WEEKLY FAYRE – Monday, 22nd June 2020

June 22, 2020


Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveller, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

Then took the other, as just as fair,
And having perhaps the better claim
Because it was grassy and wanted wear,
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I,
I took the one less travelled by,
And that has made all the difference.”

  

Robert Frost – poet – 1874-1963

 

Like any other sport-crazed person, I was so looking forward to the Premiership returning to action last Wednesday and this weekend, with the prospect of my team Fulham qualifying for the EFL ‘play-offs’ at the end of July. Forget the technological disallowed goal at Villa Park, it was a really ‘dire affair’, made even more excruciatingly boring due to fact that there was no crowd participation and therefore no atmosphere and no passion. On Friday, Norwich City were clinically eclipsed by a well-organised Southampton team. Some decent football was played, but oh! – no atmosphere! In passing, Fulham’s inept performance against Brentford on Saturday dented my hopes and dreams. 

Royal Ascot all but overcame the lack of crowd involvement - always an important ingredient for this glittering occasion. Ed Chamberlin and the team filled in the gaps missing from this occasion, with maybe an excess of jocularity, but it was a very professional production. To see ‘Stradivarius’ destroy his opponents to win his third Gold Cup by 10 lengths would have been worth the price of admission. I think it was an average Gold Cup, but the winner still had to turn up and do the business! And he did, with all the zest imaginable on ground that was far from ideal. It was a pity that ‘Kew Gardens’ was not fit to make it a real test of stamina in a more competitive race. With 6 winners at the Royal meeting, Frankie Dettori, who will be 50 years of age next year, continues to ride at the very pinnacle of his profession.

 

INDEX

15th June 2020

19th June 2020

% PROFIT

FTSE

6105

6292

+3.06%

DAX

11661

12330

+5.73%

CAC

4716

4979

+5.57%

DJIA

25270

25871

+2.38%

S&P 500

2993

3097

+3.47%

NASDAQ

9426

9946

+5.52%

SHANGHAI

2908

2967

+2.03%

HANG SENG

23991

24643

+2.73%

NIKKEI 225

22135

22478

+1.55%

 

Despite mild doubts expressed by investors that a spike in the pandemic had returned to Beijing, Arizona, Texas and most recently in Florida, investors bravely kept their nerve for much of the week until Friday, when in the US their resolve started to display cracks of concern. The Street of Dreams gave up strong early gains to close lower last night, after the WHO signalled that this pandemic remains a deadly threat. In response, Apple served notice that it will re-close some stores due to rising case counts in parts of America, casting doubt on the speed of economic recovery. Nonetheless equity geeks had a very productive week. The Far-East expressed the most concern about the prospect of coronavirus rearing its ugly head again. The NIKKEI produced only a moderate performance for two reasons. Firstly, Tuesday’s Tankan survey on the outlook for Japan’s manufacturing business confidence was the worst for eleven years, dropping from -44 to -46 in June. It also did not help the NIKKEI’s cause that the Yen remained indecently strong against the Dollar.

As for the rest of the world, investors found themselves ‘under a wet sail’ in Europe, with many economists believing that the runes in the sand for the recovery of their economies is looking quite positive and ahead of the UK. However, in the UK the virus did not become as toxic until three weeks after the rest of Europe. Many also perceive that the UK government may have been a little tardy in ‘closing down the economy’ than maybe it might have been. Also, the FTSE 100 is overflowing with underperforming sectors such as banks, retail, aviation, oil and to a degree, mining.

In the slipstream of last week’s shock UK GDP data, the ONS presented employment data last Tuesday, indicating that 612,000 people in the UK are no longer employed. The UK unemployment rate for the three months to April 2020 came in unchanged with an utterly meaningless though accurate rate of 3.9% - However, it should not be forgotten that more than 9 million workers have been furloughed, adding up to a cost of £20.8bn up to 14 June 2020. Sadly, many of them will lose their jobs permanently. Many people are of the opinion that the unemployment rate in the UK could be well be above 10% at the end of the second quarter.  Inflation in the UK fell from 0.8% to 0.5%, thanks in the main to the drop in oil prices and clothing.  Then on Friday the ONS posted UK retail sales that smashed its previous record in May 2020 (+12.0% MoM) or down a huge 13.1% YoY. Judge for yourselves in your pre-prepared narrative on the shape of the recovery. Overall, the data is coming in ahead of OBR/BoE scenarios & closer to single figure output decline in 2020, according to Panmure Gordon’s Chief Economist, Simon French.

Thursday’s MPC meeting saw no change in the official bank rate, left at 01%. Governor Bailey announced a further £100 billion contribution to quantitative easing, taking the total to £745 billion. This move is not wholly supported by expert economists and it will not have escaped observers’ notice that BoE’s chief economist, Andy Haldane voted against it. Andy Haldane’s dissent also suggests bailout fatigue. Finally, on the UK economic front, the Government announced that it will borrow more than £55 billion in May. This was more than the Treasury borrowed during the whole of last year. PSBR is on track to hit £300 billion in this financial year. Panmure’s Simon French pointed out in his Times article on Saturday - even under assuming a 9% contraction in the UK economy in 2020, and an additional £300 billion of public sector debt - the burden (interest as percentage of GDP) can be expected to remain below its long-term average of 2.7%, assuming Gilt interest rates are at today's levels. The total UK debt stands at £1.95 trillion – 109% of GDP. In June 2020, Germany’s ZEW Indicator of Economic Sentiment increased for the third consecutive time. The indicator currently stands at 63.4 points, which corresponds to a rise of 12.4 points compared with the May result.

