WEEKLY FAYRE – Monday, 14th September 2020

September 14, 2020

Whose woods these are I think I know.

His house is in the village though;

He will not see me stopping here

To watch his woods fill up with snow.

 

My little horse must think it queer

To stop without a farmhouse near

Between the woods and frozen lake

The darkest evening of the year.

 

He gives his harness bells a shake

To ask if there is some mistake.

The only other sound’s the sweep

Of easy wind and downy flake.

 

The woods are lovely, dark and deep,

But I have promises to keep,

And miles to go before I sleep,

And miles to go before I sleep.

Robert Frost – poet – 1907-1973

 

Though the weekend started poorly for me, when Fulham were handed a reality check by Arsenal on their return to the Premiership in a 0-3 demolition job at the Cottage, it ended brilliantly with an exciting win by England in the second ODI at Old Trafford, when Australia capitulated in a brilliant fight back by England, when all seemed lost, thanks to outstanding bowling from Archer, Woakes, the Curran brothers and Rashid and some inspired captaincy by Eoin Morgan.

 

INDEX

7thSeptember ‘20

11thSeptember ‘20

% Loss/Gain

FTSE

5799

6032

+4.01%

DAX

12931

13202

+2.10%

CAC

4979

5034

+1.10%

DJIA

28341

27665

-2.39%

S&P 500

3453

3340

-0.38%

NASDAQ

11396

10853

-4.76%

SHANGHAI

3349

3260

-2.66%

HANG SENG

24621

24503

-0.48%

NIKKEI 225

23145

23406

+1.13%

ASX 200

5925

5859

-1.11%

 

Last week global equity markets were dominated by tech stocks, especially those traded from the NASDAQ on the Street of Dreams. Investors were eternally grateful for the massive gains Covid-19 had triggered in such economic adversity, which started in earnest on 23rd March. The likes of Microsoft, Amazon, Apple, Tesla, Netflix, Facebook, and Zoom delivered gargantuan gains beyond anyone’s wildest imagination. However, some of the P/E ratios, up to 75X earnings, were getting a little too rich for many punters’ blood. Surely a reality check was due. Though few felt that this was a replay of the TNT debacle of 2000/2002, many believed it was time to take some risk off the table. No one wanted to feel exposed, like the “boy who stood on the burning deck!”

In the 9 days since the 2nd September 2020, the NASDAQ Composite has shed 9.98%. This, in hard cash terms, represents billions of dollars. No company suffered more than Tesla, which last Wednesday surrendered 21% in one session. That cost Elon Musk personally $16 billion in a heart-beat. Despite that larruping, Musk still has $82.2 billion worth of assets. The founder of SpaceX and The Boring Company has made $54.7 billion this year, less than only Jeff Bezos’ $71.1 billion.

Most of the other significant stories of the week emanated from economic and political issues. The US election now seems to be focusing on Covid-19. We expect Joe Biden to make a huge issue of the 180,000 deaths from this toxic pandemic as well as President Trump’s well-documented and naïve interview with Bob Woodward, playing down the pandemic. Congress has still to agree a full rescue package. The US budget deficit has hit a record high of more than $3tn (£2.3tn), driven by the Government's massive spending on coronavirus relief. The Federal Government spent more than $6tn in the first 11 months of its financial year, including $2tn on coronavirus programmes, the Treasury Department said. Then on Thursday came the dreaded Initial jobless claims. The market was hoping for a measured improvement. Initial Claims filed traditionally through state employment offices were unchanged at a seasonally adjusted 884,000 in the week of 30thAugust to 5th September against estimates of 840,000.

Here in Old Blighty there was ‘trouble at mill’ between the EU’s M Barnier and the UK’s Lord Frost. The EU is demanding the UK ditches plans to alter some nuances in the Brexit deal "by the end of the month" or risk jeopardising trade talks. The Johnson administration wants to rewrite parts of the withdrawal agreement it signed in January. An action of this nature could"seriously damaged trust" and the EU would not be "shy" of taking legal action against the UK. Cabinet Minister Michael Gove said the UK had made it "perfectly clear" it would not withdraw the bill. The Government says Parliament is sovereign and can pass laws which breach the UK's international treaty obligations. This has triggered the wrath and indignation from Messrs Major, Lamont, Howard, and other Conservative luminaries plus Tony Blair, who believe this action could do irreparable damage to the UK’s international reputation. Some cynics believe and are hoping that this spat may be the final throw of the dice, euphemistically known as posturing, in the hope that good sense will prevail by 15th October. We shall see. Certainly, the temperature is at fever pitch. Sterling lost value against the Dollar last week, from $1.3240 to $1.2850 since this political spat materialised.

