WEEKLY FAYRE – Monday, 24th August 2020

August 24, 2020

“The trees are coming into leaf 
Like something almost being said; 
The recent buds relax and spread, 
Their greenness is a kind of grief. 

Is it that they are born again 
And we grow old? No, they die too, 
Their yearly trick of looking new 
Is written down in rings of grain. 

Yet still the unresting castles thresh 
In fullgrown thickness every May. 
Last year is dead, they seem to say, 
Begin afresh, afresh afresh.”

Philip Larkin – poet – 1922-1985

 

What a test match – win or draw! Having watched test match cricket since 1953, I cannot remember having witnessed a more graceful, resolute, commanding maiden century, than that played by Zak Crawley during his 267 against Pakistan on Saturday. David Gower may have run him close, but Crawley’s effort surely eclipsed it.  The icing on the cake in this match was Jimmy Anderson’s 5 for 56 – just 2 wickets short of taking 600 test wickets. 

Right on cue, EU chief negotiator Michel Barnier appeared before the press last Friday and duly despaired at the prospect of ‘NO DEAL’ between the UK and the EU. He said it "seems unlikely" at this stage, when expressing his disappointment. His UK counterpart, David Frost agreed that "little progress", amid differences on fisheries policy and state aid rules, had been made.

Don’t you just love the way M Barnier and to some degree the UK enjoy briefing against each other. It used to be a charade that the public just came to expect. Today, I think it just causes irritation.  M Barnier must surely realise that David Frost has a different perspective to Sir Olly Robbins. The Government has a majority of 80. The UK has left the EU. I doubt there will be an extension beyond 31st December. So, there ought to be a resolve to get a deal done against a background of such a disturbing economic cycle. The alternative? WTO – So be it. If huge progress is made towards the end of the year, maybe a short extension can be agreed. But the EU must not be ‘let off the bridle’, until the finishing line is in view.

 

INDEX

17th August 2020

21st August 2020

% Loss/Gain

FTSE

6090

6001

-1.46%

DAX

12924

12764

-1.29%

CAC

4972

4896

-1.53%

DJIA

27970

27930

-0.14%

S&P 500

3381

3397

+0.47%

NASDAQ

11083

11311

+2.06%

SHANGHAI

3373

3380

+0.20%

HANG SENG

25212

25113

-0.39%

NIKKEI 225

23189

22920

-1.16%

ASX

6126

6111

-0.24%

 

Even though the S&P 500 and the NASDAQ briefly touched record levels last week, it was not an especially happy week for market acolytes, as can be seen from the table above – far from disastrous but not satisfying. From a professional or political standpoint, I have not enjoyed it at all. General disruption over exam results, the increase of damaging quarantine restrictions with countries like France and Croatia. Then came the debilitating BREXIT negotiations and the reluctance of the UK workforce to return to work. These issues unsurprisingly failed to lift the crestfallen spirits of most people. Covid19 remains a weeping carbuncle on society. There are mild spikes around the country but at least the death rate has dropped dramatically. Influential components within the media plus many politicians, aided and abetted by advice from the scientific and medical profession, seem to be ignoring the basic data. The average age of those who died from Covid19 is 81 and most of them had underlying health problems. According to the ONS less than 2000 people, who had no underlying health issues died from this nasty toxic epidemic since March. Any deaths are horrific, but the situation needs to be put into perspective.

There is certainly enough fear out there to keep droves of key workers from returning to work. Amongst the flag bearers included are RBS, Schroders, and PwC. However, many ‘white collar’ workers, away from manufacturing and retail have or will follow suit. The City of London currently looks like Boot Hill in Tombstone, Arizona in the mid-19th century. I must confess I fear for the City’s future. Currently it stands tall with New York. However, it could easily surrender some of its prowess to the US and the Far East, whilst at the same time opening the door to some European centres, which in normal circumstances, would hardly have qualified as competitors. However, the advent of BREXIT added to Covid19 issues, might well offer opportunities, when in normal circumstances getting a foot in the door it could have proved quite a problem for Europe. Also, financial markets are led to believe that stubborn EU regulation, without the slightest prospect of any conciliatory tone, could well indicate a delay in allowing the UK access to EU markets.

