Presented by the Financial Times

Hi John, here's what you need to know for November 20th in 3:15 minutes.

⏳ Keep it brief

• Deutsche Börse may bid for the Madrid stock exchange, leading to a three-way bidding war
• Home Depot shocked investors by reporting a weaker-than-expected sales forecast for this quarter

Three’s A Crowd

What’s Going On Here?

Spain’s BME, home of the Madrid stock exchange, has been the center of attention this week: Germany’s Deutsche Börse and the Netherlands’ Euronext are both reportedly considering proposing mergers, while Switzerland’s SIX Group made its bid official.

What Does This Mean?

Stock exchanges make money whenever anyone makes a transaction on them, so it follows that those with the most activity tend to earn the most. But trading has become increasingly computer-driven, which in turn reduces the amount of trading investors actually do. In an effort to grow bigger, then, exchanges are having to team up and eliminate duplicate costs, as well as bolt on pricey extra data services. That’s why London Stock Exchange bid on Refinitiv this summer (tweet this).

For now, only SIX has made an official bid for BME. But Euronext has high hopes since it shares a similar regulatory framework as BME as part of the European Union – and Deutsche Börse may yet jump into the fray with the same thinking.

Why Should I Care?

For you personally: More investors mean a party.
Investors hoping to profit from BME’s stock will have to judge whether higher counter-offers will be forthcoming, as well as whether the merger’s likely to win regulatory approval. If they’re skeptical, they may prefer to bet BME’s price will fall than to buy its stock. But investors on both sides have challenges: professional merger and acquisitions investors know regulators’ whims and companies’ workings inside out – and some have algorithmic trading programs which react instantly to new developments.

For markets: Stock exchange trade thyself.
BME’s stock rose 40% after SIX announced its bid earlier this week, and there was good news for publicly listed suitors Euronext and Deutsche Börse’s stocks too. Usually, a buyer’s share price falls because the company uses up resources and takes on the risk that the deal won’t work out. But both stocks have risen this week, suggesting investors think this merger’s worth the risk.

Got a question about this article? Ask us here

Broken Home

What’s Going On Here?

Investors were left out in the cold after home improvement retailer Home Depot reported weaker-than-expected quarterly sales growth on Tuesday, as well as a dilapidated forecast for the rest of 2019.

What Does This Mean?

Home Depot’s third-quarter sales in existing stores grew 3.6% compared to the same time last year. But that was lower than the almost-5% growth investors had forecast, and it led to lower revenue than predicted. The company’s forecast for the rest of the year, meanwhile, crumbled beneath investors’ feet: it now thinks it’ll grow annual sales by 1.8% from last year, rather than the 2.3% growth it’d previously promised. That’s the second time in a row Home Depot’s lowered its earnings forecast…

Why Should I Care?

For markets: Deadwood.
If Home Depot had blamed its lower forecast on penny-pinching customers, investors – even those who don’t own Home Depot’s stock – might’ve been encouraged to ditch other retailers’ shares. But the company instead pointed the finger at falling lumber prices, which limit how much it can charge for its wooden wares. Its investors reckoned with this year’s lower earnings and sold the company’s stock on Tuesday, sending it down 6%. Rival Lowe’s will report its own third-quarter update on Wednesday, and investors – likely anticipating similarly bad news – pre-emptively sold its shares too: they fell 2% on Tuesday.

The bigger picture: Gimme shelter.
When houses are being bought and sold at a brisk pace, homeowners are likely to splash out at Home Depot and Lowe’s on sprucing up their property. But housing data released this week showed the confidence of single-family homebuilders declined this month. Sales of new and existing homes, meanwhile, have been falling despite lower mortgage rates – which make borrowing cheaper and should therefore encourage homebuying. Still, the number of new houses being built is growing (albeit slower than predicted), which might mean some rising demand for Depot and co’s products.

Got a question about this article? Ask us here