WEEKLY FAYRE – Monday, 23rd November 2020 “Anthem for Doomed Youth”

November 23, 2020

What passing-bells for these who die as cattle?

— Only the monstrous anger of the guns.

Only the stuttering rifles' rapid rattle

Can patter out their hasty orisons.

No mockeries now for them; no prayers nor bells;

Nor any voice of mourning save the choirs,—

The shrill, demented choirs of wailing shells;

And bugles calling for them from sad shires.

What candles may be held to speed them all?

Not in the hands of boys, but in their eyes

Shall shine the holy glimmers of goodbyes.

The pallor of girls' brows shall be their pall;

Their flowers the tenderness of patient minds,

And each slow dusk a drawing-down of blinds.”

Wilfred Owen – soldier and poet – 1893-1918

I just cannot believe that I wasted so much time watching the fourth series of ‘The Crown!’ It was ‘low-grade’ entertainment stretching the viewer’s imagination just a little too far in caricaturing the dramatis personae in the Royal Family and the Thatcher Government. Frankly, the dramatisation was unnecessarily cruel and some of the portrayals were ‘way over the top’!

INDEX

16thNovember ‘20

20thNovember ‘20

% Loss/Gain

FTSE

6316

6351

+0.55%

DAX

13170

13137

-0.25%

CAC40

5430

5495

-1.20%

DJIA

29672

29263

-1.38%

S&P 500

3600

3557

-1.20%

NASDAQ

11847

11854

+0.06%

SHANGHAI

3325

3377

+1.56% 


Not for the first time in recent months has the weekly table above, been a true barometer of investment sentiment and activity. Conditions were distinctly volatile. There was a war of attrition between the ‘bulls’, who initially were riding high on news and the waves of hope from the vaccine developer: Pfizer/BioNtech, Moderna and Astra Zeneca/Oxford University, who easily took the early rounds of attrition against the ‘bears’, who represented the realists. They are consistently reminding us that Covid-19 is still globally rampant and that most vaccines are unlikely to be distributed until the New Year, even though the elderly might be inoculated by Christmas.

Last week’s economic data in the UK was relatively benign in comparison to what we might expect from the Chancellor’s Spending Review and the OBR’s Fiscal and Growth target, to be posted on Wednesday. UK Inflation bounced last month from 0.5% to 0.7%, thanks mainly to the cost of clothing and food. UK Retail Sales announced on Friday by the ONS for October 2020 stated that retail sales volumes increased by 1.2% when compared with September; the sixth consecutive month of growth in the industry. In October, growth in the volume of sales for non-store retailing at 6.4%, household goods stores at 3.2% and department stores at 3.1% all contributed to the overall monthly increase in retail sales. In October, the year-on-year growth rate in the volume of retail sales saw a strong increase of 5.8%, with feedback from a range of businesses suggesting that consumers had started Christmas shopping earlier this year, further helped by early discounting from a range of stores.

Panmure Gordon’s Simon French observed that “There are strong signs of "diverted spending" in Friday's UK retail sales beat for October (+7.8% YoY). There is evidence of frustrated consumption in hospitality, travel & entertainment re-profiled into retail spending (largely online). Y/o/Y changes are likely to be countercyclical as the economy hopefully reopens in 2021.” The Government’s Public Sector Borrowing Requirement for October was eye-wateringly large. It borrowed £22.3 billion in October, which was £10.8 billion more than in 2019. Borrowing requirements for the financial year-to-October 2020 could reach £372.2 billion by the end of March 2021. US Initial Jobless Claims posted last Thursday totalled 742,000 in the week ending November 14th, up 31,000 from the prior week, Continuing claims -- the total pool of Americans drawing state unemployment benefits fell 429,000 to 6.37 million in the week ended 7th November 2020.

Wednesday’s UK Government’s ‘Spending Review’ looks like a hornet’s nest of imponderables. The continuing level of debt is starting to prove a problem or is it, with interest rates close to zero? Changes in taxation until growth returns would be very unwelcome, especially idle gossip that CGT could be doubled more in line with income tax. To raise CGT at this juncture would, in my humble opinion, be very poor judgement. Only 265000 are eligible to pay CGT, whereas 30 million pay income tax. To increase the levy on CGT would kill incentive to invest at this vital time both from home and overseas investors. It would be akin to “throwing the economic baby out with the bath water!” However, over the weekend Chancellor Sunak made it clear that tax rises are coming in 20221. I am also very concerned about the 3 million self-employed who are looking over a precipice of economic suicide, having received no government help to date, especially as there seems no permanent end to the ‘lockdown.’ Finally, apart from NHS workers, it looks as though 5.5 million public sector employees will have a pay freeze for some time. I doubt this imposition will go unchallenged!

As if the ‘Spending Review’ were not going to be controversial enough, the Government decided that the sale of petrol or diesel cars would be banned by 2030. That decision has huge connotations. A decade is not long. Though it is a great decision for the planet, it will trash the value of second-hand cars. Electricity may be cheap, but the costs of cars is likely to be significantly higher.

In the US last week, away from the political and economic influences on Wall Street, it was retail companies that caught the investors’ imagination. Walmart posted EPS of $1.34 a share on revenue that rose 5.2% year over year to $134.7 billion. Analysts were looking for EPS of $1.18 on revenue of $132.1 billion. Same-store sales rose 6.4%, ahead of the 4% consensus estimate. The company said sales climbed across categories, while e-commerce soared 79%. While traffic was down 14.2% in the period, customers spent 24% more when they did shop. Walmart shares are up 21% on the year. On Wednesday, Target also produced decent numbers. EPS came in at $2.79 (EST: $1.60) – 3rdquarter Revenue was $22.63 billion (EST:$20.93b) - Same-store sales: up 20.7% versus EST: 11.2% and digital sales grew by 155% - The big-box retailer’s curb-side pickup service grew more than 500%. 