‘Across the pond’ applications for unemployment benefits in the U.S. fell less than forecasted last week, showing only gradual improvement from the worst of the pandemic-related ‘layoffs’, even as states re-open more of their economies. Initial jobless claims for regular state programs totalled 1.51 million in the week ended June 13, down slightly from an upwardly revised 1.57 million in the prior period. In the past 12 weeks a total of 45 million have applied for an array of benefits. Last month US employers added a surprise 2.5 million jobs and the unemployment rate fell to 13.3%. The good news came from US Retail sales which increased by 17.7% last month. ‘On-line’ company sales were up 30% on the year. Building material and garden shops gained 16.4%. However, clothing was down 60% and restaurants and bars by close to 40%. Despite the confidence exuded by stock market luminaries, FED Chairman Jay Powell, in his testimony to Congress last week, warned of significant uncertainty over the US recovery. 

On the corporate front there were plenty of financial nuggets to gnaw over. Job losses were somewhere near the top of the agenda. Jaguar Land Rover is likely to lose 1000 from its work force. Travis Perkins/Wickes will be shedding 2,500 jobs. Rolls Royce all but confirmed 4500 redundancies at Derby plant out of 9000 put on notice. Metro Bank after losing 80% of its value to £180 million, is looking into the possibility of buying peer-to-peer lender RateSetter for a nominal fee.  Kingfisher, the owners of Castorama, Brico and B&Q posted a recovery trading statement. Having seen sales down 24% in April saw sales bounce back by 20% last month. It will also be employing an extra 1500 people and DPD intend to employ a further 7500 staff. Boohoo posted a 45% increase in sales for the past quarter and have agreed in principle to buy Warehouse and Oasis for a modest consideration. Ashtead, the renter of industrial and industrial equipment such as diggers and pick-up trucks, which employs 18,000 people, has had a very productive quarter, including extra business in the US, saw its shares bounced by 9% last week after it posted an encouraging trading statement.

There was renewed speculation that BP’s dividend may need to be cut next year, after CEO Bernard Looney announced that the oil mogul had written off $17.5 billion of assets, due to the collapse in the oil price. $55 a barrel was thought to be the price level required to maintain profitability and the average price now is about $40.  Debt will need to be paid down and BP will need raise its game in the field of renewable energy production.

There was a decent touch by Lloyds Banking Group to hand out £10 million to the 40,000 staff for their efforts during the pandemic crisis. The Sunday Times also tells us that Huawei has encountered difficulties in building their proposed controversial £400 million R&D centre near Cambridge. Wirecard's chief executive quit on Friday as the search for missing cash hit a dead end in the Philippines. The German company also said it was withdrawing its financial results for 2019 and the first quarter of 2020. 

It was interesting to observe that respected investor Jeremy Grantham is becoming increasingly certain that the U.S. stock market’s rebound amid the coronavirus pandemic is forming a bubble that is ignoring reality and will end up hurting many people. He advised investors on CNBC last week to switch out of US equities into those from emerging markets.

As examples of economic insanity look first at the current situation of Hertz, brought to its knees by the virus. It filed for bankruptcy which resulted in 12,000 workers being made redundant. Hertz was looking to raise $500 million, but this sale has been called off. Expectations from market speculators has been intense. A month ago, the share price stood at $0.56. it rallied to $5.53 on 8th June 2020. On Friday they had fallen to $1.73. This journey looks as if it might be ‘the last throw of the dice!’ 

The $34 billion market capitalization Nikola, the hybrid truck maker has surely belied the company’s fundamentals. Nikola is forecasting zero revenue for 2020 and its first $1 billion year in 2023. It does not expect to be fully utilizing an Arizona assembly plant that it has not built yet until 2028. This looks like economic innumeracy personified to me. Time alone will tell. Many observers said the same as Elon Musk’s Tesla and were proved wrong, but this looks like an enormous bubble to many.-

Finally, the UK waits with bated breath to see if PM Johnson, when he addresses the country on Tuesday, will allow Chancellor Sunak to cut VAT temporarily, to encourage shoppers to spend, thus providing a modest springboard for economic recovery.

UK companies posting interim results this week – Tuesday – Cranswick, Gear4Music, NCC, HIS Markit, St James’s Place, Wednesday – Premier Foods, Stagecoach, Thursday – Dixons Carphone, Mitie, Auto Trader, Royal Mail Group, Serco, Friday – Marston’s, Tesco

US companies posting earnings this week – Wednesday – KB Homes, Thursday – Darden Restaurants, Rite Aid, Nike

Economic data to be posted this coming week – Monday – CBI Industrial Trends, Tuesday – US New Home Sales, Michigan Consumer Confidence, Wednesday – Germany’s IFO, US MBA Mortgage Applications, Thursday – CBI Distributive Trade Survey, US Initial Jobless Claims, US Durable Goods, US GDP, Friday – UK car Production, US Income & Personal Spending