WEEKLY FAYRE – Monday, 20th April 2020

April 20, 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 & soldier – 1886-1967

 

 

I think most people would agree, that because of the constraints coronavirus has put on the main terrestrial and digital TV operators during this lock-down period, the content has been average at best. So, it will come as no surprise that last week Netflix’s shares added 16% in value to $421 a share, such is the variety and choice for the subscriber. The share capital value of this unbelievably successful entertainment streamer now stands at $185 billion, leap-frogging Exxon Mobil, the largest Western oil company, now valued at $182 billion. Netflix posts its earnings next Tuesday.

For those who have not watched ‘Fauda’, I strongly recommend this Israeli/Palestinian conflict drama. There are three twelve-part episodes that will keep you entertained for days. Never have I enjoyed being a ‘couched-potato’ more in my life! When you have completed that ‘magnus’ opus, try ‘Ozark.’ This series stars Jason Bateman and Laura Linney as a married couple who are forced to relocate their family from Chicago to the Ozarks, following a money laundering scheme gone wrong.

 If the Sunday Times is accurate with its information, it looks as though I am here in ‘locked-down’ for the long haul – maybe for as much as a year, unless a vaccine can be found by Oxford University, or by the joint venture between GSK and Sanofi, Astra Zeneca, or by Bristol Myers Squibb – Who knows? It cannot come soon enough. However, there was potentially good news last week, in terms of finding an antidote for this virus. Gilead Sciences from Foster City, California posted a successful trial last week. 113 out of 125 people with the virus responded positively to this drug. Gilead’s shares ratcheted up 25% last week.

 

INDEX

9th April 2020

17th April 2020

% profit

FTSE 100

5837

5786

+0.87%

DAX

10564

10625

+0.58%

CAC40

4494

4499

+0.11%

DJIA

23719

24242

+2.20%

S&P 500

2789

2874

+3.05%

NASDAQ

8153

8650

+6.10%

SHANGHAI

2825

2838

+0.46%

HANG SENG

24300

24380

+0.33%

NIKKEI 225

19345

19897

+2.85%

 

Sometimes I wonder why I bother with my weekly tables, which are supposed to illustrate the performance of global exchanges with a degree of clarity. In recent weeks these tables don’t really elucidate an accurate picture of the level of activity and the massive range of volatility, which prevails daily. Last week, investors experienced seismic levels of both negative and positive sentiment. In the end, the ‘Bulls’ prevailed in the US and the other indices just about satisfied the criteria to finish in positive territory.

The international data was myopic in favour of despair. US Initial jobless claims posted a 5.245 million increase in applicants for benefits. That makes 22 million in four weeks. The IMF was not backwards in coming forward in throwing their ‘two penn’rth in!’ The IMF believes that GDP in the UK is forecasted to fall by 6.5 per cent in 2020, the worst figure for a century. Eurozone GDP is expected to shrink by 7.5 per cent, while the U.S. economy is predicted to contract by almost 6 per cent, its worst performance since 1938. Those numbers are conservative in comparison to other forecasts.

Andrew Bailey the Governor of the Bank of England expressed his concern that the banking sector was not getting loan facilities out fast enough to SMEs and their terms were also too draconian. Inability to make these facilities available across the spectrum could adversely affect unemployment, which could, in the BoE’s opinion, reach 3.4 million. The OBR observed that the worse case scenario for the UK could see economic activity drop by as much as 35% in the second quarter, with the year ending down -13%, with 10% unemployment and official borrowing increasing from £55 billion to £273 billion in 2020-21. Some economic acolytes think growth in US could be almost as dire, by declining dramatically, with some forecasting that GDP could drop by 30% in the 2nd quarter and unemployment could reach 20% over the same period with the mean average for the year coming in at 14%.

As if that was not enough. On Thursday US retail sales fell by 8.7% in March – the worst monthly reading since 1992. This is significant as 70% of US GDP emanates from the retail and service sector. With unemployment likely to remain high, few will have surplus funds to spend either in the shopping malls or ‘on-line.’ Industrial production fell 5.4% in March, the steepest decline since early 1946. Capacity utilization was down to 72.7% from 77%, the lowest level since the banking and credit crisis of 2008-2009. Finally, the content in the Beige Book confirmed that the US economy had fallen sharply.

Here in Old Blighty retail sales declined at the worst rate (-4.3%) on record last month as the Government's coronavirus lock-down measures took a vice-like grip on the economy. One in nine mortgage holders have been granted a repayment holiday, new industry figures have revealed. In the UK retail, Oasis and Warehouse collapsed into administration. Debenhams and Cath Kidston filed for administration. The outlook for Sir Philip Green’s empire Arcadia looks bleak. He employs 14k people and many of them have been furloughed. 100 outlets look likely to close in 2020. The writing for the likes of Top Shop, Miss Selfridge and Dorothy Perkins has been on the wall for some time. 