Every market protagonist was keen to see how the economic recovery had been fairing on Thursday, with GDP numbers for July. We had experienced two modest gains in terms of recovery in May and June; so, the 6.6% increase in growth posted on Thursday was only moderately well received, with 8.7% having been achieved in June.  These numbers remain measurably below pre-covid-19 activity. UK GDP for July came in at -11.7% on an annualised basis and at -7.6% on a quarterly basis. The recovery, according to Bank of England Chief Economist, Andy Haldane and endorsed by some retail data, suggested a ‘V-shaped’ recovery, but Thursday’s data, with industrial production up by 5.2% and manufacturing up by 6.3% and service sector activity was down 12.4%, indicates a recovery more akin to being ‘U-shaped’ rather than ‘v-shaped.’

The outlook for employment looks dire and is likely to be officially endorsed next Tuesday, when the unemployment rate could increase to 4.1% (742k jobs lost since January), with the threat of a 10% unemployment rate and an eyewatering 3.5 million likely to be on the dole by Christmas. At present it stands at 3.9%. Unsurprisingly, Chancellor Sunak was implored by the business community and the Treasury Select Committee to extend the ‘job retention scheme’ beyond the end of October. Mr Sunak agreed to look favourably on a selective basis, especially those struggling in the world of entertainment, hospitality and the self-employed. According to ‘Freedom of Information’ over 300,000 redundancies had already been officially planned in June and July.

UK hospitality has warned that 450k jobs out of 1 million employed in that sector could be lost. Lloyds Banking Group announced 865 redundancies out of a total workforce of 65,000 and Pizza Hut will close 29 outlets out of 244 with 450 redundancies. Pizza Express, owned by China’s Hony Capital will close 73 outlets with the possibility of 1100 redundancy. The list is endless, and the situation will get worse as we head to Christmas.

Mme Christine Lagarde, the President of the ECB, posted a rather benign and uninteresting speech last Thursday. The ECB decided to keep its interest rates and coronavirus-stimulus program unchanged. Her speech made little reference to the growing and increasingly unpleasant Brexit impasse between Brussels and London.

Looking at the table at the top of the page, the drop in the tech sector’s value triggered the losses incurred in the US. However, Boeing also fell circa 5% last week. The virus is failing to rekindle the smouldering embers of activity. Also, Exxon Mobil’s shares fell by 9% last week, as the price of crude dipped due to lack of demand – down 12% since 2nd September to $37.30 a barrel. On the corporate front Peloton doubled its membership to 3.1 million by the end of June. This top of the range treadmill exercise cycle saw revenue up 172% year on year to $607 million, with profits up from $47.4 million to $89 million. The celebrated retailer JC Penney finally found its fairy godfather. The retailer will be acquired by mall operators Simon Property Group and Brookfield Property Partners, avoiding liquidation. Simon and Brookfield will pay about $300 million in cash and assume $500 million in debt to buy J.C. Penney. The deal values the department store chain at $1.75 billion.

The FTSE 100 fared better than some global indices last week. This was probably down to the drop in the valuation of Sterling, with 60% of earnings being Dollar related.  Despite the dispiriting employment data, there were some encouraging earnings reports here in Old Blighty. Royal Mail Group, which has struggled so much in recent years against the advancing importance of the internet posted a 34% increase in parcel deliveries, though letter activity was down 21.5%. RMG’s shares rose 11% on Tuesday. Halfords, the cycle titan saw like for like sales up 5% in the twenty weeks to 21st August. However, CEO Graham Stapleton said the fourth quarter would be challenging. Those who had the vision and foresight to buy Halford shares in the March ‘dip’ at 51p, have been well rewarded – 192p on Friday!

