WEEKLY FAYRE – Monday 1st June 2020

June 1, 2020

“Three lovely notes he whistled, too soft to be heard

If others sang; but others never sang

In the great beech-wood all that May and June.

No one saw him: I alone could hear him

Though many listened. Was it but four years

Ago? or five? He never came again.

 

Oftenest when I heard him I was alone,

Nor could I ever make another hear.

La-la-la! he called, seeming far-off—

As if a cock crowed past the edge of the world,

As if the bird or I were in a dream.

Yet that he travelled through the trees and sometimes

Neared me, was plain, though somehow distant still

He sounded. All the proof is—I told men

What I had heard.

 

I never knew a voice,

Man, beast, or bird, better than this. I told

The naturalists; but neither had they heard

Anything like the notes that did so haunt me,

I had them clear by heart and have them still.

Four years, or five, have made no difference. Then

As now that La-la-la! was bodiless sweet:

 

Sad more than joyful it was, if I must say

That it was one or other, but if sad

'Twas sad only with joy too, too far off

For me to taste it. But I cannot tell

If truly never anything but fair

The days were when he sang, as now they seem.

This surely I know, that I who listened then,

Happy sometimes, sometimes suffering

A heavy body and a heavy heart,

Now straightway, if I think of it, become

Light as that bird wandering beyond my shore.

 

Edward Thomas – poet & soldier – 1878-1917

 

Life is the most precious gift on Earth. However, without an economy, the quality of life becomes significantly less meaningful. In many peoples’ opinion, including my own, the world needs to get back to work. The stock market tells us that we ARE going back to work. Notwithstanding that premise, there are many people including scientists, the medical profession and politicians who continue to beg for more caution. I suspect that the world has about a month to largely return to work. If it does not, I think the ramifications do not bear thinking about. The World will be staring down the barrel of penury, with horrendous long-term unemployment and an economic slump comparable, if not worse than 1929.

No one wants to appear cynical or supercilious. However, 90% of the coronavirus deaths have emanated from people over 70 with underlying health issues. Children, if they are infected, seem to recover quickly, as do most of the 18 to 50-year-old – the engine room of the global economy. People of my generation will have to be circumspect in the extreme and take our chance.

This is no time for the political ‘blame game.’ There is plenty of time for the media and others to indulge in that charade in the months to come. PM Johnson and his Cabinet need to grasp the nettle and ‘open-up’ the country by the beginning of July, as does much of the rest of the universe, starting with rescinding that ridiculous 14-day travel isolation nonsense. If there is a spike; so be it. Lockdown may have to return. At least everyone will have given it their best shot and it is possible that the dole queue will not stretch from here to eternity!

At least there is a chink of light at the end of the tunnel with horse racing due to start today and the Premiership in two weeks with the prospect of some test cricket against the Windies in July – all behind locked doors but at least top class fayre on television!

 

INDEX

25th May 2020

29th May 2020

% PROFIT/LOSS

FTSE*

6015

6076

+0.85%

DAX

11186

11586

+3.58%

CAC

4482

4695

+4.75%

DJIA*

24461

25383

+3.77%

S&P 500*

2948

3044

+3.26%

NASDAQ*

9278

9489

+2.27%

SHANGHAI

2816

2852

+1.28%

HANG SENG

22725

22961

+1.04%

NIKKEI 225

20653

21877

+5.93%

 
* Denotes from Friday 22nd May 2020 (Bank Holiday Monday 25th May)

 

So here we are after 10 weeks in lockdown in the UK and in parts of the world for the best part of five months, faced with a life-changing dilemma – the balance of life against an economy, that could be trashed out of existence. How long can global governments keep writing global debt and shelling out currently wholly justified furloughing and government guaranteed loans? Yes, with interest rates at almost zero and likely to remain so for at least three years, borrowing gargantuan sums of money at eye-watering cheap rates looks an extremely attractive proposition.

However, somewhere down the line, ‘the kissing has to stop’. The next generation will have to pick up the tab. Deputy City Editor of the Daily Mail succinctly pointed out that it has taken the UK 300 years to build its national debt up to £1 trillion and only a decade to take it to £2 trillion, courtesy of the banking/credit crisis of 2008/9 and coronavirus! Add to that the news that in the US corporate bond sales totally $1 trillion had been drawn down in recent months even by solid companies like Apple and those in a less fortunate situations such as Boeing, which incidentally threatened to lay off 13,000 workers last week.

Debt and government borrowing across the world is getting close to intolerable levels, though servicing sovereign debt should be sustainable. However, I believe many banks especially in Europe, could come under duress with a wave of bad debts, which will inevitably occur in the next couple of years. Even more worrying will be the level of unemployment in the US, where further initial jobless claims of 2.1 million posted on Thursday took the total to 40 million in 10 weeks. Further to that dispiriting news, it was confirmed that 1stquarter GDP in the US was at -5%, worse than the forecasted 4.8%. That does not augur well for the second quarter, where some analysts believe it could be above -25%! On Friday,Michigan's consumer sentiment was revised lower to 72.3 in May of 2020 from a preliminary reading of 73.7 and remaining close to an eight-year low of 71.8 reported in April. To add to the gloom, President Trump’s on-going spat with China’s President Xi is another unsettling issue for investors to contend with.

