London Stock Exchange gets the cold shoulder

This is an audio transcript of the FT News Briefing podcast episode: ‘London Stock Exchange gets the cold shoulder’

Marc Filippino
Good morning from the Financial Times. Today is Friday, March 3rd, and this is your FT News Briefing.

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London Stock Exchange has big dreams, but reality keeps getting in the way. And we’ll talk about the wage-price spiral. It’s making central bankers kind of dizzy. But first, western allies are trying to cut off the Kremlin’s supply routes. I’m Marc Filippino and here’s the news you need to start your day.

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Western allies are cracking down on countries and people who are helping Russia avoid sanctions. Officials from Britain, the European Union and the US were recently in the United Arab Emirates. They urged officials in the Gulf state to clamp down on suspected sanctions busting. The US worries that the UAE is becoming a hub for shipping goods like electronics that could be repurposed for Russia’s war effort in Ukraine. Yesterday, a top US treasury official pointed to a rising number of exports from UAE companies to US-designated Russian entities. Western officials also see Turkey and central Asian countries as weak links in the effort to isolate Russia.

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The London Stock Exchange has been trying to become a place where hot companies around the world want to list. But companies — they’re not biting. This week, the Japanese conglomerate SoftBank rejected a London listing for British chip designer Arm. Now, Arm is just going to list in New York. Now, if that wasn’t bad enough, yesterday, the world’s largest building materials company, Ireland’s CRH, said it’s moving its listing from London to New York. CRH said most of its profits come from the US anyway, and it also wants to benefit from US infrastructure investment. To get the view from London about this messy situation, I have the FT’s Katie Martin on the line. Hey, Katie.

Katie Martin
Hey, how you doing?

Marc Filippino
I’m doing well. So, uh, how bad is this for London?

Katie Martin
Ugh, this is a bad look. A bad look for the UK. The thing is, it comes just a couple of days after the FT reported that Shell, the monster, monster, huge oil company has also considered removing its listing from the UK and moving it over to the US. Now, it didn’t go through with it. But the fact that it even had the conversation tells you we have got to do something about our very dusty, old economy, stock market that, you know, is bad enough that we really can’t attract the kind of, you know, whiz bang tech names to list. In London, we appear to be struggling to hold on to the less whiz bang, more, you know, staid and sensible oil companies and building materials companies. If we can’t hold on to them either, yeah, we’ve got a, we’ve got a problem.

Marc Filippino
Yeah, sounds like it. Is the government doing anything to change that? Can they do anything to change that?

Katie Martin
So there’s been, like, numerous efforts to revamp listing rules for the UK or just incentivise companies to list over here. There’s been a gnawing sense in the UK for years that something’s not right here, that we’re not attracting the right kind of companies. And so far, it really doesn’t look like we’ve got much to show for it. What investors are saying to me and to colleagues of mine is that one of the problems is that the pool of investors just isn’t here. And to the extent that we do have investors that are here, they tend to have quite a global focus. We don’t have that really vibrant domestic leaning among domestic investors. So I think there’s going to be a fair amount of soul searching about this move from CRH, which, you know, OK, maybe we haven’t all heard of it. Maybe it’s not everybody’s favourite building materials company. I don’t know. But the fact is it’s a really big name in the FTSE 100 and this is not a great sign that they feel like they’ll get a better reception from investors elsewhere.

Marc Filippino
Katie Martin is the FT’s markets editor. Thank you, as always, Katie.

Katie Martin
Pleasure.

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Marc Filippino
Wages are going up in a lot of countries, which sounds great, right? Well, some economists worry that higher wages could undermine the fight against inflation. The FT’s economics correspondent, Delphine Strauss, has been writing about this and joins me now. Hi Delphine.

Delphine Strauss
Hi Marc.

Marc Filippino
So what’s happening with wages?

Delphine Strauss
So in the US, wages were already growing quite strongly even before inflation really picked up, because ever since the Covid lockdowns lifted, really, there’s been this incredibly hot labour market where lots of companies found they had to offer higher pay if they wanted to hire. So Amazon’s starting wage in the US is now $15. That put pressure on a lot of other companies to match it. Walmart’s just moved to a minimum of $14. But even in the US, wages haven’t grown fast enough to keep up with inflation. It’s been a very similar picture in the UK, although with slightly different reasons.

Marc Filippino
What about the eurozone?

Delphine Strauss
In the eurozone, wage growth has been quite a bit lower. It surprised people, given the pressures. But that’s partly just because the dynamics of wage negotiations are a bit different there. A lot of them are done on a sectoral basis in talks with unions, and those deals can run for a couple of years before they come up for renewal.

Marc Filippino
So, Delphine, what is the worry about higher wages? How does it make it hard to tackle inflation?

Delphine Strauss
As you say, stronger wage growth looks pretty good on the face of it. The trouble from central banks’ point of view is that a wage rise isn’t much use if it just leads to an equivalent rise in prices in the shops. They know that inflation is going to come down on the back of lower energy prices. But what they call core inflation — after you strip out food prices, energy prices — is much more based on the service sector, where prices are really strongly influenced by wages. And that, at the moment, is not looking like such a good trend. If they think they’re seeing inflation becoming self-sustaining rather than something that’s driven by an external shock, they would simply feel they need to jack interest rates up even further than they would do otherwise, keep it there for longer until they see job losses and general economic pain that would effectively make workers too scared to ask for those pay rises and companies too scared of losing customers to put their prices up further.

Marc Filippino
So is there anything that can be done to tame inflation and this wage-price spiral?

Delphine Strauss
I mean, I think it’s the central issue for central banks. So I think central banks are still hoping that they can find this perfect landing zone where job vacancies come down without big job losses. But there are, you know, there are certainly some signs of conflict coming through. And I mean, a lot of the industrial unrest and strikes that you see happening in the UK and in some parts of Europe are sort of showing what can go wrong when workers and employers are tussling between themselves about who pays the price of high inflation. I guess the alternative ideal is that you have mechanisms which allow companies and workers to resolve these issues between them. Some of the wage deals we’ve seen in Germany in the past where they’ve got very well-established procedures that bring unions into the wage-setting process. But we don’t really have those mechanisms in the UK, for sure, in the US at the moment.

Marc Filippino
Delphine Strauss is the FT’s economics correspondent. Thanks, Delphine.

Delphine Strauss
Thanks. You’re welcome.

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Marc Filippino
Before we go, there is more to the humble cabbage than meets the eye. Cabbage farmer, actually the UK’s biggest cabbage farmer — so no small potatoes — has found a way to cold press cabbage to produce protein. Naylor Farms could benefit from growing demand for foods made from plant-based proteins like milks and snacks. They mostly use soy protein now. And since Naylor Farms has just tripled its cabbage productivity, it can grow enough cabbage to make proteins without having to slice into coleslaw supplies. A cabbage protein facility is scheduled to start production at the end of this year or early next year.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Sonja Hutson, Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from David da Silva, Michael Lello and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. And our theme song is by Metaphor Music