AB Foods’ Primark posted an encouraging recovery last Monday. Bearing in mind that Primark has no ‘on-line’ service, sales were only down 12%, considering their shops were closed for nearly 3 months, that was a decent result. Strip out the four main City emporiums, then sales were only down 5%. Profits for the year are likely to be down 60%. JD Sports, the ‘Darling’ of thestock market in 2019, posted an inspirational recovery, especially on-line – up 25%. Shares rallied by 8.5% last Tuesday. Fever Tree saw profits down from £36.7 million to £23.8 million, but encouraging sales were achieved in the US – up 40% in the last trading period. Since March 2018 shares have fallen from £38 to £21. Wm Morrison, in its interim results statement on Thursday, said that a focus on “improving the customer shopping trip” helped its first half like-for-like sales (excluding fuel) grow by 3%, up from  1.4% growth a year earlier, but lower than the 3.4% growth seen in the first quarter. It appears some momentum has dissipated, and the shares eased by 5% on the day.

Amazon, the world’s largest retailer paid just £293 million in UK tax last year, despite bringing in revenues of almost £14 billion. Amazon’s tax payment represented a 33.2 per cent increase on its £220 million payment in 2018, with the tech wizard stating its corporation tax payment this year was reduced due to increased capital spending, as well as costs relating to research and development.

It looks as though Thomas Cook may rise like a small ‘phoenix from the ashes.’ Now owned by the Chinese conglomerate, Fosum, it will be offering on-line travel services, but no direct involvement in hotels or aircraft.

They say “revenge is best served up cold!” Sir Martin Sorrell may well endorse that sentiment. As Chairman of S4 Capital, he reported its maiden pre-tax profit, only two years after he founded the advertising group. The company reported earnings before tax of £118,000 for the first half, compared with a loss of £8.5 million last year, based on strong digital advertising sales.Underlying revenues rose by 6.9 per cent to £141.3 million after S4 Capital added Paypal, Shopify and the Los Angeles 2028 Olympic Games to its roster of clients.

Some 20% of shareholders in Pearson made fierce objections to its new CEO, Andy Bird’s remuneration of $9 million. He came as a highly prized executive from Walt Disney. It seems an excessive package, but Pearson came looking for Mr Bird. The eagerly awaited £5.4 billion IPO of the Hut Group seems to have courted a certain amount of controversy. The amount of money management and individual shareholders will make, such as founder Matthew Moulding - maybe as much as £700 million and Sir Terry Leahy £82 million - is mind-blowing. However, the corporate governance of the company and the way the remuneration has been decided seems marginally incestuous, with friends and colleagues advising in these matters. These issues will need to be resolved before the issue comes to market on Wednesday.

The Sunday Times informs us that Tata is concerned at the mounting losses that are being currently racked up a £654 million. This under-performance cannot be sustained. Softbank are deep in negotiations to sell ARM holdings to Nvidia for £30 billion, having paid £24.3 billion just four years ago, accompanied by an undertaking that the staff in Cambridge would not only be maintained but also increased. Finally, Boohoo is expected to broaden its brand base by buying New Look for an undisclosed amount. New Look has 11,000 staff and does not want the brand being sold or its shops shut. These are tough times and one suspects New Look is in no position to make demands.

UK companies posting interim results this week – Monday – Abcam, Costain, MJ Gleeson, Tuesday – French Connection, Ventura Group, Wednesday – Redrow, Thursday – Hilton Foods, Kier Group, NEXT, Playtech, Spire Healthcare

US Companies posting interim results this week – Tuesday - FedEx

Economic data to be posted this coming week – Monday – US Consumer Inflation, Tuesday – UK Employment data, US Import & Export Prices, US Empire State Manufacturing, US Industrial Production and Manufacturing output, Wednesday – UK Inflation (PPI, RPI & Core), US MBA Mortgage Applications, US Retail Sales, US NAHB Housing, US FOMC, Thursday – EU Inflation, UK MPC & QE, US Initial Jobless Claims, US Housing Starts, US Phili-Fed, Friday – UK Retail Sales, US Univ of Michigan Consumer Confidence