WEEKLY FAYRE – Monday, 21st September 2020

September 21, 2020

As I lay asleep in Italy
There came a voice from over the Sea,
And with great power it forth led me
To walk in the visions of Poesy.

I met Murder on the way—
He had a mask like Castlereagh—
Very smooth he looked, yet grim;
Seven blood-hounds followed him:

All were fat; and well they might
Be in admirable plight,
For one by one, and two by two,
He tossed them human hearts to chew
Which from his wide cloak he drew …”

Percy Bysshe Shelley – poet – 1907-1973


My great friend and former colleague, Simon French, Chief Economist at Panmure Gordon makes the following case as to why another lockdown may not be an unmitigated disaster – “Policies don’t happen in a vacuum so economic catastrophe is not inevitable. If UK supply side is adequately supported, the lockdown can be more productive than “muddling through”. The importance is for economics and science to be considered together - rather than set up in conflict.

I respect his experience, knowledge, and logic. However, I disagree more on psychological grounds. The damage inflicted on children and the workforce, faced by another lockdown, could be immeasurable. Also, it would almost certainly cost 900,000 hospitality jobs. As I keep saying to a point of boredom: Look at the data. Whilst the death rate remains ‘extremely low’ (any deaths are reprehensible), wherever possible, we need to get back to work, with children remaining at school.



14thSeptember ‘20

18thSeptember ‘20

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Last week, though there was enough corporate news to keep investors stimulated, it was global economics and politics, which dominated investors’ agenda. However, it was the richness of P/E ratios earnings on tech stocks that triggered the decline of most global indices, taking them below the Plimsoll line on the week. The Shanghai Composite was the exception, with China’s economic data looking more positive in response to the recovery process being more pronounced. Japan’s exports dipped 15% in August, which temporarily shook investors’ rafters. They also had to digest the ramifications of a new PM, in Suga-San, who replaced Abe-san, who had resigned due to ill-health.

Congress remained tiresome in its wilfulness by cantankerously refusing to deal with or agree the $1.2 trillion emergency stimulus package, despite the fact the Trump administration was prepared to increase it to $1.5 trillion. Congress seemed ambivalent that FED Chairman was relatively fearful about the immediate outlook for the future of the US economy, due to deep-seated concern that Covid19 was still rampant, which could restrict what initially looked like a ‘V-shaped’ recovery. There is no immediate possibility of a FED rate increase in the foreseeable future. FED Chairman Powell all but urged the US Government and Congress to get its act together and agree contingency stimulus plans.  There was no dramatic improvement in the employment data, with Thursday’s Initial Jobless Claims offering moderate encouragement with 790k claiming benefits. However, in fairness the unemployment rate fell to 8.6%, from 9.3% a week earlier.

Here in Old Blighty it was initially all about inflation, which remains benign at 0.2% in August, thanks to cheaper travel, clothes, and the Sunak ‘eat-out’ gift. However, it was disseminating the unemployment data, which set the tongues a wagging! A rate of 4.1% up from 3.9% from July to August was frankly irrelevant. It was the 695,000 jobs that had been lost from March to August that was causing concern. When the job retention scheme is finished does unemployment go to 10%, with 3.5 million on the dole or will it be 7.5% as the Bank of England forecasts? Chancellor Sunak will be ruminating on whether to continue with furloughing for those in hospitality and the self-employed, especially with the Covid Spike threat looming on the horizon. Despite the threat of a spike, the Government would be ill-advised to shut the economy down again. The hospitality sector alone could see a wipe-out with 900,000 jobs lost, according to yesterday’s Sunday Times.  It is also thought that the Chancellor will be forced to extend four business support loan facilities.

Thursday’s MPC meeting was uneventful but interesting. There was no change in base rate, left at 0.1%. Rates certainly will not rise for some time. The Governor was still concerned about the damage Covid19 might do to the economy, though the QE facility was kept at £765 billion for the time being. Negative interest rates are still ‘sitting in the tool bag’, in case of need. As for GDP forecasts, the BoE believes the 3rd quarter GDP should be comfortably in double figures with the 4th quarter remaining a lottery. The ‘Bank’ estimates GDP for 2020 to be down 5%, and up 7.5% in 2021 and up 5% in 2022. As for Retail Sales in the UK, they were up 4% from March to August. August sales were only up 0.8%. Though on-line retail sales were 46.8% higher than in February, they were 2.5% down in August 2020. DIY did well in August and clothes and travel were not at their best in the same period. 

The BREXT negotiations continue to look ugly, especially over the adjustments demanded by the UK for Northern Ireland for their supposed protection. EC President Ursula Von der Leyen is still hopeful a deal can be cobbled out. What is not certain is that the UK Government shares her enthusiasm and N Irish ports have been told to prepare for ‘no deal’ as a possible eventuality. Unsurprisingly, Joe Biden and Nancy Pelosi have made it clear there will be no trade deal if the GFA is not protected. Few people in this country think there is any chance of any trade deal with the US with a Democrat administration – in fact, no chance.

The loss of value in the US equities was largely down to the tech sector coming under pressure with Apple and Amazon both losing 7% in the last week. I suspect we shall see airlines and travel come under the cosh this week, if the Covid19 spike gains momentum. Snowflake is the first of many expected IPOS in the pipeline to take its bow last week. Many think that Goldman Sachs, the main underwriter mispriced the world’s biggest ever software IPO. Snowflake, backed by Warren Buffett and whose lead underwriter was Goldman, was priced at $120 a share before surging to close the first day at $253.93, 111.6% higher. It appears that President Trump has agreed in principle to a joint venture between Oracle and Tik-Tok in respect of the Chinese media messaging platform operations in the US.

