WEEKLY FAYRE – Monday, 20th July 2020

July 20, 2020

“The cruel Moon hangs out of reach
Up above the shadowy beech.
Her face is stupid, but her eye
Is small and sharp and very sly.
Nurse says the Moon can drive you mad?
No, that’s a silly story, lad!
Though she be angry, though she would
Destroy all England if she could,
Yet think, what damage can she do
Hanging there so far from you?
Don’t heed what frightened nurses say:
Moons hang much too far away.”

Robert Graves – author & poet – 1895-1985

 

Over the last 30 years, few would argue that Sir Ian Botham was the talisman of English cricket. To everyone’s total delight he was knighted for his services to cricket and for his charitable fund raising – an accolade he richly deserved. Many have challenged his elevation to the peerage for loyalty over BREXIT. I think Sir Ian may not enjoy the legislative experience to be a major contributor to the ‘Upper Chamber.’ For that reason alone, I can understand some members of the public’s concern, but political affiliation is an inadequate objection. 

Next Wednesday is the football match day of the season. If WBA slip up against QPR or Brentford fail to beat Barnsley which is very unlikely and my beautiful Whites were to beat Wigan at the DW stadium, Fulham would be automatically be promoted. Surely, I can dream?

 

 

INDEX

13th July 2020

17th July 2020

% Profit/Loss

FTSE

6095

6290

+3.20%

DAX

12817

12919

+0.80%

CAC

5026

5069

+0.86%

DJIA

26225

26671

+1.70%

S&P 500

3205

3224

+0.59%

NASDAQ

10729

10503

-2.11%

SHANGHAI

3379

3214

-4.88%

HANG SENG

25848

25089

-2.94%

NIKKEI 225

22591

22696

+0.46%

 

Comments made by Microsoft President Brad Smith that Covid19 could be responsible for 250 million people being unemployed in the months to come made rather disquieting reading. There may be an element of exaggeration, but he is right on the mark in forecasting that job losses will be catastrophic. He is also correct in suggesting that governments and large companies should follow his example and pay for working people to be retrained. Microsoft will be contributing $20 million to train 25,000 people. This is but a mere bagatelle considering Microsoft is valued at over $1 trillion. Nor should the world forget that Bill and Melinda Gates contribute many millions to charity already. 

I cannot help feeling that unemployment will be at the top of the political and business agenda for many years to come. Last week’s UK employment data – 3.9% unemployed with 642k people losing their jobs in the last quarter up to the end of May – will become a meaningless statistic by the autumn, where many expect at least 2 million to be unemployed, most of them having been furloughed for the past 6 months. The situation in the US looks every bit as dire, as last week was the 17th straight week in which initial claims added at least 1 million people. These have risen by more than 51 million since late March, when it peaked at 6.867 million.

Many observers have been complaining about the opaque messages being sent out by the UK government, with the PM very keen that, where at all possible, the workforce should return to work. There may be some truth in those complaints. However, the views of Messrs Vallance, Witty and the other members of Sage remain at odds with what is required to stop the economy falling off a cliff into a vortex of despair.

If that were to happen, it will be very hard to recover, and for that reason the PM is due some sympathy. The service sector, which the UK economy has been so reliant on for the past twenty years, looks to me all but moribund. If people do not go to work or go out for entertainment, then about 3 million are having their livelihood throttled. I understand fear, but the country must understand the dire consequences of failing to contribute and that means deep-seated unemployment. There is little point in people like the excellent TUC Gen Secretary Francis O’Grady to keep on bleating for more money. The Treasury is not a bottomless pit! Chancellor Sunak can only respond if the country pulls together and plays its role by taking sensible calculated risks like going to work, heading to the pub with ‘social distancing’ or going on holiday. Without that intent, its not ‘rocket-science’ to suggest that our country is heading for the economic rocks.

In the past week we have had confirmation that all is not well with Domino Pizza, with 75 units out of 470 to be shut and jobs to be lost. The owner of Zizzi and Ask Italian restaurant chains said it will close 75 locations, risking the loss of up to 1,200 jobs. Burberry’s sales of luxury items have dipped, resulting in the loss of 500 jobs. Emirates Airlines are to make 9,000 redundancies out of a staff of 60,000. Airports could axe up to 20,000 jobs. G4S is to make 1150 people from its cash business redundant. Ted Baker served notice over the weekend that 500 jobs must be ‘shed’, and Harvey Nicholls is expected to lighten up a measurable percentage of its 1500 staff members. The list is endless and many like me think this could be just the tip of the iceberg. In recent weeks, the High Street has been sending out distress signals and they seem to have been falling on deaf ears. We have been warned, especially in the wake of all the redundancies we have heard from retail outlets, pub chains and restaurants. Nor should we forget the massive redundancies made by BA and easyJet. Virgin Atlantic acolytes will be delighted to hear that the airline has been rescued in a £1.2 billion package, without the Government being called upon to bail it out. 

Billions understandably have been squirreled away for a rainy day by consumers. That day may never come if millions of us have no job to go to! It has also been brought to our attention that 40% of the £46 billion bounce-back-loans, which have been shelled out by the government, guaranteed to banks, to help SMES and those self-employed in need, are in danger of default. These loans, however, are not guaranteed to the end user. The Nationwide decided to drop its deposit level for mortgages from 15% to 10% - noble of them as that percentage deposit is available elsewhere in an extremely competitive marketplace. Mortgages are cheap if you have a job! – 1.99% for 2 years and 2.25% for 5 years. However, in the current climate I suspect lenders will be very discerning as to who they lend to, unless employment is guaranteed, though in all fairness activity in the housing market appears very buoyant.   Top marks to the likes of Primark who will not be taking advantage of the £30 million government furlough handout. There are also signs of a major pick up in sales of luxury cars, but I suspect we want to know how many Fords and Nissans are being sold. That may prove to be a more accurate barometer of improved economic activity.

