WEEKLY FAYRE – Monday, 16th November 2020

November 16, 2020

“I knew a simple soldier boy
Who grinned at life in empty joy,
Slept soundly through the lonesome dark,
And whistled early with the lark.

In winter trenches, cowed and glum,
With crumps and lice and lack of rum,
He put a bullet through his brain.
No one spoke of him again.

You smug-faced crowds with kindling eye
Who cheer when soldier lads march by,
Sneak home and pray you'll never know
The hell where youth and laughter go.”

Siegfried Sassoon – poet – 1869-1943

 

Yesterday, the US Masters won with a record score by Dustin Johnson (-20), but it was not an exciting event, though the golf played by the winner and others was spectacular. I doubt we shall ever see a finer exhibition over four rounds than that shot by the American from South Carolina. However, Augusta National was a more benign course than it is in April, when the greens are like glass and how this amazing tournament missed the infectious enthusiasm of a full house of golfing fanatics!

 

INDEX

9thNovember ‘20

13thNovember ‘20

% Loss/Gain

FTSE

5910

6316

+6.87%

DAX

12713

13076

+2.86%

CAC40

5036

5380

+6.83%

DJIA

29467

29479

+0.04%

S&P 500

3583

3585

+0.05%

NASDAQ

12046

11829

-1.80%

SHANGHAI

3329

3310

-0.57%

HANG SENG

26517

26156

-1.36%

NIKKEI 225

24568

25385

+3.33%

ASX 200

6224

6405

+2.91%

 

Last week was another extraordinary experience – politically and economically as well as from a corporate perspective. In the US and the UK utter political chaos seemed to reign supremely. President Trump refused to concede to President-Elect Biden, despite support at the top end of the Republican party appearing to dissipate. Most people are of the opinion that the Supreme Court is unlikely to support President Trump’s claim of electoral foul play without conclusive evidence. Despite the euphoria displayed by analysts and the public over Pfizer’s and BioNtech’s cry of ‘Eureka’; we think a vaccine is nigh, Covid19 appeared to raise its game in the US significantly both in terms of a pandemic but also many more seem to have died at its lethal toxicity. Sadly, political leadership in both countries gives the impression of being moribund.

Here in the UK, the shenanigans in 10, Downing Street beggars belief, with Dominic Cummings and Lee Cain, the PM’s closes advisors leaving and heading for the front door, all but knocking over ‘Larry, the Cat’, as they leave the premises with almost indecent haste. This coup seems to have Carrie Symonds’s, Munira Mizra’s, Allegra Stratton’s and Priti Patel’s hallmarks all over it. Many are not quite sure why the PM’S fiancée should have played such a leading role in this rebellion. Does she have a ‘paid position’ at No: 10? Many will be delighted that Mr Cummings is now out of the picture, though I doubt he will go quietly. I suspect the senior echelons of the Civil Service will breathe a huge sigh of relief.  A trade deal with the EU has yet to be agreed. Many suspect that a watered-down edition could well be ‘on the cards’, in the light of the economic turmoil that currently prevails.

There was significant activity on global equity markets last week. Firstly we saw a decent bounce by the FTSE 100, which saw the likes of IAG, Rolls Royce, Carnival, Tui Travel, BP and Shell make noteworthy gains, together with some of our rather battle-scarred banks which had lost around 50% of the share value since the beginning of the year. Barclays was up 19% last week with Lloyds Banking up by 25%, HSBC by 9% and NatWest by 7%. The CAC40 also enjoyed a decent run on the rails.  

Activity in the US was unsurprisingly rather different. Investors had dined out on the huge gains made from the main tech giants since March – Apple, Amazon, Alphabet, Zoom, Netflix, Facebook, and Microsoft – because of the ‘Stay-at-home’ culture. Investors spent the majority of last week repositioning themselves. So, measurable profits were taken on this sector and their affections were transferred to those sectors which had been trashed due to economic conditions. Amongst those companies that benefitted were Boeing, Exxon Mobil, Chevron, Expedia, United Airlines, Delta Airlines. The measurable losses that were incurred by tech sector investors were significantly ameliorated by the end of the week.