The above table provides little evidence that last week was volatile, but it was. Investors concerned themselves with President Trump’s volatility, his increasing show of displeasure towards China and the negative effect no trade deal will have. Markets now feel that Jo Biden could win the Presidential Election on 3rd November, though it might be folly to underestimate the mood of the ‘Bible Belt of Middle America.’  Punters did not enjoy the content of the FOMC minutes, when FED Chairman Powell let it be known that he was concerned about the pace of recovery for its economy, especially the toll unemployment would take. Initially, the Street of Dreams pulled back, but it was not for long, as the tech giants slipped into overdrive, with Apple, Microsoft, Amazon, and Tesla to the fore. Apple is the first US company to see its share capital value breach the $2 trillion mark. Its performance has been outstanding throughout the pandemic, with sales reaching over $59 billion. I suppose we should look at the fact that Apple’s P/E ratio is at its highest level since 2007.

Most of the global PMIS posted were very encouraging for the US the UK, but less so for the Eurozone. The was a glimmer of hope for the future as the UK’S PMI Composite came in at 60.3 (an 82-month high) against 57.0 in June, from which all of us who live in this Sceptred Isle should take comfort from. As for the Eurozone, their PMI fell from 54.9 in July to 51.6 in June. The UK’s Inflation rate remained relatively benign at +0.8% (last month +0.6%). However, going forward inflation remains a bit of an anomaly, with some professionals suggesting it could reach 3%+ next year. There is a school of thought that thinks the Treasury/Bank of England/Debt Office might be well advised to issue as much debt as possible while the 10-year-Gilt yield stands at around 0.25% of a percent. Long term employment prospects in the US took a bit of a jolt on Thursday, when Initial jobless claims posted a 1.1 million increase in people claiming benefits. It would also be fair to say that the outlook for employment in the U.K. looks to be some way from encouraging with indications that one in every three firms may have to cut jobs by Christmas.

There was considerable improvement in U.K. retail sales posted on Friday - up by 3.6% in July and 3% since February. However, there were two anomalies - though clothing sales were up 11.9% in August, they remain down 25.7% since February. Also, road traffic was down 17%, which meant that fuel consumption dropped by a similar amount.

The surge in the value of the main US tech giants provided the momentum for keeping US equities’ head just about above the Plimsoll line. Walmart and Target produced stellar numbers on Tuesday and Wednesday respectively. Walmart same store sales were up 9.3% producing income of $137.7 billion for the last quarter and a profit of $6.48 billion. ECommerce sales were up 97%. Walmart shares are up circa 12% since the beginning of the year. Target posted an 80% increase in profits with same store sales in the last quarter increasing by 24.3%. Target shares bounced by close to 12% from Wednesday through to Friday. This week the market will see how well other retailers have performed. Life for Eastman Kodak has proved tough in recent years, with photographs now preeminent on mobile phones. However, with the help of a $765 million loan, the company has moved into drug production. Its shares bounced significantly from $2.14 to $33 but have since slid back to $6.88.

Shares in Berkshire Hathaway have not had a good run by their high standards since January - Shares are down from $342k to $311k on Friday. Warren Buffett who will be 90 this month. This incredible fund has had investments in Apple, Coca-Cola, GM, and less well-known operations such as Geiko and Dairy Queen. Last quarter profits were up 87% at $26 billion but recently Berkshire Hathaway made $9 billion write down on Precision Castparts, which makes components for aerospace. Eventually Mr Buffett is expected to hand over the remaining reins to Ajit Jain and Gary Abel.

Johnson & Johnson, the US’S largest drug/healthcare operator last week paid $6.5 billion in buying biotech Momenta Pharmaceuticals - a developer of autoimmune disorders. Other news that hit the wires included Airbnb’s decision to go public. Having posted a loss of $1 billion and let 25% of the staff go, conditions have improved dramatically. One day in July Airbnb received 1 million booking orders. Morgan Stanley and Goldman Sachs have been given a mandate to secure an IPO if conditions are suitable. The valuation is expected to be around $18 billion, significantly lower than the $30billion price tag discussed pre-covid19 pandemic.

