s a case to be made that Aviva is a better suiter, given it already shares markets with Direct Line in the UK, but it’ll need to up its game - and its offer - if it wants Direct Line to take the proposal seriously.
Direct Line shares jump 38% after Aviva's £3.3bn offer
Direct Line shares jumped as much as 38%, after news last night that Aviva has swooped on it with a takeover approach – which Direct Line has rejected.
Meanwhile, Aviva shares have fallen by 2.7% at the open, making the UK’s largest insurer one of the biggest losers on the FTSE 100 index this morning. Rival insurer Admiral is the biggest riser on the FTSE 100, up by 3%.
Direct Line shares are the top riser on the FTSE 250 index, rising above 218p, still some way below the indicative bid price of 250p.
Aviva has offered to pay 112.5p in cash plus 0.282 new Aviva shares for every Direct Line share, making the offer worth 250p a share, based on Aviva’s share price at 488p a share on 18 November, the day before it made the takeover approach.
Direct Line has rejected the indicative offer as “opportunistic,” but some analysts disagree.
Panmure Gordon analyst Abid Hussain said:
We believe that an offer at around 250p per share or slightly above is good for Direct Line shareholders.
The offer represents a 60% premium to Direct Line’s shares on 18 Nov. Or 57.5% premium to close yesterday.
Direct Line is in the middle of a turnaround after a string of profit warnings and a new management team – largely ex Aviva including the CEO Andy Winslow and CFO Jane Poole), some of whom have not even started yet.
Hussain said:
The Competition and Markets Authority will have a view on the combined group BUT we assume that Aviva have considered this and have discounted it as being an issue. We understand that the combined motor market share would be less than Admiral’s but in home, where Aviva has a market share of 12%, the combined group would be No.1.
No cost savings/ synergies have been disclosed but we assume at least 10% as being a likely figure. Aviva have stated that cost synergies will be in excess of the £100m cost savings that Direct Line have previously identified itself.
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Introduction: UK consumer confidence remains weak after budget as Christmas approaches
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Confidence among British consumers has remained weak as Christmas approaches.
More people worry about the state of the economy than before the autumn budget, according to the British Retail Consortium’s latest survey. A measure of consumer expectations for the next three months worsened slightly to -19 in November, from -17 in October.
At the same time, people’s expectations for their own personal financial situation improved slightly to -3 this month from -4 in October.
Personal retail spending expectations improved slightly ahead of Christmas, to +3 from +2, while personal spending overall remained at +17, and personal saving stayed at -9.
Helen Dickinson, the BRC’s chief executive, said:
There was little shift in consumer confidence since the chancellor’s budget, with many worried about the economy in the lead up to Christmas. While there was a very slight improvement in people’s expectations of their personal financial situation, this was offset by declining expectations of the wider economy.
Personal retail spending remained positive, edging up slightly, though this was to be expected as consumers prepare for the festive season. Within this, non-food spending expectations remained low, though expectations of spending on eating out improved the most out of all categories, as people prepare for Christmas catchups with friends and relatives.
The last month clearly did little to shift the dial for households either positively or negatively, however, the same cannot be said for the retail industry. With over £7bn in additional costs in 2025 resulting from the budget, retailers will have little choice but to raise prices or reduce investment in jobs and shops. To mitigate this, government must ensure that changes to the business rates system, planned for 2026, bring about a meaningful reduction in bills for all retailers.
Last night, Aviva, the UK’s biggest insurer, revealed that it had made a £3.3bn approach to buy its smaller UK rival Direct Line – but was rejected.
Let’s see how the shares respond when markets open at 8am. We’ll monitor any developments.
The Agenda
9am GMT: European Central Bank general council meeting
9am GMT: Spain inflation for November (forecast: 2.4%, previous: 1.8%)
11am GMT: Eurozone consumer confidence final for November
2pm GMT: Germany inflation for November (forecast: 2.3%, previous: 2%)