As for economic data, US Initial Jobless Claims totalled 709,000 last week, a decline from the previous week but a continuation of elevated levels of unemployment amid a record surge in daily coronavirus cases that could further complicate a recovery in the labour market. While the new weekly claims total is significantly lower than the March pandemic high of 7 million, it is still far from the pre-pandemic average of 200,000 weekly claims for initial jobless benefits. The US ‘Producer Price Index’, posted last Friday, advanced 0.3 percent in October, seasonally adjusted. The main economic event in the UK last week was 3rd quarter GDP Data. The UK economy rebounded by 15.5% against estimates of 15.8%, but there were some caveats. GDP in September saw the economy only grow by a rather parsimonious 1.1%, remaining 8.2% below its February peak. Services grew by 1% (8.8% below February) with manufacturing growing by 0.2% (8.1% below February) and construction growing by 2.9% (7.3% below February).  The concern for lack of growth in the 4th quarter is the imposed one month ‘lockdown’ until 2nd December and then there is no guaranty that life will resume something like a normal pattern. If the economy remains ‘closed-down’, a deep recession seems inevitable. I think Chancellor Sunak realises the dangers. Many believe he is thinking of reintroducing the ‘Eat-out-to-help’ policy in early December to prevent up to 3 million self-employed hitting the dole queue.  There is talk of the ‘R’ number falling below 1%. That would help. We MUST get back to work before it is too late. Also, the public needs regularly updated official data as to what the average age is of those that have died – many are of the opinion that it is about 80 years of age. Death is horrific by any standards and so is destroying the economy. UK employment data was posted on Tuesday. Unemployment rose from 4.5% to 4.8% in the last quarter and up 0.9% in September, with 314000 being made redundant. If the ‘lockdown’ is not terminated soon, it will be significantly worse by the end of the year.    

The EU’s 3rd quarter GDP improved and grew by 11.6%, though it did fall by 4.4% in the July-September period, versus the same quarter last year. There was an interesting observation made by the former IMF Chief Economist Olivier Blanchard who said “I expected waves of bankruptcies. They have not happened (yet). In nearly all countries, bankruptcies of firms are down compared to pre-covid, often substantially. Maybe fiscal help was too generous. Maybe it is a calm before the storm, but the numbers are striking.”

It is thought that consideration was being given to increasing CGT – in fact doubling it before too long. Any talk of an increase in CGT for two years would be insane, despite the fact it would only affect a parsimonious number of wealthy people. If the recovery momentum is to prevail - ‘Don’t throw the baby out with the bath water’ by discouraging investment!  At present only 265000 people pay CGT, whereas 31 million pay income tax. Nonetheless, an early implementation of CGT could have a devastating effect on economic recovery.  The Government further served notice that fresh legislation preventing overseas takeovers of UK companies would be implemented on grounds of tighter security.

In the US, corporate news was generally positive, but for the odd idiosyncrasy. Viacom CBS from the media sector posted disappointing numbers. Conversely, Walt Disney was starting to see some light at the end of the tunnel, despite theme park revenue being down 61% in the last quarter. Disney was greatly encouraged that 73 million had subscribers had signed up for its streaming service. There was a stay of execution for Tik-Tok, which has 100 million subscribers in the US. There was talk of a joint venture for Tik-Tok’s US operation with Walmart. This idea is on hold at present. 

Corporate news in the UK was very mixed last week, though it was a decent one for ‘the good, the great and the very rich!’ B&M, the variety store chain, chaired by Sir Terry Leahy of Tesco fame which employs about 28,000 people posted great numbers last week. It also paid out a £200 million dividend, enabling the Aurora brothers to squirrel away £40 million ‘off-shore’ in Luxembourg - All legal, but in the current climate, it does not look great. The Hut Group, a recent IPO success, saw its founder Matt Moulding scoop up an £840 million bonus, as his share of the largesse, down to the great success of the floatation.  The Issa brothers’ EG Group of garage operation just posted a poor nine-month set of numbers, with revenues down 23% from $15.8 billion to $12.1 billion. The company, which recently bought ASDA from Walmart for £6.8 billion in conjunction with TDR Capital, is understood to be issuing preference shares to the likes of Abu Dhabi Investment Authority, Alberta Fund Management and PSP Investments to help fund the takeover.