On other international fronts, Qantas of Australia announced a $1 billion loss forcing the carrier to make between 4-6k employees redundant. Alibaba, China’s answer to Amazon, saw sales volumes increase by 27% last quarter. Alibaba has 742 million active customers. The US Government is intent on cutting ties with Chinese companies. Nonetheless Daniel Zhong, the CEO says he has US customers’ best interest at heart. Thanks to the lockdown, trading conditions improved for Sony in the quarter to the end of June. Profits of $230 million were posted, with games, music and network services being the main driving forces.

There have been several interesting nuggets of news here in Old Blighty last week. On the back of Walmart’s results, it transpired that ASDA may be up for sale, thanks to the CMA giving the ‘thumbs down’ to a merger with Sainsbury. It is understood that the competition for ASDA’S hand in marriage could be between two private equity titans, Apollo, advised by Rob Templeman the former CEO of Debenhams and Lone Star, assisted by Paul Mason a former CEO of ASDA. A suggested price tag of £6.5 billion has been bandied about with Walmart maintaining a minority stake. Fraser Group, the holding company for Sports Direct, House of Fraser, Sofa.com, Jack Wills etc posted a 20% drop in profits to £143.5 million despite a 6.9% increase in revenues to £3.9 billion. Fraser has been reluctant to return £18 million furlough assistance back to HMRC. In fairness it has given a 50% discount to all NHS staff, which is purported to have cost £25 million. However, the mercurial Mike Ashley’s son-in-law has been the recipient of £15 million of fees for property advice in recent years. This has raised a few eyebrows, despite being perfectly legal. Mr Ashley owns 63% of the company. He also hopes to sell Newcastle United to Bellagraph Nova Group of Singapore for circa £300 million.

John Lewis under the frenetic leadership of Dame Sharon White, has been flat to the boards in revamping one of the high street’s best-loved brands, with the closure of 7 stores and up to 1300 redundancies. It may be ‘For whom the bell tolls’ for Debenhams, as Celine Group hires administrators from FRP Advisory. Diageo paid $610 million for Aviation American, a gin brand, whom actor Ryan Reynolds has a major stake. He has promised to continue promoting it for a decade. AO World is another company to have enjoyed the lockdown. Profits were up 59% in the last quarter.

Premier Oil announced that it would need $530 million from shareholders to service and pay down debt with a view to completing its purchase of oil fields from BP. Next week the alarm bells are starting to ring out for BT Group. The relative collapse of its share price down by 48% year to date to 101p may have made ‘Beattie’ vulnerable to a takeover, with Deutsche Telekom possibly the most likely suitor. BT has committed £12 billion to developing a superfast broadband system. We await developments.

UK companies posting interim results this week – Monday – Bunzl, Tuesday – James Fisher, Wednesday – HSS Hire, Provident Financial, Thursday – Rolls Royce, Eddie Stobart, Flutter Entertainment, Hays, OneSavings Bank, WPP, Friday – Essentra,

US Companies posting interim results this week – Tuesday – Best Buy, Hormel Foods, Autodesk, Urban Outfitters, Hewlett-Packard Enterprises, Nordstrom, Wednesday – Chico’s FAS, Dick’s Sporting Goods, Toll Brothers, Thursday – Coty, Dollar General, HP, Gap, Dell Technologies,

Economic data to be posted this coming week – Monday – US Republican Convention starts - Tuesday – German 2nd quarter GDP, Germany’s ifo, CBI distributive trades, US House Price Index, US New Home Sales, Wednesday – UK 10-year Gilt Auction, US MBA Mortgage Applications, US Durable Goods, UK BoE Andy Haldane Speech, Thursday – US 2nd quarter GDP EST (-32.9%), US Initial Jobless Claims, US Pending Home Sales, Friday – UK BoE Andrew Bailey Speech, US Chicago PMI, US Michigan Consumer Sentiment.