Even when the UK returns to work, the outlook for retail does not look that appetising. Simon French, Panmure Gordon’s Chief Economist, reminded me that ‘88% of UK adults have some cash savings. However, there are two caveats – some of the 12% have a pension. Also, most of the 88% will have debts greater than their cash savings.’ I also independently found out that of those savers, one in three have less than £1500 put aside. So that does not augur well for retail in the next few months, when so many people have had a wage cut or no money at all!

The economic tale of woe continued. On Thursday China posted a 6.8% drop in GDP for the first quarter, with retail sales falling 19% in the same period. Considering China’s economy has grown at an average of 8% in the past decade, that number was a hammer blow, if unsurprising. China believes that it is now in a better place. I have my doubts. With limited movement of goods and some traders unable to pay, it may take China much longer to recover. Here in the UK we are very reliant on China for clothing, plastic goods, mobiles and computer technology among many other goods.  As for the EU, uniformity of thought and action seems to be at ‘sixes and sevens.’ France’s President Macron warned of an EU collapse saying there is “no choice” but to set up a fund that “could issue common debt with a common guarantee” 

There have been nuggets of news that helped balance the wave of adverse news and economic data. US Treasury agreed aid for US airlines to include Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, Jetblue, United, Skywest Airlines and Southwest. All will participate in ‘The Payroll Support Program,’

Helen Thomas of Blondemoney made some poignant comments, when the Fed delivered its most significant intervention yet, last Thursday, that it would be buying not only investment grade fixed income ETFs, but also high yield ETFs. Helen Thomas said it was significant because ‘It reduces systemic risk from ETF discounts in the short-term but increases it in the long term. Secondly, it opens the door to the Fed keeping markets up, rather than just keeping them open.’

The US administration appears to have distributed its $350 billion of loans to the Small Business Administration community through hundreds of commercial lenders across the country, with a further 700,000 SMEs waiting to be accommodated. The same, I’m afraid cannot be said of the UK, where the limited number of banks have had great difficulty getting £1 billion distributed to those SMEs craving safety. A high percentage of these loans have been granted by RBS, now under the guidance of Alison Rose. Chancellor Sunak has extended the ‘Job Retention Scheme’ to the end of June and has promised to distribute salaries between 20thand 30th April. This scheme is likely to cost the Treasury £40 billion. It is proving to be a logistical nightmare. I hope HMRC and the banks will respond to the offer of help from independent technology companies, which believe they have the capability to alleviate this acute burden of helping those people who need to eat and pay their rent.

The oil spat between Russian and Saudi Arabia was finally brought to a sensible conclusion, with a cut agreed between OPEC and other countries of 10 million barrels a day. Though oil prices spiked, NYMEX soon retreated below $20 a barrel ($19.70), due to demand for oil falling off a cliff (-30%), most of it due to the virus.

In general terms last week, it was technology that lead the way forward in the US, with the usual suspects – Amazon, Apple, Facebook, Microsoft and of course Netflix leading the charge. Boeing also announced it will start manufacturing this coming Monday. Both Amazon and Apple are valued at over $1.1 trillion, despite the fall in equity values since February. Here in the UK it has been reassuring to see BP bounce back from the doldrums with IAG and easyJet showing signs of sitting up and taking nourishment.  It is amazing against a background of truly toxic data, that equities have ‘picked up the cudgel and run with it’ in no uncertain terms in the past three weeks. Being a pensioner, I hope these investment gurus are right and that the world goes back to work in May/June. If there are any setbacks, the response will be very interesting. To date the FED has played a masterful role, underpinning Wall Street. Surely, the US Central Bank cannot maintain its omnipotence in perpetuity? Also, the next two weeks will unfold any weaknesses in the US earnings season and its outlook.

Finally, the Sunday Times tells us that Chancellor Sunak can expect a wave of furlough wage claims from 2.3 million businesses. He also needs to weigh up whether these loans to SMEs should have 100% government guarantee. With Government currently on the back foot over its handing of this pandemic, it will be interesting to see its response.

UK companies posting earnings this week – Tuesday – AB Foods, Thursday - Unilever

US companies posting interim results this week – Tuesday – Coca-Cola, Comerica, Phillip Morris, Travelers, HCA Health, Snap, Texas Instruments, Netflix, Wednesday – Biogen, AT&T, Baker Hughes, Delta Airlines, Kimberly-Clark, CSX Corp, Xilinx, Alcoa, Whirlpool – Thursday – Pulte, Hershey, Eli Lily, Intel, Amazon, Friday – Verizon, American Express.

Economic data to be posted this coming week – Tuesday – UK employment data, US API Crude oil stocks, US Existing Home Sales, Wednesday – UK Inflation data, US MBA Mortgage Applications, Thursday – UK PSBR, UK Markit Manufacturing & Services PMI, UK CBI Industrial Trends, Gfk Consumer Confidence, US Initial Jobless Claims, US Markit PMI Composite, US New Home Sales, Friday – UK Retail Sales, US Durable Goods, US Michigan Consumer Confidence.