WEEKLY FAYRE – Monday, 26th October 2020

October 26, 2020

“Not really. Save the song
the sickle sings, we expire the same: lights out.
But what of the florid burden of living?
This one’s body craves
the bottomless caesura. Just ask his bone marrow
belting out its omnivorous hymn.
But the man’s not just a gumbo
of muscle and bones.
He’ll swim through a bog of poison
to stay on with it.
Leave the better part of most meals,
give or take an innard, swimming
in the john. And when his pimpled thighs beg
reprieve from needle pricks,
he will ask his pal to pinch and pierce the as-yet-untouched triceps.
To stay on with it.
Catch my drift? Dying’s a lowly knock-off
of the real thing: the man
who, on erasure’s edge, spears with his hands this earth,
shoves the muddy stuff in his mouth,
and chews.”

Sylvia Plath – poet – 1932-1963

 

INDEX

19thOctober ‘20

23rdOctober ‘20

% Loss/Gain

FTSE

5919

5860

-0.99%

DAX

12948

12645

-2.34%

CAC40

4955

4909

-0.93%

DJIA

28633

28335

-1.04%

S&P 500

3493

3465

-0.80%

NASDAQ

11732

11548

-1.57%

SHANGHAI

3351

3278

-2.18%

HANG SENG

24565

24918

+1.44%

NIKKEI 225

23204

23516

+1.34%

ASX 200

6176

6167

-0.15%

 

As we head to the Presidential Election on 3rd November 2020, Messrs Trump and Biden are wholly ambivalent as to what I or other people around the world think of their campaign or their appeal as candidates to the US electorate. They are quite rightly focused on the US electorate. They just want to get the job done, with one of them getting over the line into the White House to form an administration.

 

There was a brilliant article by Freddy Gray in last week’s ‘Speccy’ on the US election, with a particularly chilling passage, which might strike an uncomfortable chord with many people.  “Americans will vote for Biden, we’re told, because they crave ‘a return to normalcy’ after four mad years under President Donald J Trump. But what is normal or sane about giving a somewhat demented 77-year old the most powerful job on the planet? Leading the free world should not be a retirement activity, yet nobody who has been paying attention can expect Biden to serve even one full term!” That would appear to be the choice folks. In passing,the alleged rather unorthodox behaviour of Joe Biden’s son Hunter appears to be inconsequential to voters.

 

So, assuming the prognosis on the outcome of next week’s election is correct,and there are more than a few who are not convinced it’s a ‘slam-dunk’, the behaviour of global equities in recent weeks has been remarkably composed, considering the economic circumstances dictated by Covid-19 this year, on top of the political uncertainty. The three main US indices have surrendered some modest value, mainly due to the intransigence of Speaker Pelosi refusing to orchestrate an agreement on a desperately needed $2 trillion stimulus package coupled with continuation of Covid-19’s ability to savage economies around the world. The promised ‘V-shaped’ recovery is starting to look a bit more like a ‘U’ and may continue to do so, unless a vaccine can be found and frustratingly there have been set backs with some of the tests.

 

On the economic front, the US, according to IHS Markit Composite PMI’s posted on Friday performed with aplomb to reach at 20-month high at 55.5 – significantly better than the EU which came in at 49.4, a 4-month low and the UK, which also posted a 4-month low  at 52.9, but at least it was above 50. Manufacturing in the EU has recovered quite well, but services remain in the doldrums. US Initial Jobless claims were encouraging last week as 787,000 new 'initial claims' for jobless support were filed last week. That was the smallest increase since March, when the US economy began to lock down.

 

UK Consumer Prices Index (CPI) 12-month inflation rate came in at 0.5% in September 2020, up from 0.2% in August. The increase was largely down to the ‘Eat Out’ Campaign which finished at the end of September, thus increasing the cost of entertainment. UK Retail sales were up from 0.9% in August to 1.5%. Sales are up 17.4% in the 3rd quarter and are 5.5% higher than in February 2020. On-line is still dominant, but there were modest signs of improvement in a depressed high street. Clothing is the only area not to have expressed a ‘V-shaped’ recovery. The UK’s public sector borrowing requirement has reached eye-watering levels, with the Government having borrowed £174 billion more than it did this time last year. Despite China’s recovery, with its GDP likely nudge 7% in 2021, the IMF still saw the need to revise global GDP down to -2.2% from -1.6% this year. There are also signs that the tiered lockdown in the UK is having a debilitating and damaging effect on its recovery process.

 

There seems to be an excess of posturing over the possibility of a BREXIT deal, not helped by a very negative 22-minute phone call between the PM and business leaders which did not create any waves of confidence. On Thursday, the Government, under huge duress, upped the ante on the Job Support Scheme, which resulted in the Government agreeing to pay 62% of the wages for hours not worked, instead of paying 55% of the hours worked.  At the same time many were appalled to hear from NAO that as much as £1.95 billion of the furlough scheme may have been lost to criminal skulduggery, due to HMRC having insufficient experienced administration to support this scheme.

