WEEKLY FAYRE – Monday, 1st February 2021

February 1, 2021

“Only a man harrowing clods

In a slow silent walk

With an old horse that stumbles and nods

Half asleep as they stalk.

 

Only thin smoke without flame

From the heaps of couch-grass;

Yet this will go onward the same

Though Dynasties pass.

 

Yonder a maid and her wight

Come whispering by:

War’s annals will cloud into night

Ere their story die.”

 

Thomas Hardy – Poet & Author – 1840-1928

 

 

Apart from investors deciding that equities were looking a little too rich for their blood, due the world’s inability to get Covid-19 ‘back on the bridle’ despite some success with the global vaccination programme, there were only two stories ‘in town last week’ – The EU’s tactless and vituperative attack on the UK over Pfizer’s/Astra’s vaccine supplies coupled with President Macron duplicitous and bordering on mendacious assault on the UK, firstly over France’s inadequate confidence in Astra’s vaccine for those over 65-years of age, followed by the closing of France’s borders to the UK, apart from key necessities. The second story of note was the battle royal that raged between retail investors through the Reddit app and ‘RobinHood’ and Wall Street hedge funds. 

The EU threatened to use extraordinary antics at this acutely challenging time for all countries, with ‘Le Petit Napoleon’ deciding to declare what was tantamount to political warfare, against a country that should be a very close ally, which it might just need in the months and years to come. Germany’s behaviour on these issues was not that much better. As for the EU, most reasonable people were astonished at their attitude.

Of course, there should be a global approach to vaccination. Nationalism is not the way forward. However, the EU were very slow out of the blocks – three months behind the UK with their vaccine orders. The proposed action, especially against Ireland and Northern Ireland, submitted by the EU on Friday was wholly unacceptable. Yes, the EU backed down under massive political pressure, but trust between the EU and UK has taken a serious knock. I must admit to being very dispirited, but not surprised that President Biden has remained silent on this issue, when he knows the EU was out of order. What about his beloved Ireland? There was some good news on the vaccine front. Moderna and Novavax will be added to the list for global distribution in the weeks and the months to come.

Talking of wars, the one that unfolded on Wall Street last week is the most astonishing phenomenon of its type in living memory. A collection of determined retail investors was determined to ‘see off’ some of Wall Street’s most illustrious hedge funds, through trading apps and brokers such as Reddit, RobinHood, Interactive Brokers and IG Group. These hedge funds had taken out ‘shorts’ up to 140% of the share issue of a little-known video game retail operation called Game Stop. These investors have ramped up the shares from circa $20 a share on 22nd January 2021 to $347 last Friday. Thousands of investors appear to have used the $1200 stimulus package from the Government to buy shares and the hedge funds are thought to have lost $19 billion!

To date the retail investors have won the day. However, Game Stop declared a $673m full year loss and is clearly not worth $22 Billion. So, at the end of the day, there will be a price to pay, and it is hard to envisage any other outcome than the eventual collapse of Game Stop’s share price. It appears that the retail investors do not care, and many expect that some investors will incur huge losses. Citadel is Robin Hood’s main backer and had to raise $1 billion to meet liabilities and calls in double quick time.

The losses incurred by these hedge funds triggered huge gyrations on Wall Street at the end of last week, as other portfolios were liquidated to pay for their losses. London’s IG Group willstop any new trades in GameStop and theatre chain AMC, which also received ‘short-selling’ treatment, when markets open on Monday. It will be interesting to see what the US regulatory bodies, the SEC and CFTC make of this saga.

On a lighter note, I strongly recommend a NETFLIX film – “The Dig”, with Ralph Fiennes, Carey Mulligan and Lily James. Archaeology would hardly seem the most interesting subject to base a film on. However, the findings of Anglo-Saxon life in Sutton Hoo in Suffolk made for one of the most charming and emotionally moving films I have seen for some time. It certainly made up for the two Fulham drab draws against Brighton & Hove and WBA – awful!

 

INDEX

25th January 2021

29th January 2021

% Loss/Gain

FTSE

6695

6407

-4.45%

DAX

13943

13432

-3.66%

CAC40

5579

5399

-3.94%

DJIA

30989

29982

-3.25%

S&P 500

3851

3714

-3.56%

NASDAQ

13681

13070

-4.47%

SHANGHAI

3605

3483

-3.38%

HANG SENG

29677

28283

-3.64%

NIKKEI 225

28698

27633

-3.71%

 

As can be seem from the table above, many investors took flight last week, and took some risk off the table. The markets eased on a few factors, encompassing concern that global growth will be slower than expected, thanks to Covid-19’s destructive powers, less than upbeat economic data, over valuation of many stocks and finally, the unsettling influence of the Game Stop saga. This stock market pull-back took place in the wake of the IMF saying that “amid exceptional uncertainty,” it projects the global economy will grow 5.5% in 2021 and 4.2% in 2022.

The U.S. economy shrank in 2020 for the first time since the financial crisis but grew rapidly in the fourth quarter and is forecast to continue recovering following its worst year since the 1940s. A strong rebound in the second half of 2020 was not enough to overcome the economic shock created by the pandemic earlier in the year. Measured year-over-year, the economy contracted 3.5% last year, the largest decline since just after World War II and the first since 2009 in the wake of the financial crisis. The Initial Jobless claims number of Americans filing for first-time unemployment claims fell slightly to 847,000 last week. The FOMC Meeting left rates unchanged. FED Chairman Powell said - “The path of the economy will depend significantly on the course of the virus, including progress on vaccinations,” read the Fed’s post-meeting statement. “The ongoing public health crisis continues to weigh on economic activity, employment and inflation, and poses considerable risks to the economic outlook.” 

