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U.S. consumer sentiment jumps as confidence around the economy rises

Sentiment in the U.S. rose more than expected this month as consumers felt more confident about current and future economic conditions, according to preliminary data released Friday by the University of Michigan.

The September print on consumer sentiment rose to 92 from 89.8 in August, the university’s Surveys of Consumers data showed. Economists polled by Dow Jones expected sentiment to rise to 91.  The current economic conditions index also rose to 106.9 from 105.3.

However, while consumers feel more confident about the economy, worries about the impact of tariffs on the economy increased in early September. Richard Curtin, chief economist for the Surveys of Consumers, said 38% of all consumers made “spontaneous references to the negative impact of tariffs, the highest percentage since March 2018.”

“Those who negatively mentioned tariffs also held more negative views on the overall outlook for the economy as well as anticipated higher inflation and unemployment in the year ahead,” Curtin said.

China and the U.S. have been embroiled in a trade war since last year with both countries slapping tariffs on billions of dollars worth of their goods.

However, sentiment around U.S.-China trade relations improved this week after President Donald Trump said he is open to reaching an interim deal with the Chinese. China will also reportedly exempt some U.S. agricultural products from tariffs.

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London Stock Exchange rejects Hong Kong’s $37 billion takeover bid

The London Stock Exchange has roundly rejected Hong Kong’s $37 billion takeover bid, saying it was too low, politically risky and lacked strategic merit.

In a strongly worded statement Friday, LSE’s board said it “unanimously” rejects this week’s conditional proposal from Hong Kong Exchanges and Clearing (HKEX).

LSE (LNSTY) added that it sees “no merit in further engagement” because of the offer’s “fundamental flaws.” The London exchange said it remained committed to its acquisition of financial data provider Refinitiv.

Analysts had widely expected the HKEX bid to fail, given worries about Chinese influence over vital financial infrastructure and concerns about reduced competition.

HKEX responded in a statement that said it “continues to believe that the proposed combination … represents a highly compelling strategic opportunity.”

The Hong Kong company suggested that it could now make a hostile bid that would allow investors in LSE to choose between an improved offer and the planned purchase of Refinitiv.

“HKEX believes that shareholders in LSE should have the opportunity to analyze in detail both transactions and will continue to engage with them,” the statement said.

Analysts at Citi said in a research note that they expect a second offer from HKEX that includes more cash and improved terms. But they warned that regulatory hurdles still threaten any deal.

Exchange concerns

LSE chairman Don Robert said the exchange was “surprised and disappointed” that HKEX (HKXCF) published its “unsolicited proposal within two days of our receiving it.”

The unexpected bid was published Wednesday, suggesting that LSE received the offer on Monday.

The transaction posed serious risks and lacked value for shareholders, Robert said in a letter addressed to the chairperson and CEO of HKEX.

HKEX’s relationship with the Hong Kong government would “complicate matters,” making it “highly uncertain” that necessary approvals would be obtained, Robert said.

The Hong Kong government directly appoints half of the HKEX board, according to its website. And the chairman’s appointment must be approved by Hong Kong’s chief executive, Carrie Lam.

Robert also raised concerns about continued social unrest in Hong Kong, saying the “ongoing situation” in the territory adds to uncertainty.

For shareholders, the proposition was unattractive given that they would be paid mostly in HKEX shares, Robert said.

“We see the value of your share consideration as inherently uncertain,” said Robert. “Furthermore, we question the sustainability of HKEX’s position as a strategic gateway in the longer term.”

The proposal would be a “backward step” for LSE strategically, given the high geographic concentration of HKEX’s portfolio.

“We do not believe HKEX provides us with the best long-term positioning in Asia or the best listing/trading platform for China,” he said, noting that LSE values its current partnership with the Shanghai Stock Exchange.

Even if the proposal were deliverable, it fell “substantially short” of an appropriate valuation for a takeover of LSE, “especially when compared to the significant value we expect to create through our planned acquisition of Refinitiv,” Robert said.

HKEX’s offer was conditional on LSE terminating its proposed acquisition of Refinitiv, announced only last month. That £22 billion ($27 billion) deal is aimed at transforming the LSE into a global markets and information juggernaut to rival Michael Bloomberg’s financial data empire.