Last week trading conditions on the Street of Dreams remained very volatile. However, the optimistic investors, who refuse to accept any other outcome apart from a ‘V-shaped’ recovery just about kept their noses in front to science, medicine, and reality. Covid19 shows little sign of abating completely in the US, with up to 73k cases being confirmed in one day. The news on vaccines in the US (Moderna) and in the UK (Oxford U & Astra) look very encouraging. If successful by Christmas, that would be so uplifting for the world’s economy. US Retail sales bounced by 7.5%, significantly above expectations. Perhaps comfort should be taken by indications from OPEC that oil production could soon be increased. It should not be forgotten that the necessary cuts a few weeks ago savaged BP’s and Shell’s assets, which forced them to sell many of them for $17 billion and $22 billion, respectively. In Asia, China’s Shanghai Composite and the Hang Seng had become too frothy, resulting in an understandable adjustment last week. There was inadequate positive news – both economic and corporate for European equities to wake from its current slumber.

The US 2nd quarter earnings floodgates opened last week. Bank earnings were much better than expected, with JP Morgan Chase, Goldman Sachs and Morgan Stanley leading the charge. They all posted phenomenal profits for trading both fixed interest and equities. Goldman posted a profit for the quarter of $2.42 billion on revenues of $13 billion. Bond trading profit was up 150% and equities 46%. 38000 Goldman employees are expected to be paid an average of £156k each for half a year’s work! Considering how beneficial the pandemic has been to Netflix, the outlook for the future looked too modest for investors and analysts. The results were quite good with 10.09 million subscribers being added to the existing 167 million in the last trading period. The revenue of $6.15 billion was decent, BUT to only expect another 2.5 million subscribers in the next quarter was inadequate to sustain the current share price – down 9% on Thursday evening. It is still up about 48% year to date. The competition from Disney, Comcast and Amazon on streaming is fierce.

In the UK, Huawei, having been shown the door by 2027 by the Government was major news with serious ramifications, especially political in view of the amount of business China does with the UK. 5G will almost certainly cost another £3 billion. Huawei’s departure will delay the delivery of this vital technology by probably three years, thus putting the likes of BT, Vodafone, and EE in an invidious position. I hope the PM can conclude a great trade deal with the US by November, as he is unlikely to agree one with Biden, were the Democrats to win the Presidential election.

Last Tuesday Ocado, in the six months to the end of May posted group revenues of £1.09 billion, up 23% on the previous year, driven by a 27% increase in UK Retail sales to £1.02 billion as the firm met ‘unprecedented and sustained demand for online grocery in the UK.’ Thanks to further major investment plans in warehouses and technology, a pre-tax loss of £40.6 million was posted, although this was substantially lower than last year’s first half loss of £147.4 million. The continuing saga of Boohoo’s slave labour association with factories in Leicester failed to disappear, despite the financial aid of £10 million being promised. It also appears that Quiz, the ailing Scottish retailer may have been similarly involved. Again, this did not help. Nor did ASOS’s initiative, which found that a quarter of their global suppliers may also have ethical breaches to be investigated. Dobbie’s Garden Centres have agreed to stock Sainsbury’s products on their shelves.

After 13 years in the saddle Kenny Alexander will be leaving as CEO of GVC Group, the owners of such brands as Ladbrokes, Coral, Bwin, Sporting Bet, Gala Bingo and Party Casino. Though betting shop activity was down 20%, on-line gaming was up 46% in the last quarter. There have been controversial corporate governance issues in recent times, now resolved. The baton will be handed to Shay Segev, the current Chief Operating Officer.

The Sunday Times tells us that Tata steel is on the war path with the Unions over the replacement of furnaces at Port Talbot, which may cost jobs. 

It is not only the UK that is having issues over supporting its economy. We hear from the FT and others that EU leaders are deadlocked over a recovery fund of €750 billion in the current marathon summit.  

UK companies posting interim results this week – Monday – Sthree, Tuesday – Euromoney, Joules, RPS Group, Wednesday – Beazley, Stagecoach, Britvic, Hammerson, St Modwen, McColl’s, Informa, Thursday – Tate & Lyle, IG Group, G4S, Bodycote, Rightmove, Pentair, Relx, Unilever, Friday – Centrica, Ferguson, IMI Group, Pearson, Foxton’s

Monday – Halliburton, IBM, Tuesday – Philip Morris, Comerica, Coca-Cola, Lockheed Martin, United Airlines, Texas Instruments, Snap, Wednesday – Baker Hughes, Microsoft, CSX, Whirlpool, Thursday – Hershey, Twitter, Pulte, American Airlines, BJ Restaurants, Mattel, Intel, Friday – Schlumberger, Verizon, American Express, Honeywell

Economic data to be posted this coming week – Tuesday – UK PSBR, Wednesday – US MBA Mortgage applications, US House prices and Existing Home Sales, Thursday – UK CBI Industrial Trends and Business optimism, US Initial Jobless Claims, Friday – UK Retail Sales, UK HIS Markit PMI Flash, US IHS Markit PMI Flash, US New Home Sales