UK markets were full of corporate stories and gossip. Hitachi decided to pull out of its £20 billion commitment to nuclear energy in Anglesey. However, China’ s CGN may well commit to investing in a new plant at Sizewell. China’s Fosun has also decided to put Thos Cook back on the map, a year after it went down, after 320k settled claims.  However, its presence will only be ‘on-line’. G4S the security Group has been under pressure to succumb to a £3 billion hostile bid from Canada’s Garda World. Garda World put in a 25% premium bid of 190p. Market observers believe this deal could be consummated.

G4S was not the only company to be the subject of a bid last week. ARM, the Cambridge based chip titan, bought by Softbank in 2016 for $24 billion is likely to be sold to Nvidia of California for £30 billion. Concern was expressed about the future of its 3000 staff. Nvidia have given a legal undertaking as to the future of its UK operation. Softbank has recently been a massive investor in US tech companies by way of billions of Dollars in the options market. This is some bet. Softbank’s shares are up 44% year to date.

There were three known suitors for the LSE’s sale of Borsa Italiano, the only positive move Dame Clara Furse made in 2007 during her stewardship as CEO. The LSE will always be indebted to Xavier Rolet, her successor, who built the LSE to be one of the most influential exchanges. Since 2009, the LSE share price has increased from 449p to 6957p on Friday! Clearly Borsa Italiano is not synergistic with life after BREXIT and the LSE needs to make way for its £28 billion purchase of Refinitiv. It is thought that Euronext will pay about £3 billion. The Italian exchange was bought for £1.1 billion.

New Look appears to have been granted a stay of execution, having made peace with its landlords for the time being - mainly British Land, Land Securities and Hammerson - over rent arrangements with some free periods and some of the rent to be paid geared to turnover. New Look has 469 outlets and 11000 employees. It is thought that Hovis, partly owned by Premier Foods and the Gores Group, may be up for sale for as much as £100 million. The likely buyer is thought to be Endless Epiris, who recently hoovered up Bella Italia and Café Rouge. Daniel Kretinsky, affectionately known as the Czech Sphinx has taken a 3% stake in Sainsbury. He is currently an active shareholder in Royal Mail and would like to see the group broken up.

On the good news front The Hut Group completed a very satisfactory IPO last Wednesday, when the issue price of 500p went to a 24% premium on the first day of trading, with CEO Matthew Moulding likely to take several hundred millions out of the ring and business luminaries such as Sir Terry Leahy enjoying his judgement with a bonus of close to £82 million. The corporate governance is said to have been far from perfect for this luxury on-line retailer, but time will surely correct these idiosyncrasies. Pinewood Studios announced a £450m expansion plan, including a blockbuster visitor attraction, which it says could create around 3,500 new jobs. It was dispiriting to hear that Deloitte’s had been fined £15 million plus £5.5 million costs for misrepresenting balance sheet items in the sale of Autonomy to Hewlett-Packard in 2011.

Last week Dame Sharon White, the chairman of John Lewis threw the kitchen sink at the public in announcing a £635 million loss for the first half of the year including a £470 million property valuation write-down. No bonus will be paid this year for the first time since 1953. Several stores have been closed and redundancies are due to reach 1300. Let us hope the current ‘Covid’ spike does not kill off the recovery process. Though NEXT’S first half sales were down 33%, Lord Simon Wolfson, the CEO felt comfortable raising the profit target for the year up from £195 million to circa £300 million, thanks to a dramatic improvement in sales. He also deplored the idea of everyone working from home. He was concerned that relationships at work would not be built to the detriment of the business and that Zoom conferences were just lectures rather than in depth conversations.

There was significant speculation that talks of a merger between UBS and Credit Suisse were under way, but there was no comment from either camp. Both banks are focusing on wealth management. These two banks in unison would make up the largest bank in Europe.

Goldman Sachs has decided to give a wide berth to the IPO of Darktrace, the cyber security tech company, backed by Mike Lynch, formerly of Autonomy, which was sold to Hewlett-Packard. Mr Lynch is facing extradition to the US to face fraud charges.

UK companies posting interim results this week – Monday – AG Barr, Informa, MaxCyte, Kingfisher, Tuesday – Alliance Pharma, Wednesday – Carnival, SIG, Pendragon, Thursday – Cineworld, DFS Furniture, Portmeirion Group, Smiths Group

US Companies posting interim results this week – Tuesday – Autozone, KB Homes, Nike, Manchester United, Wednesday – HB Fuller, General Mills, Thursday – Accenture, Rite Aid, Costco, Darden Restaurants, Jabil, Vail Resorts, Friday – JC Penney

Economic data to be posted this coming week – Monday – ECB Mme Lagarde Speech, Tuesday – CBI Industrial Trends, US Existing Home Sales, FED Chairman Jay Powell testimony, Wednesday – UK HIS Markit, Manufacturing, Services & Composite PMI, US MBA Mortgage Applications, US House Prices, US HIS Markit Manufacturing, Services & Composite PMI, Thursday – Initial Jobless Claims, US BoE Governor Andrew Bailey Speech, US FED Chairman Jay Powell Testimony, US New Home Sales, Friday – UK Car Production, UK Gfk Consumer Confidence, US Durable Goods