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CEO Daily: Thursday, 21st July

Good morning.


No company had a wilder ride in 2015 then Glencore, the Swiss-based trading and natural resources company, which ranks number 14 on our new Fortune Global 500 list, down from 10 last year, but still above better known behemoths like AT&T, Chevron and GE. Its stock dropped a stunning 87% below its 2011 IPO price before recovering to be 60% below today — making it the poster child for excessive market volatility.


The company was born out of mystery and notoriety – it emerged from the trading empire of Marc Rich, who was indicted in the U.S. in 1983 on charges of tax evasion, racketeering, and trading with the enemy, then famously pardoned by President Clinton on the last day of his presidency. It operates in many of the most troubled corners of the world – Russia, Equitorial Guinea, Cameroon, Chad – and has faced criticism from NGOs and watchdog groups for its opaque dealings.


But the company decided to open up to Fortune’s Vivienne Walt for our Global 500 issue. We are publishing her story online this morning. I endorse it with a great deal more enthusiasm than Ted Cruz endorsed Donald Trump last night.


More news below. Enjoy the day.



Alan Murray

Top News

States of Emergency (Compare and Contrast)

Turkey’s President Recep Tayyip Erdogan declared a state of emergency lasting an initial three months in response to the failed coup attempt last weekend. That will allow him to rule by decree, free from the interference of the Constitutional Court. Opposition figures fear that he will use the powers to break with democracy completely (Saudi Arabia’s former King Abdullah once recalled Erdogan as saying that he viewed democracy as a bus ride – “When I reach my stop, I’ll get off”). Erdogan has already ordered the arrest, dismissal or suspension of 60,000 people since the coup attempt. He defended his action by pointing to Francois Hollande’s decision to extend its state of emergency by another three months in the wake of the terror attack in Nice. A row with the U.S. is simmering, over Erdogan’s demands that it extradite exiled cleric Fethullah Gulen, whom he accuses of orchestrating the coup. So far, the State Department has not acknowledged receiving a formal request for extradition, which would require hard evidence. FT, metered access

The DoJ Clears Megabrew Merger

The Department of Justice cleared the $106 billion takeover of SABMiller by AB Inbev, which will create the world’s biggest brewer. That leaves China as the only major jurisdiction still to clear the deal, and the biggest antitrust obstacle there has already been solved by SABMiller’s sale of Snow, the world’s biggest selling beer, to a local rival. The DoJ insisted that AB Inbev limit the incentives it gives to independent distributors, a nod to craft brewers who had complained that this put them at an unfair disadvantage. SABMiller’s shareholders are due to vote on the deal today, and some activist investors are trying to force a last-minute rejection as the sterling-denominated cash part of the offer has lost over 10% of its dollar value since the Brexit referendum. Only strategic shareholders have the option to be paid in AB Inbev shares. Fortune

Boos for Cruz and Nuts to NATO

Ted Cruz opened the 2020 Republican presidential nomination race at the Republican National Convention, a full four years before everyone expected it to start. Cruz was booed off the RNC stage after pointedly omitting to endorse Donald Trump as a candidate. The 2016 nominee, by contrast, didn’t disappoint: he pledged to scrap NAFTA unless the U.S. could extract better terms from Canada and Mexico, and warned the U.S.’s European allies in NATO that the U.S. may not defend them unless he was satisfied they had fulfilled their own Treaty obligations. Estonia, which has fulfilled its commitments on defense spending ever since joining NATO and dispatched troops to NATO operations in Afghanistan, reacted with horror. Fortune

Musk’s Visionary (or Diversionary?) Master Plan

Elon Musk published his “master plan part 2” in a blog post, disclosing a wide-ranging vision for his companies that included new Tesla vehicles (notably, SUVs and pick-up trucks), car sharing, urban planning concepts (think: autonomous buses), and a combined SolarCity and Tesla that would sell solar panels and batteries. Musk, who is the largest shareholder in both Tesla and SolarCity, emphasized that the companies must be joined in order to efficiently make and sell solar panels and batteries (many of Tesla’s shareholders begged to differ, at least to start with). As has been the case in the past, the excitement of seeing a visionary map out the future is tempered by the nagging suspicion that it may be intended to deflect from attention from other, material problems in the here and now (sales performance and Autopilot).  FT, metered access

Around the Water Cooler

Joy Global Succumbs to the Almighty Yen

Joy Global, the Milwaukee, Wi.-based maker of mining equipment, is being bought by Komatsu, its larger Japanese rival, for $2.9 billion (and another $800 million in debt), a deal brewed over two years of low commodities prices and brought to a head by the surge in the buying power of the yen over the last few months. CEO Tetsuji Ohashi said the time was right for the deal because “the mining market is near the bottom now.” The deal isn’t anywhere near as big as SoftBank’s acquisition of ARM Holdings, but is another illustration of the constant pressure on Japan’s corporate sector to grow through acquisitions—a task made easier for them when global financial markets have to unwind ‘carry trades’ in a hurry in one of their regular bouts of risk aversion. The yen, which has risen 15% against the dollar in the last eight months, strengthened again today after Bank of Japan Governor Haruhiko Kuroda ruled out the use of “helicopter money” to address the country’s deflation problem.  Reuters

A Stress Test for Draghi

The European Central Bank will hold a regular meeting of its policy-making council today, followed by Mario Draghi’s press conference. There’s no actual policy move expected (except, perhaps, a broadening of the basket of assets that qualify for its quantitative easing program), but Draghi will have to spell out in some detail what he thinks about the consequences of Brexit, and—even more sensitively for a former Bank of Italy governor—the parlous state of the Italian banking system a week before the ECB publishes the results of this year’s stress tests. On the subject of Brexit, U.K. Prime Minister Theresa May met German Chancellor Angela Merkel for the first time Wednesday, producing some encouraging mood music but nothing more. Bloomberg

Terror Casts a Long Shadow Over Airlines

Shares in European airlines fell sharply after EasyJet, one of two discounters that dominate the short-haul market, put out a shocking set of figures for the three months to June 30 and declined to give a forecast for its full-year profit. The Brussels terror attacks, the so far unexplained Egyptair crash, widespread French air traffic control strikes and (how could we forget?) the Brexit effect all contributed to drive down overall revenue and other key numbers, despite a 5.8% increase in passengers. By late morning in London, its shares were down 6.5% (they’re now down by a third since the Brexit vote), while RyanAir was down 4.2%, ICAG (the parent group of British Airways and Iberia) down 3.9% and Air France-KLM was down 4.7% Fortune


Making a Point to HSBC

HSBC’s top foreign exchange trader was arrested at JFK airport and held overnight in a Brooklyn jail after the DoJ unsealed a probe into the suspected ‘front-running’ of client orders in 2011. Front-running is the practise of trading on your own account immediately before you execute a deal for a client that you know will move the market. The practise has been endemic over the years but hellishly difficult to prove in court, which makes the authorities’ move particularly eye-catching. The arrest comes only days after a Congressional report exposed the amount of lobbying done behind the scenes to ensure that HSBC escaped criminal prosecution for the laundering of drug money for Mexican cartels—an episode that provoked accusation that the bank was “too big to jail.” Bloomberg