WEEKLY FAYRE – Monday, 12th October 2020

October 12, 2020

 

“How do I love thee? Let me count the ways.
I love thee to the depth and breadth and height
My soul can reach, when feeling out of sight
For the ends of being and ideal grace.
I love thee to the level of every day's
Most quiet need, by sun and candle-light.
I love thee freely, as men strive for right.
I love thee purely, as they turn from praise.
I love thee with the passion put to use
In my old griefs, and with my childhood's faith.
I love thee with a love I seemed to lose
With my lost saints. I love thee with the breath,
Smiles, tears, of all my life; and, if God choose,
I shall but love thee better after death.”

 

Elizabeth Barrett Browning – poet – 1806-1861

 

INDEX

5th October ‘20

9th October ‘20

% Loss/Gain

FTSE

5902

6016

+1.93%

DAX

12824

13051

+1.77%

CAC40

4863

4946

+1.71%

DJIA

27825

28586

+2.73%

S&P 500

3367

3477

+3.27%

NASDAQ

11169

11579

+3.67%

SHANGHAI

3216

3272

+1.74%

HANG SENG

24039

24119

+0.33%

NIKKEI 225

23254

23619

+1.57%

ASX 200

5791

6102

+3.64%

 

At the beginning of last week, the public was on tenterhooks waiting for medical reports from the Walter Reed Memorial National Medical Center on President Trump’s Covid-19 condition. By Thursday he had miraculously risen like the Phoenix from the Ashes. Many imagined it was rather akin to Lazarus ‘picking up his bed and walking.’ By Friday he was back in the White House, working from the Oval Office, as if the previous week had been all in a day’s work. The flow from his Twitter account was relentless and as vitriolic as ever – business as usual!

 

As we all know markets rarely head in a straight line. There was a wobble on Wall Street on Tuesday, attributed not only to the President’s uncertain condition, but as to Congress abjectly refusing to agree a much needed $2 trillion stimulus package. Nancy Pelosi, Speaker of the House of Representatives, was at her feistiest. Her utter contempt for the President seems to know no bounds. She believes the relief is far too ‘business-orientated’ rather providing help to those who are out of work or need temporary assistance. By the end of the week, there seemed to be some sign of appeasement and a little hope that a package would be agreed before too long.  This was reflected in a bounce in US stock markets, with large tech operators such as Microsoft, Amazon, Apple, Alphabet, Facebook and Netflix leading the charge. 

 

The FTSE 100 owed its improved performance to some outstanding performances from the likes of Barclays, Vodafone and BT Group, all of whom added circa 7% last week. Who would have believed that Rolls Royce’s shares would have rallied by 93% since last Monday? Amazing how the right financial package – a combination of a rights issue and a bond issue totalling £5 billion – could stimulate such a monster rally! Well done CEO Warren East. This rally was from a very low base. Shanghai was closed for much of the week, enjoying ‘Golden Week,’ but it put in a decent bounce on Friday, in playing ‘catch-up’. The Nikkei 225 soldiered on adding 1.5%, with the Hang Seng’s investors looking slightly rudderless.

 

Even though markets have felt relatively comfortable with the idea of President Trump being re-elected, it appears that outcome seems less likely, in the wake of the damage caused by Covid-19 to the US economy coupled with the President’s unorthodox behaviour. With Biden comfortably ahead in the polls, markets seem to be coping with the prospect of a Democrat administration, though I hasten to add, it is not all over ‘til the fat Lady sings!’ However, a Biden victory could be very unhelpful to the UK. Many are of the opinion that ‘hell has a better chance of freezing over’ than a Democrat administration agreeing a trade deal with the UK.

 

PM Johnson’s obsession with taking medical and scientific advice to the exclusion of economic reality, resulting in so many ‘nips & tucks’ preventing the economy from staying fully open, has clearly contributed to the downturn in the recovery process, posted by recent GDP numbers for August. The economy grew by 2.1% in August, which was pitiful compared to 6.6% in June and 11.7% in July. In August, in a year on year basis, GDP fell by 9.3% against EST of -7.5%. Construction was down by 13%, our beloved service down by 9.5% and industrial output by 6.4% - all worse than expectations. If the government puts tighter controls on the economy, it must expect a drop in the recovery rate. Though Chancellor Sunak will be introducing a revised furlough scheme for those businesses, which have chance of surviving, two thirds of salary with a maximum of £2,100 a month, it is perceived to be inadequate for a limited number of the working community, whilst the economy is in temporary lockdown. The Treasury is not a bottomless pit for money, but the government must let the economy loosen up, especially in the hospitality and service sectors or demands for help will increase dramatically. Panmure Gordon’s Chief Economist Simon French makes a very strong point in saying ‘The new employment replacement scheme looks more like the job retention scheme terms than the job support scheme. It should be more effective in leaning against unemployment. The scheme is temporary and available from 1st November 2020 for 6 months. Claims can be made from December 2020 and will be reviewed in January 2021.’

 

UK car sales fell by 4.4% in September from a year earlier. September is normally a huge month, but only 328,041 vehicles were registered. The BREXIT ‘all-out-war’, which could transpire, if the EU and UK do not improve their resolve to do a deal, will not help the auto industry’s cause in the future. The outlook for retail and cinemas looked grim. Footfall in the UK indicated a 30.1% drop in comparison to September last year, though there was a 4.7% improvement since August. Cineworld is all but closed and with AMC and Cineplex under extreme duress and with entertainment giants such as Walt Disney reluctant to buy one of them, it looks as if ‘streaming’ by Disney, Comcast and Netflix are in the driving seat. Disney, of course, has just made 28,000 redundant from its theme parks, which have remained moribund.