Home Depot’s same-store sales, which includes sales online and at stores open at least 12 months, rose by 24% in the last quarter. Lowe’s same-store sales, including online sales and those at stores open at least 13 months, rallied by the best part of 30% in the same period. Not quite such encouraging news from Macy’s. Net sales for the 3rd quarter fell to $3.99 billion from $5.17 billion a year earlier. Foot Locker’s numbers were better than expected – EPS were $1.21 a share as revenue rose 9% year over year to $2.11 billion.

The Tesla fairy tale continues to gather momentum. Such has been the frenzy to own its shares, which has seen its price rise by 439% since the beginning of the year, making Elon Musk the 3rd richest man in the world – supposedly $110 billion. It also makes Tesla share market value greater than GM and Ford as well as Toyota. Tesla manufactures about 365,000 units a year whereas Toyota produced 10.75 million. The premium paid for expectation is humungous! US safety regulators have cleared Boeing's 737 Max plane to fly again, lifting grounding orders put in place in March 2019 after two deadly crashes. Initially Boeing shares bounced by 10%, but by Friday they were up only 2.5% on the week.

Not before time, the FTSE 100 has enjoyed a decent ‘run on the rails’ during the month of November, which has seen the trashed value of companies such as BP, Shell, Rolls Royce, IAG, Tui Travel and the main banks, rise like proverbial grilse. November has seen the FTSE 100 rally by 13.8%. It is possible that, unless there is a pull-back, November could be the FTSE’s best month for nearly 30 years.

The high street remains under duress. It is apparently losing traffic valued at 2.6 billion a week. 13,800 stores have closed this year. There has also been a 40% fall in hospitality sales and 660,00 have lost hospitality jobs. Hopefully, next week, these dire numbers will encourage the Chancellor to provide some help for the self-employed.

Last week Vodafone posted a 2.3% drop in annual profits to €21.4 billion, some of the loss of business attributable to Covid-19. However, Vantage Towers, which has 68,000 sites, likely to increase to 71,000 next year, will be hived off in an IPO, potentially allowing £250 million to be returned to shareholders. JD Sports expressed an interest to buy Debenhams and the markets cynically awaits developments. Royal Mail Group posted interesting numbers - Revenue from parcel deliveries has surpassed letters for the first time, fuelled by a surge in online shopping during the pandemic. The postal group said turnover from parcels now makes up 60% of its total revenue, which rose by nearly 10% in the first half of its financial year. Redundancy costs and pandemic charges saw pre-tax profit fall 90.2% to £17m. In my humble opinion RMG is too small to make an impact in the long term. A liaison with companies such as FEDEX or UPS, less the stamps etc would be advisable. An agreement has been reached in principle that RSA insurance operation is to be spit into two, with Infact of Canada and Tryg of Denmark splitting the spoils.

Cineworld is considering a CVA, with a view to cutting costs and gaining access to fresh capital from its lenders. It is sitting on a £6.2bn debt pile and is also negotiating with some of its landlords to cut rents across its 127 UK sites. One of these, AEW, has taken the company to court over an outstanding bill on £308,000, according to CityAM. SSE posted a 15% drop in profits but it confirmed a joint venture to develop the Dogger Bank wind farm, which will have capacity of 3.6 gigawatts, or enough to power 4.5 million homes, when it is completed by 2026. British Land saw its shopping mall portfolio drop in value by £837 million in the 2ndhalf of its financial year.

It looks likely that TSB, Coop Bank and Sainsbury Bank will be sold before too long. With TSB’s owners Banca Sabadell likely to fall into the arms of BBVA, it is not known whether TSB will be included in BBVA’s on-going plans. The Coop Bank is likely to be bought by Cerberus Capital. Ironically US’s PNC is to buy BBVA’s US operations for $11 billion

Last week Japan saw its GDP rebound by 5%, but it remains lower than the previous year. China saw its retail sales grow by 4.3% in October, eclipsing the 3.3% increase in September. According to the Sunday Times China has sent the UK a ‘warning shot across the bows’ not to shut out its business activities, as it will suffer, costing thousands of jobs. This initiative follows China’s greater influence in the affairs of Hong Kong.

UK companies posting interim results this week – Monday – DMGT, Sirius, Tuesday – Babcock International, Cranswick, Pennon, AO World, Compass, Pets at Home, Intertek, Wednesday – United Utilities, De La Rue, Thursday – Britvic, Paypoint, Severn Trent, Ted Baker

US Companies posting interim results this week – Monday – Warner Music, Korn-Ferry, Urban Outfitters, Tuesday – American Eagle Outfitters, Autodesk, Best Buy, Hormel Foods, Chico’s FAS, Dell Technologies, Dollar Tree, Dick’s Sporting Goods, GAP, HP, Nordstrom, Wednesday – Deere & Co

Economic data to be posted this coming week – Monday – UK IHS Markit PMI (Nov Manufacturing, Services & Composite), IHS Markit PMI (Nov Manufacturing, Services & Composite), IHS Market PMI (Nov, Manufacturing, Services & Composite), Tuesday – UK CBI Distributive Trades, ECB Lagarde Speech, US House Price Index, Wednesday – UK Spending Review, UK OBR Economic & Fiscal forecasts, US Durable Goods, US MBA Mortgage Applications, US Initial Jobless Claims, US New Home Sales, US Michigan Consumer Confidence, Thursday – EU Monetary Policy Meeting, Friday – Nationwide House Prices