LSE’s forceful rejection was aimed at discouraging HKEX from pursuing the deal any further, rather than dissuading a third party from getting involved, Chris Turner, an analyst at Berenberg told CNN Business.

Berenberg has previously highlighted CME and Intercontinental Exchange, which owns the New York Stock Exchange, as other potential suitors. ICE had previously mulled a bid for LSE in 2016.

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House to vote on bipartisan cannabis banking bill this month

The House will vote later this month on a bipartisan bill that will allow cannabis businesses access to the federal banking system.

House Majority Leader Steny Hoyer intends to bring the SAFE Banking Act to the House floor for a vote this month, his office confirmed to CNN.

Hoyer announced at the whip meeting Thursday on Capitol Hill that he would like to advance the legislation, according to his office.

“We’re discussing it with members, but it hasn’t been scheduled just yet,” Mariel Saez, a spokesperson for Hoyer, told CNN via email.

The SAFE Banking Act would provide protections for banks that work with marijuana companies since the substance is still illegal under federal law, despite several states having legalized medical or recreational marijuana.

The House Financial Committee voted 45-15 in favor of the bill in June. In May, when movement on the bill had stalled, a bipartisan group of attorneys general from 33 states and five territories urged Congress to pass it.

Green Bits, a group that has been advocating for the bill, praised Hoyer’s move.

“Any legislation that allows federally regulated financial institutions to enter the cannabis sector will be a huge step forward,” said Hiro Taylor, director of business development at Green Bits. “For the sector to reach its full potential responsibly, all players in it, including federal and state governments, need to be able to operate with greater transparency, efficiency, and safety regarding payments. A bill that helps to instill those qualities into the sector is very much needed.”

A companion bill in the Senate, introduced by Democratic Sen. Jeff Merkley of Oregon and Republican Sen. Cory Gardner of Colorado, has yet to be voted out of the Senate Banking Committee.

The committee, however, held a hearing in late July on the challenges faced by the cannabis industry in banking, and considered the SAFE Banking Act.

Committee Chair Mike Crapo, who does not support the federal legalization of marijuana, told Politico he would hold a vote on cannabis banking legislation, but he left open whether he would work off the SAFE Banking Act.

“We’re working to try to get a bill ready,” the Idaho Republican said in an interview published Thursday. “I’m looking to see whether we can thread the needle.”

He added, “We may craft our own bill or we may work with them to craft any amended legislation.”

Gardner said he looked forward to working with Crapo and Merkley to solve the issue.

“The Banking Committee hearing in July helped to clarify the challenges created by the dysfunctional approach our nation has taken to cannabis, and I’m glad the committee is taking a serious look at this issue I’ve been working to resolve for years,” Gardner said in a statement from his office.

Democrats who support the bill lauded Crapo’s decision.

“Sen. Merkley is looking forward to having a Senate vote on this important issue soon, and is grateful to Chairman Crapo for moving the process forward,” Martina McLennan, a spokesperson for Merkley, said in a statement provided to CNN.

McLennan said Merkley hopes the committee will use the work he and Gardner have done “as the starting point for any debate and vote in the Senate.”

Democratic Rep. Ed Perlmutter of Colorado, who introduced the House bill, said he welcomes Crapo’s “commitment to resolve the banking conflicts that have been created by the misalignment in state and federal law on the issue of cannabis.”

“I remain focused on passing the SAFE Banking Act out of the House and look forward to working with my colleagues in the Senate as they take up the SAFE Banking Act or work to develop and pass similar legislation,” Perlmutter said in a statement Friday.

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U.S. budget deficit in August totals $200 billion, on track to post nearly $1 trillion gap in 2019

The numbers: The U.S. federal government posted a budget deficit of $200 billion in August, keeping the U.S. on track to tally a nearly $1 trillion gap in 2019.

The deficit fell almost 7% from $214 billion in the same month a year earlier, according to Treasury figures released Thursday.

What happened: Government spending dipped 1.1% in August to $428 billion compared to a year earlier, while tax receipts rose 4% to $228 billion.

The government collected $7 billion in customs duties in August, bringing the total in fiscal 2019 to $64 billion.

These duties have surged after the Trump administration imposed stiff tariffs on Chinese goods amid an ongoing trade dispute, but the spat has also contributed to a slowdown in the global and U.S. economies.