 

It was quite a week for M&A activity last week. The Issa brothers from Blackburn won the hand in marriage of ASDA, buying the majority of shares in this supermarket from Walmart for £6.5 billion, with the Little Rock retail titan maintaining the balance. They see great synergy with their garage empire. Caesar Entertainments completed its takeover of William Hill for £2.9 billion. Hill’s aspiring US venture was the attraction. Caterpillar bought the gas and oil assets of the Glasgow based Weir Group for £405 million. Weir has 14,000 employees and unloading these assets should help the company focus on its engineering prowess. Weir’s share price has fallen 25% since 2014. Premier Oil was involved in a reverse takeover by Chrysaor. Cutting the debt of £2 billion was the cost. Premier had to pull out from its plans to buy BP’sNorth Sea assets. Clearly the drop in oil prices in the summer was Premier’s ‘Nadir’, resulting in most Premier’s shareholders losing much of their value.

 

‘Hovis’ was sold to Newlat, an Italian raider for close to £100 million. TalkTalk, which has 4 million customers, built initially by Carphone Warehouse and troubled with data issues under the stewardship on Dame Dido Harding, is to be bought by Toscafund for about £1.1 billion (97p a share) – rather less than Martin Hughes, affectionately known as Toscafund’s Rottweiler, offer of 135p made last year. TalkTalk’s shares surged by 16% on Thursday. Halifax said house prices rose by 2.3% YTD in July thanks to the Stamp Duty holiday. Prices have risen by 7.3% in the last year. It might be folly to think that this increase will carry on in the wake of massive unemployment, which stares the UK in the face.

 

The London Stock Exchange finally sold Borsa Italianato Euronext for €4.3 billion. The LSE paid €1.6 billion in 2007, when Dame Clara Furse was CEO. With Brexit due, this operation is not very synergistic. The LSE wants to focus as much on data today, as it does on its exchange operation. The deal will go through provided the EU ratifies the purchase of Refinitiv for £28 billion. The Borsa Italiana deal was about the only positive contribution to the LSE, Dame Clara made during her stewardship. She never brought the World to London or took London to the World. She just staved off approaches from all and sundry, which saw the share price go from £5 to £20 and back to £5. The LSE owes so much to Xavier Rolet. Today’s share price is 8880p!!

 

There was plenty of bad news to digest. Edinburgh Woollen Mills, Peacocks and Jaeger are seeking counsel from an administrator, which suggests that 21,000 jobs are vulnerable. Virgin Money has made 400 redundancies post its merger with CYBG – sadly just good ‘housekeeping.’  Greene King will let 800 staff go. They have closed 79 units, and some may never open again. EasyJet posted a £1 billion loss. It is haemorrhaging money on a monthly basis. It needsgovernment assistance. Lufthansa has received €9 billion worth of financial assistance. 

 

It might be novel to end on a positive note. GVC, the owner of Ladbrokes, Corals and many ‘on-line’ gambling operations saw a 30% decline in revenues for the first nine months. However, since July up until September revenues are up 26%, with BetMGM contributing significantly. It enjoys about 17% of US betting traffic. Sergey Segev the CEO who replaced Kenny Alexander after 13 years, posted an upbeat outlook for this gambling empire.

 

Tesco, with a new CEO, Ken Murphy from Walgreen Alliance replacing Dave Lewis last Thursday, posted a 6.6% increase in sales for the last quarter to £26.7 billion, with a profit of £521 million. However pandemic expenses of £533 million took the ‘gilt off the gingerbread.’ Tesco broke through the £2 billion annual profit under Sir Terry Leahy back in 2005. Supermarket business is now so competitive – hence the sluggish performance of Tesco’s shares – down from 255p to 219p YTD – down 14%. The Sunday Times told us that Mukesh Ambani of Reliance Retail was closing in on a takeover of the ailing Debenham’s, prior to the department store being turfed out of its prestigious premises in Oxford Street. However, it was not to be! There was a change of heart!  Debenhamswill probably head into administration. It employs 12,000 people and has 120 shops.

 

UK companies posting interim results this week – Wednesday – ASOS, Barratt Development, PageGroup, Thursday – Domino Pizza, Dunelm, Hays, Mediclinic, Mondi, Rathbones, Friday – JD Wetherspoon, Jupiter Fund Management

US Companies posting interim results this week – Tuesday– Delta Airlines, Blackrock, JP Morgan Chase, Citibank, Charles Schwab, Omnicom, Johnson & Johnson, Wednesday – Alcoa, United Airlines, Bank of America Merrill, US Bancorp, Wells Fargo, UnitedHealth, Goldman Sachs, Thursday – Walgreen Boots Alliance, Honeywell, Morgan Stanley, Friday – Bank of New York Mellon, State Street Bank, Schlumberger, Citizens Financial

Economic data to be posted this coming week – Tuesday UK Average earnings, UK Unemployment Rate (EST: 4.2%)  US inflation (EST: 1.5%), Wednesday – US MBA Mortgage applications, US PPI, Thursday – US Initial Jobless Claims, US Empire State Manufacturing, US Import & Export Prices, Friday – US Retail Sales, US Industrial Production, US Manufacturing, US Univ of Michigan Consumer Confidence