WEEKLY FAYRE – Monday, 15th June 2020

June 15, 2020

“Yes. I remember Adlestrop—

The name, because one afternoon

Of heat the express-train drew up there

Unwontedly. It was late June.

 

The steam hissed. Someone cleared his throat.

No one left and no one came

On the bare platform. What I saw

Was Adlestrop—only the name

 

And willows, willow-herb, and grass,

And meadowsweet, and haycocks dry,

No whit less still and lonely fair

Than the high cloudlets in the sky.

 

And for that minute a blackbird sang

Close by, and round him, mistier,

Farther and farther, all the birds

Of Oxfordshire and Gloucestershire.

 

Edward Thomas – poet & soldier – 1878-1917

 

The EU/UK Brexit negotiations start in earnest on Monday. It seems that Michel Barnier and David Frost have found the preliminaries ‘tough going.’ M Barnier must have found the current talks rather different in style and resolution than he was used to with Sir Ollie Robbins. There is no place at the table for ‘bullying or demanding.’ He is now dealing with a government with an overall majority of 80 seats. With the world in such a parlous economic state, it would surely be sensible for both sides to refrain from briefing against each other, by finding solace with a hostile media on both sides of the argument.

Though most people dislike the idea of ‘no deal’, it is best for all concerned that both parties try to get a deal ratified by the end of the year, with no extension on offer, confirmed by Michael Gove.  It focuses the mind with a degree of urgency.  Threats should be left in their respective brief cases until the talks are at a point of no return.

It is ‘Royal Ascot’ next week, with no pageantry, no crowds and I suspect little in the way of atmosphere. With many horses having their first outings of the year; some having prep races with further classics in mind such as the Derby and Leger, it will be hard to pick winners at a race meeting, which is always the most competitive in the calendar. There is a French horse entered in Commonwealth Cup this Friday – “Wooded.” He is priced up at 10/1. If he runs, I think he will give a good account of himself. He has been out twice this year and won. It is as fit as a butcher’s dog. Others may be ‘ring-rusty!’

 

INDEX

8th June 2020

12th June 2020

% LOSS

FTSE

6484

6105

-5.84%

DAX

12722

11949

-6.08%

CAC

5159

4839

-6.20%

DJIA

27232

25605

-5.97%

S&P 500

3199

3041

-4.94%

NASDAQ

9823

9588

-2.39%

SHANGHAI

2941

2919

-0.74%

HANG SENG

25018

24303

-2.86%

NIKKEI 225

23121

22305

-3.53%

 

Equities were buoyant through to Thursday morning, with the NASDAQ breaching through the 10k barrier for the first time ever – even if only briefly – what incredible performers Amazon, Apple, Alphabet and Microsoft have been over the past decade. Also, by Wednesday evening the DJIA and the S&P had added 40% in value since the recent ‘low’ recorded on 23rd March 2020. Incredibly both were within 7% of their ‘all-time high!’ Then on Wednesday FED Chairman Jay Powell spelt out how dire the economic situation was, on behalf of the FOMC, by indicating he thought ‘hell had a better chance of freezing over’ than rates being meaningfully hiked before the end of 2022.

Then on Thursday US initial jobless claims saw a further 1.5 million people needing benefits, making it a total of 44 million in twelve weeks. When fear that the virus was threatening to spike in certain parts of the US such as Arizona, was added to the toxicity of the situation, it became too much for investors, who took the DJIA down by 6.9%. The S&P 500 by 5%+ and the NASDAQ by 4%. I suppose these days we should get used to the share prices of enormous companies moving by such gargantuan percentages in a day as Boeing -16%, American Express -7%, Caterpillar -8%, Walt Disney -7%, American Airlines -15% and in the UK as Rolls Royce -9%, Carnival -12%, Babcock -7% and easyJet -7% did on 11th June 2020.

However, the ‘bulls’ will just not lie down, which resulted in the DJIA adding over 400 points on Friday. They remain convinced the economy will rebound quickly once the World returns to work.  Nonetheless, as can be seen from the table above the Street of Dreams still managed to surrender an above average amount of value during the week.  

The US was not the only country to “suffer the slings and arrows of outrageous fortune.” The following looked horrible indigestible fayre for investors and analysts to cope with, triggering sharp equity reversals - Eurozone GDP fell by 3.6%, marginally better than -3.8% initially estimated. Banque de France estimated that the economy will shrink 10% this year and will recover mid-2022. German Trade Surplus narrowed significantly to €3.2bn compared to €17.8bn last month, as exports fell 31.1% yoy and 24% mom.  Japan Machine Tool orders collapsed 52.8% yoy and fell 8.7% mom - France posted a €15bn support plan for the aerospace industry warning 100 000 jobs were directly at risk. Then the World Bank forecasted that the global economy would shrink by 5.2% in 2020, the deepest recession since WWII. Then the OECD thinks global GDP will fall by 7.6% in 2020.  This morning EY Item Club anticipated that UK GDP will fall by a spectacular 8% in 2020.

Comment and a forecast on Thursday, made by the OECD, suggesting that the UK was likely to have the lowest GDP reading in Europe of -11.5%, - a smidgen worse than France, Spain and Italy - triggered a negative sentiment for shares. The OECD forecasts from time to time are often fanciful and the year has six months to run. Then on Friday, the UK was hit with a terrifyingly desperate GDP reading supplied by the ONS of -20.4% for April, the worst number for a single month since 1929, worse than the estimate of 18.4%. It should not be forgotten that the OBR had suggested that the 2nd quarter of 2020 could see a -35% fall in economic activity. Panmure Gordon’s Chief Economist suggested that - ‘construction looked like the big beta with sharpest decline (-40%), and potential for the most v-shaped rebound.’ This was followed by Manufacturing -24.3%, Production -20.3%, Services -19%. Anyone who watched Chancellor Rishi Sunak being interviewed on ‘Marr on Sunday’ will have been left in no doubt as to the magnitude of the problem facing the UK economy. Unemployment will spiral unless we get back to work very soon and even then, it may reach very painful levels.