By contrast, the U.S. collected $36.7 billion in custom duties through the first 11 months of the prior fiscal year.

Big picture: The budget deficit reached $1.07 trillion in August, but the deficit almost always falls sharply in the last month of the fiscal year in September.

The full-year deficit is expected to total around $960 billion, based on the most recent estimates from the Congressional Budget Office.

A rising government deficit can lead to higher interest rates, but that hasn’t been the case this year. The yield on the 10-year Treasury yield stands at just 1.79%, well below last year’s peak of 3.23%.

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U.S. and China Are Growing Hungry for a Trade Deal

There’s nothing like an empty stomach to focus your mind. That may be driving the trade talks between the U.S. and China as close to a truce as they’ve been in months.

China is considering renewed imports of U.S. products such as soybeans and pig meat which have been under unofficial embargo as a result of the trade war, Bloomberg News reported Thursday. That would be a gesture of goodwill ahead of the next round of bilateral talks and may take the edge off pork prices, which rose 47% from a year earlier last month. 

President Donald Trump is in a similarly forgiving mood, promising Wednesday night to delay a slice of tariffs worth about $12.5 billion:

Could we be on the verge of a breakthrough?

There are certainly signs that the pressure of recent months is starting to weigh on both sides. China suffers a perpetual three-year boom-bust cycle in pork prices, as we’ve written, but this year the effects of culling animals to stop the spread of African Swine Fever have caused the biggest price spike since 2011.

Solving the protein shortfall has clearly been preoccupying the country’s leadership. U.S. pork imports are restricted because of China’s ban on a feed additive common in America. Imports of U.S. soybeans, a crucial high-protein ingredient in animal feed, have also been limited by government diktat, as well as by the destruction of much of the U.S. crop in floods earlier this year.

Beijing’s concern extends all the way to Brazil, which recently overtook the U.S. as the biggest soybean producer and is a major meat exporter as well. President Jair Bolsonaro is expected to visit China in October and President Xi Jinping will return the gesture the following month, Bolsonaro’s vice president said Monday. China also authorized an additional 25 meat-packing plants for exports, bringing the total to 89, Reuters reported.

That’s a remarkable love affair by the standards of Beijing’s prickly diplomacy, as Bolsonaro has gone out of his way to antagonize China since starting his campaign for the Brazilian presidency.

More changes are afoot just across Brazil’s southern border. Argentine soy crushers will finally be able to export soy meal to China after 20 years of talks, Bloomberg News reported this week. That could mean China-bound shipments for the world’s biggest exporter of animal feed from early next year.

The way China is moving on agricultural trade with South America suggests Beijing has a long-term plan to reorient its agricultural import dependence toward smaller countries that it has a better chance of dominating diplomatically. At the same time, there’s clearly also a short-term problem around food supplies generally, and taking the foot off the brake on U.S. imports can only help.

The hunger in the U.S. is more metaphorical, but no less real. The farm belt’s loyal Trump voters are hurting. Net farm income will increase this year by about 4.8%, the U.S. Department of Agriculture forecast last month, but the figure would be in decline were it not for a $5.8 billion increase in direct government payments, which will amount to about 22% of the $88 billion total income. 

Low interest rates over the past decade have ensured that bankruptcy rates for U.S. farms have remained relatively subdued, but less catastrophic measures of financial stress suggest money is getting tight. Working capital in the sector, which was as high as $165 billion in 2012, is forecast by the USDA to fall to $57 billion this year, its worst level in 11 years of records. As a share of gross revenues, that’s just 13%, also a record low.

The risk is that a deepening trade conflict could push things to the point where government subsidies aren’t enough to support the sector. A gradual retreat of Chinese demand could hollow out the U.S. farm belt, the way the trade boom of the 2000s decimated their near-neighbors in the rust belt. Much of America’s industrial heartland is already suffering recessionary conditions as the trade war drags on. 

A revival of the farm-focused deal that the two sides were working on before talks broke down in May would at least slow China’s pivot away from dependence on U.S. agricultural exports, and keep up food supplies to that country’s 1.39 billion people. What this dispute’s been lacking hunger for a deal. Now we may finally be seeing it.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

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