It will not be music to US ears, but China overtook the US in attracting more inward investment. China had $163 billion inflows against $134 billion from the US. This is hardly surprising considering President Trump’s trade spat with President Xi last year. On the domestic front, UK unemployment rate, in the three months to November 2020, was estimated at 5.0%, 1.2 percentage points higher than a year earlier and 0.6 percentage points higher than the previous quarter. In the three months to November 2020, the redundancy rate reached a record high of 14.2 per thousand.

It was a huge week for the US on the earnings front. Many companies including Facebook, Microsoft, Johnson & Johnson, Starbucks, Caterpillar, KKR and McDonald’s produced decent results in the current circumstances. Apple posted its best-ever earnings with $111 billion sales in the last quarter; yet its share price dropped 5% on the week, thanks partly to the Game Stop shambles. Boeing has returned to the skies in Europe, despite less than enthusiastic results. Teslamissed on earnings in 4th quarter but beat on revenue. The company said it expects annual average delivery growth of 50% going forward. General Motors has announced it plans to phase out gasoline and diesel-powered vehicles globally by 2035; a dramatic shift by the largest US automaker away from fossil-fuel-powered engines. GM has no operations in the UK having sold its Vauxhall operation to Peugeot in 2018.

Here in Old Blighty, corporate news was plentiful. Boohoo having bought Debenham’s on-line assets for £55 million turned its sights on Arcadia and attempted to ‘see-off’ other potential predators such as Next, Asos, Authentic Brands by scooping up Top Shop and other brands. However, this morning it was confirmed that ASOS had bought Top Shop, Top Man, Miss Selfridge and HIIT brands for £265 million. The High Street will probably lose just under 25,000 jobs, thanks to these transactions. Also, ASOS and Boohoo only paid a total of £48.1 m of tax on transactions valued at £4.5 billion, a fraction of the £160 million business rates paid by Sir Philip Green’s crumbling empire.

Diageo saw net sales down 4.5% last year, though US sales were up 12.3%. Paperchase would appear to have been rescued by Aspen Phoenix NewCo. This transaction will save 1000 jobs. Dr Martens completed a very successful IPO on Friday, brought to the market by Morgan Stanley and Goldman Sachs. Shares issued at 370p went to a 21% premium to 450p a share, valuing the company at £4 billion. Deliveroo and DarkTrace wait eagerly in the wings for their floats.Pub group Marston's has confirmed it has received a takeover bid from US-based private equity firm Platinum Equity. Its shares bounced by 30% initially on Friday but closed + 10%.

Lidl posted a £25.2 million loss last year. However, the German supermarket spent £651 million adding 51 shops to its portfolio including a warehouse in Motherwell and added 8% to its staff, totalling 23249. Its competitor Aldi is selling some beers as cheap as 99p a pint. It has prevented ale, normally sold in pubs, from being lost through closure. Beers from Shepherds & Neame and from Derby have been in the mix. Prudential Plc announced plans to demerge its US business in 2021. The proposed demerger would accelerate its Jackson separation, completing the breakup of the 173-year-old insurer and its transformation to focus exclusively on its high-growth Asia and Africa businesses. It hived off its fund manager M&G in 2018.

UBS posted a 137% rise in fourth-quarter net profit, as high levels of client activity helped the world's largest wealth manager end last year on a strong note. Fourth-quarter earnings of US$1.71 billion (S$2.27 billion) far outstripped median expectations for US$966 million in a poll of 20 analysts compiled by the bank.

The UK is to make an application to join a free trade area made up of 11 Asia and Pacific nations, under its post-Brexit plans.Other countries included are Australia, Canada, Japan, and New Zealand. This deal would encapsulate 500 million people, generating more than 13% of the world's income. International Trade Secretary Liz Truss is expected to make the request on Monday, with negotiations expected in the spring.

UK companies posting interim results this week – Monday – BP, Hargreaves Lansdown, Tuesday – Gem Diamonds, SSE, Hiscox, Virgin Money, Wednesday – Glaxo SmithKline, Vodafone, Thursday – Shell, Unilever, Barratt Development, NCC, BT, Compass, Creswick, Friday - Beazley

US Companies posting interim results this week – Warner Music, Tuesday – Amazon, Alphabet, Pitney-Bowes, Exxon Mobil, Marathon Oil, Conoco-Phillips, Harley Davidson, HCA Health, Pfizer, Wednesday – Abbvie, Apollo Global, KLA Corp, Coty, eBay, Humana, Qualcomm, Thursday – Bristol Myers Squibb, Yum Brands!, Ford, Merck, Hershey, Cigna, Ralph Lauren, News Corp, Snap, Friday – Aon, Zimmer, Estee Lauder, Johnson Outdoors, Peloton, Uber Technologies

Economic data to be posted this coming week – Monday – UK Markit PMI Manufacturing, BoE Credit, UK Mortgage Applications, EU Unemployment (EST: 8.3%), US Markit PMI Manufacturing, US ISM Manufacturing & Construction, Tuesday – US Vehicle Sales, UK Nationwide House Prices, EU GDP Y/O/Y (EST: -4.3%), Wednesday - EU Markit PMI Services, UK Markit PMI SERVICES, EU Inflation, US MBA Mortgage Applications, US ADP Employment Index, US Markit PMI Services, US ISM Non-Manufacturing, Thursday – UK New Car Sales, UK Markit PMI Construction, EU Retail sales, UK MPC & Inflation Report, US Initial Jobless Claims, US Factory Orders, Friday – UK Halifax House Prices, US Non-Farm Payrolls (EST:-140k), US Unemployment (EST: 6.7%), US Hourly Earnings, US Trade Balance