Some believe that April will be the bottom of the trough. Let us hope so. If a decent recovery is to be achieved, the 2-week airport quarantine needs to be reversed PDQ and then the 2 metre social distancing needs to be shortened to one metre to give the leisure industry a chance and most important of all the schools need to return safely to enable the workforce to resume its duties. With the high street reopening this week, hopefully this action will be viewed as a positive move in helping to reignite the economy. However, the process may be slower than people expect.  

The corporate news last week was mixed verging on negative. There were redundancies and liquidations involving the Restaurant Group, who will be shedding 3,600 jobs. Centrica has been unable to raise its game and pull back customers for British Gas since the start of this pandemic and will be making about 5,000 of its workforces redundant. Sadly, it looks like ‘time-out’ for the fashion house, Quiz. Monsoon will loose 545 jobs and will close 35 outlets. Despite the considerable success of Boohoo, shareholders are threatening to do battle with CEO John Lyttle, who is due a £1 million bonus pay-out.

British Airways did not cover themselves in glory according to the Transport Select Committee, which castigated BA’s management for making a calculated attempt to take advantage of the pandemic by making 12k redundancies, having availed itself of £35 million from the job retention scheme, by furloughing 22k staff, whilst at the same time attempting to renegotiate less advantageous employment terms for its employees. Messrs Walsh and Cruz repudiated these allegations. It was interesting to note that BA, Ryanair and easyJet intend to sue the government over this unpopular 14-day quarantine legislation, which threatens to crucify any recovery. Many were quietly amused that BA is selling its art collection, which includes works by Damian Hirst, Bridget Riley, Peter Going, Anish Kapoor, Chris Ofili and Tracey Emin. That should put a few million in the coffers, but a mere bagatelle in the grand scheme of the crisis. Lufthansa has also made 22k redundancies despite a €9 billion bailout, which included a 20% stake in the German airline, which will hopefully be sold back to the taxpayer in 2023.

Ocado has had such a commercially successful pandemic that it has raised a further £1 billion for the development of more robotic warehouses. Unsurprisingly the shares dipped 5% on the news but are still up close to 40% since the start of the year. Whitbread also had a similar ‘fund raising’ scheme which was 91% subscribed. The going has proved much tougher for this hotel titan. Its shares have dropped 44% since the beginning of the year.

The good news this week was provided by Unilever, under Alan Jupe’s leadership. Unilever which has Dove, Marmite, Persil, Surf, Radox, Hellman’s, Ben & Jerry’s, PG Tips and Colman amongst its many universally respected brands, is now a UK quoted company. Head office will not return to Rotterdam as originally planned. Since 2017, when Heinz Kraft threated a takeover of the then, Anglo-Dutch titan, this household goods operator has really got its act together and is now the largest FTSE 100 company, valued at £111 billion, just ahead of Astra Zeneca, valued at £108 billion. Under Pascal Soirot’s stewardship, Astra is now at the pinnacle of drug and healthcare companies, having fought off a £55 a share bid from US’s Pfizer in 2014. Astra’s shares now stand at £82. Astra is in the vanguard with scientists at Oxford in developing a coronavirus vaccine amongst others and will play a huge roll in the distribution of vaccines around the world. 

The Sunday Times informs us that Bank of England is expected to provide a further £150 million of stimulus packages next Thursday, in response to the dire April GDP number and the possibility of a further 350,00 jobs being lost in the UK’S economy.  It should not be forgotten that the furloughing scheme is underwriting employment. When that goes at the end of October, the writing would be on the wall unless contingency plans are made. Rumours abound that lenders of £220 million to Virgin Atlantic may have ‘done their dough’ based on increasing Heathrow landing slots. The recovery plans seem to be struggling and the runes in the sand do not look encouraging. Finally, Cineworld has aborted its plan to buy Canada’s Cineplex in a £1.6 billion deal, which would have made it the largest cinema chain in North America.

UK companies posting interim results this week – Monday – M&B, Tuesday – Ashtead, Telecom Plus, Wednesday – Berkeley Group, De La Rue, Mulberry, SSE, Wincanton, Kingfisher, Boohoo, Domino Pizza, Thursday – Care Tech, National Grid, Safestore, Carnival, Friday – John Wood Group

US companies posting earnings this week – Tuesday – Lennar, Tenet Healthcare, H&R Block, Oracle, Thursday – Kroger, Smith & Wesson, Friday – Jabil, Carmax

Economic data to be posted this coming week – Monday – US Empire State Manufacturing, EU/UK Brexit Talks, Tuesday – BOJ rate decision, UK Unemployment for April, Germany ZEW, US Retail Sales, US Industrial Production & Manufacturing output, US NAHB Housing, Wednesday – Japan’s TANKAN survey, UK Inflation data (PPI, CPI, RPI), US MBA Mortgage Applications, Thursday – UK MPC Meeting, US Initial Jobless Claims, US ADP Index, UD Phili-Fed Index, US FED Powell Testimony, Friday – Japan Inflation, UK Retail Sales, UK PSBR, US FED Powell Speech