On a pro-rata basis, the outlook in the UK looks almost as bleak. Chancellor Sunak will have shelled out close to £100 billion for close on 8 million people by the end of July and has understandably asked companies to take their share of the financial burden by taking 5% to start with up to 20% by the end of October. Provisions have also been made for the self-employed, who have been offered 70% up to a maximum of £6570. It should also not be forgotten that there have been mortgage payment holidays granted and significant Universal Credit payments made. However generous the UK Government may have perceived to have been or not, it may not be enough. Notwithstanding the level of financial assistance, the economy needs to ‘take hold of the bit’ and recover as best it can. It cannot rely on government ‘bail-outs’, as if they had reserves in a bottomless pit of money. Car sales also produced another ugly number. The British car industry produced just 197 cars last month, down from 70,971 in April 2019, as the coronavirus lockdown caused every major UK factory to close. This is the second consecutive month of record low production.

The European Commission proposed a €750 billion ($826 billion) stimulus package last Wednesday to help the EU recover from a deeply entrenched recession brought on by the coronavirus. Consternation, as to how it should be used amongst members, still prevails. Mme Lagarde, President of the ECB, further warned that the recession in the EU could be very deep-seated, with GDP falling to between 8% and 12% in 2020. 

Not for the first time in recent weeks equity luminaries totally ignored the caustic economic data and markets and put their best foot forward. They are determined that the world is going back to work sooner rather than later, also in the knowledge that the Central banks are four square behind the crisis providing whatever liquidity is required, aided and abetted by a slew of money to invest from fund managers. With crude oil prices rising 80% in May, that data has not been an unhelpful indicator in providing added confidence. There is no doubt that equity markets have benefitted from the fact that investors have become increasingly disenchanted by the lack of value in other asset classes (bonds, money etc).

On the ‘Street of Dreams’ last week, it was the turn of airlines such as United and Delta to make double digit gains from a trashed level. Lufthansa, after its bail-out, Air France KLM, IAG and easyJet also put in eye-catching performances. There was good support for Boeing (+9%) until Thursday when support fell away. The announcement 13,000 redundancies probably did not help its cause. Nike’s shares were popular in the ring. The results from the US retail sector were mixed. Abercrombie & Fitch (-11%) and Nordstrom (-7%) failed to pass muster. Dollar Tree numbers cheered Wall Street – up 11.5%. Tesla CEO Elon Musk, who draws no salary, is alleged to have been paid a share bonus of $700 million, part of a several billion option tranche, which he could earn subject to Tesla’s share price performance.

Sir Leonard Blavatnik, having bought Warner Music cheap for £2.7 billion in 2011, when the industry was in a slump, will see the fruits of his labours when it is offered for sale on the NASDAQ at between $23 to $26 a share, valuing the operation at £11 billion. Ed Sheeran and Michael Buble are amongst their star performers, who use Warner’s label.

There were interesting nuggets of corporate and earnings news last week. GSK, in conjunction with Sanofi-Aventis, joined Astra Zeneca in being innovative in providing distribution or assistance in manufacturing a vaccine or ancillary drugs to beat this deathly virus. Boohoo managed to show ‘Shadow Fall’, affectionately referred to as the ‘Dark Destroyer’, the door by completing the final purchase tranche of ‘Pretty Little Things’ before this respected researcher and market predator started to ‘short’ the stock, fearing the final calculation of value might be too rich. There was good news on the car manufacturing front after such desperate data on Friday. Nissan will be increasing its presence in Sunderland, probably to Barcelona’s cost and it maybe Nissan’s partners Renault will use further capacity at Nissan’s North-East plant. Rolls Royce confirmed the 9000 redundancies and sadly its bond credit worthiness is in danger of being reduced to junk status. easyJet also confirmed the possibility of 4500 redundancies. 

British Land posted poor figures last week – not of their making – Coronavirus strikes again. The company posted a loss of £1.1 billion with its portfolio dropping £1.2 billion value during the last accounting period. What was distressing for British Land was the fact it only collected 43% of the rent due and only 12% from strong retail operators. I am not sure that bodes well for the future. One thing that has transpired is that a high percentage of people have learned to work from home, thanks to technology. When many of these leases are up for renegotiation, I suspect that some companies may not need prestigious premises and possibly many of them may relocate out of London.  The Sunday Times tells us Sir Howard Davies, Chairman of RBS, has called for the implementation of a Covid-19 toxic loan fund, like UK Financial Investments, which was used to nurse the like of Northern Rock’s assets back to health. It will be tricky deciding what loans qualify.

Finally, it appears to be ‘au revoir’ to easyJet, Centrica, Meggitt and Carnival from the FTSE 100 and ‘hello’ to Avast, Convatec, GVC and Homeserve.

China’s factory activity unexpectedly returned to growth in May as strict measures to contain the coronavirus outbreak were eased, but the improvement was marginal as export orders continued to shrink, a private business survey showed on today. Asian bourses rallied measurably on this news.

UK companies posting interim results this week – Monday – Sirius, M&B, Paragon, Kingfisher, Tuesday – Card Factory, Electrocomputer, Wednesday – SSP, Wizz Air, Chemring, C&C Group, Vertu Motors, Thursday – Autotrader, Mitie, Pennon, Go-Ahead, Friday – Getech, Workspace Group

US companies posting earnings this week – Tuesday – Dick’s Sporting Goods, Zoom, Wednesday – Campbell Soup, Thursday – Vail Resorts, GAP

Economic data to be posted this coming week – Monday – UK PMI Manufacturing, US ISM Manufacturing, US Construction Spending, Tuesday – US vehicle sales, UK Nationwide House Prices, UK Mortgage Lending, BoE Consumer Credit, Wednesday – UK PMI Composite, US ISM NON-Manufacturing, US Factory Orders, Thursday – UK New Car Sales, UK PMI Construction, US Initial Jobless Claims, Friday – Halifax House Index, US Non-Farm Payrolls, US Unemployment rate (EST: 16%), US Hourly earnings