GBP/JPY jumped sharply higher in Asia this morning to 140.40 before falling to 139.70 buffeted by politics, takeovers and reduced liquidity due to a Tokyo holiday. Expect the FTSE 100 to open higher.
Currencies: According to business media, SoftBank of Japan is expected to announce it is acquiring ARM Holdings (LON:ARM) of the Uk for £23.40 Bn, a 43% premium on a market cap of £16.70 Bn. The deal will apparently be all cash.
As the saying goes, “fortune favours the bold” and this represents the first major M&A deal for the UK post-Brexit vote. Given the deal will be all cash apparently it may also go some way to explaining the price action in both GBP and USD/JPY (and thus GBP/JPY), last week. Particularly the spike to 1.3460 in GBP/USD. With most of these M&A type flows, the acquirer would almost certainly have done most of their funding and/or FX before announcing for obvious reasons! In this case, Softbank should need to theoretically buy or have bought £23.40 and sell JPY.
GBP last week
USD/JPY LAST WEEK
NB The matching timing of the GBP/USD and USD/JPY “spikes”. GBP/JPY M&A flow?
GBP/JPY has rallied an impressive 12 big figures from its lows post-Brexit vote. It was given an extra shot in the arm initially this morning opening at 138.80, as a semblance of stability returned to Turkey after the events of the weekend. Rumours of the SoftBank buy began swirling early doors today and we saw GBP/JPY race 140.60 before settling back to 139.70. A Tokyo holiday today has reduced liquidity and probably exacerbated the moves.
Looking at the hourly chart, cloud support lies at 139.30 with the top of the cloud at 140.30. One would imagine as Europe comes in that dips will be initially bid.
FTSE 100: This should also get another shot in the arm this morning on this deal. Although ARM Holdings is a unique company in the UK Index with a truly global span, the street should look at this deal as a vote of confidence by at least one major foreign company in the UK’s prospects going forward.
Expect the UK100 to test 6700 resistance on the open with a daily close above for telling further progress towards 6760 initially. Bigger picture 7000 congestion area remains heavy resistance with support at 6470 where the 100 and 200-day moving averages meet.