Some interesting corporate results were posted last week. JD Wetherspoon saw like-for-like sales fall 27.6% in the 15 weeks to early November and the group is burning cash at the rate of £14 million a month. CEO Tim Martin was not his usual ebullient self. Flutter (Paddy Power/Betfair) saw revenue grow 30% in the 3rdquarter. Its shares have gained 37%, so far this year, WH Smith posted a pre-tax loss of £226 million with sales at only 17% of 2019. By October, the rate had recovered to 59%. Persimmon, the UK’S largest house builder posted a solid set of numbers, with sales up 38% this year, likely to increase to 43% in 2021. GVC, the owners of Ladbrokes, Coral, Bwin, Party Poker and others is changing its name to ‘Entain.’ The rebranding is an attempt to improve the image of gambling.

Premier Foods were very happy to announce that the sale of comfort food such as Ambrosia cream rice, custard and Bisto contributed to a 50% increase in profits. Sadly, life at Burberry under Marco Gobetti has not been easy for this luxury brand. Burberry saw a 31% drop in revenue with sales down 45% in Q one and are expected to be down 6% in a full year into 2021.

Germany has ordered 38 Typhoon jets at a cost of £1.3 billion. This should help to sustain employment at BAE Systems and Rolls Royce, which had a successful £2 billion rights issue, as well as a significant bounce in its share price – up 34% last week but still down 62% year to date.

ITV’s CEO Dame Carolyn McCall attempted to be very upbeat about its numbers, which saw ad revenues slightly up. In fairness productions totalling £1.86 billion were suspended, but viewing figures were down 16%. No ‘Love Island’ and ‘I’m a Celebrity’ did not help, though the latter returns very soon. Hopefully post pandemic some exciting programmes will come on stream. Shares are down 41% year to date. I think ITV is too small and should probably bed down with Liberty, Vodafone or maybe Amazon or Apple! 

Jack Ma’s Alibaba and JD.com made huge contributions to China’s singles day, which hit a massive record of $76 billion. However, the Chinese authorities are putting restrictions on Alibaba. With ANT Group’s IPO shelved for the time being, this has not been a good week for Jack Ma.  

Concern has been expressed by the directors of Sir Philip Green’s Arcadia Group, whose operations may be forced into administration by the second lockdown choking off any hope of a recovery, according to the Sunday Times. Arcadia owns Top Shop, Miss Selfridge, Dorothy Perkins, Wallis, and Evans. Arcadia has 550 outlets and employs about 15000 people.                                                              

UK companies posting interim results this week – Monday – Vodafone, Tuesday – Experian, easyJet, Homeserve, Imperial Brands, Petra Diamonds, TalkTalk, Wednesday – British Land, Speedy Hire, SSE, Thursday – CMC Markets, Grainger, Halma, Investec, Johnson Matthey, M&B, Mitie, Royal Mail Group, Friday - Sage

US Companies posting interim results this week – Monday – JC Penney, Manchester United, Tuesday – Kohl’s, Home Depot, Walmart, Wednesday – L-Brands, Jack-in-the-Box, Nvidia, Target, TJX, Thursday – BJ Wholesale, Macy’s Ross Stores, Williams-Sonoma, Friday – Foot Locker

Economic data to be posted this coming week – Monday – ECB Mme Lagarde speech, Tuesday – US Retail Sales, US Imports & Exports, US Industrial Production & Manufacturing Output, BoE Governor Bailey Speech, Wednesday – UK Inflation (EST: 0.7%), UK Retail Price Index, UK PPI (EST: 0.4%), BoE Haldane Speech, US MBA Mortgage Applications, US Housing Starts and Building Permits, Thursday – CBI Industrial Trends, US Initial Jobless Claims, US Existing Home Sales, Friday – UK Gfk Consumer Confidence, UK Retail Sales and UK PSBR