 

Deutsche Bank was still keen to point out that a ‘NO DEAL’ BREXIT scenario would cost the UK £25 billion a year (-1.1% of UK GDP) and a soft ‘Canada-styled’ deal -o.6% of GDP – about the same as the annual membership fee that the UK was paying into the EU every year. It may have escaped Deutsche Bank’s notice that there are another 164 countries around the world to do deals with if EU wants to “take its bat and ball home!” The UK and Europe should reciprocate friendship and leave the EU squabbling in a quagmire of endless bureaucratic confusion.

 

On the earnings front in the US, Netflix’s performance was quite a disappointment on the subscriber front. The US’s main streamer only added 2.2 million users against expectations of 3.3 million. In the previous two quarters sixteen and ten million people had signed up. In total Netflix has 195 million users with Disney in second place with sixty million. It should not be forgotten that film and television production has not been vibrant since Covid-19 gripped the world. Snap posted blockbuster numbers, which saw its shares rally by 30%. Many think these numbers might augur well for Facebook, Pinterest, and Twitter, which post their respective numbers this week. US retailer Gap has served notice that it intends to close 200 stores, including 129 units they have in Europe, sales having fallen 18%. 70 of these stores in the UK, which Gap plans to operate through partnerships amid this fashion crisis. Gap shares have fallen 40% since January 2018. Goldman Sachs has agreed to pay more than $2.9 billion in a foreign corruption probe tied to the Malaysian 1MDB sovereign wealth fund, which was looted of billions of dollars in a corruption scandal.

 

There were a few encouraging nuggets of corporate news in the UK, which transpired last week. KFC will create another 5,400 jobs on top of the 4,300 new jobs announced in March. Edinburgh Woollen Mills’ Philip Day is hoping for the rescue of 400 Peacock stores with the financial assistance from the hedge fund, Davidson Kempner. Peacock has already closed 50 stores with 600 redundancies. Both Reckitt Benckiser and Unilever posted encouraging results this past quarter with major contributions from home care, personal care and hygiene. Reckitt’s like-for-like sales were up 13.3% for the quarter and Unilever saw total sales up by 4.4%.  It was rumoured last week that Fraser’s Mike Ashley was considering another bid for Debenhams, now under the ownership of Celine and in administration. Ashley did own 29% of Debenham’s shares. Mr Ashley, as reported by the Sunday Times is considering a raid on Philip Day’s empire for the Jaeger, Austin Reed and Jacques Vert brands. However, he is likely to receive stiff competition from Torque Brands and Harold Tilman - never a dull moment in the Totteridge based tycoon’s life!

 

The Royal Mail Group is to start collecting parcels from the doorstep across the country, part of a massive overhaul of its business. In the wake of FedEx, UPS, DHL, Amazon, and others, it will do well to achieve success. Many still see RMG as a possible takeover target. G4S has stepped up its defence against a hostile and opportunistic bid of 190p for its operation by Canada’s Garda World. G4S believes the bid hopelessly under values the company. Adidas is considering selling its Reebok brand, which it bought in 2006 for $3.8 billion. Informed sources have suggested that Adidas might accept less than it paid for the Bolton based operation. JP Morgan Chase is purported to be providing $6.4 billion of financial help in promoting the formation of the European Premier League, which Manchester United and Liverpool have been so vociferously trumpeting, against the wishes of other Premier League clubs and despite the fact that the EFL might be financial beneficiaries.

 

Barclays was the first of the UK banks to post its numbers on Friday and they appeared quite decent. A pre-tax profit of £1.4 billion was posted of which £1 billion manifested itself from corporate and investment banking. Impairment charges fell by 63% to. CET ratio was strong at 14.6% £608 million. The ‘Bald Eagle’ has doubled the size of its mortgage involvement and has played a full role in ‘bounce back’ and other loan facilities and has temporarily waved £100 million of interest charges from distressed borrowers. Its shares were up all but 7% on Friday to 111.54p. CEO Jes Staley, who was due to leave in 2021, will now stay on for at least two years.

 

McCarthy & Stone has been the subject of a £630 million bid from US private equity titan, Lone Star, which missed out on the ASDA deal. The deal is priced at 115p, that price is way below the 180p float price five years ago. The LSE posted another solid set of numbers but its £28 billion bid for Rifinitiv is unlikely to be consummated until the New Year, courtesy of EU bureaucracy.

 

Finally, Lord Michael Spencer is behind the £15 million financing of ‘Supercapacitors’ an energy storage operation for electric cars, with a close association with Rolls Royce. You can never keep a good man down!

 

UK companies posting interim results this week – Tuesday – HSBC, BP Bloomsbury Publishing, Whitbread, Wednesday – Standard Chartered Bank, Glaxo, Invidior, Thursday – BT Group, Lloyds Banking, Royal Dutch Shell, Group, Smith & Nephew, Friday – NatWest Group

US Companies posting interim results this week – Monday – Moelis, Hasbro, Tuesday – 3Ms, JetBlue, Eli Lily, Chubb, Merck, Raytheon, Caterpillar, Microsoft, Pfizer Wednesday – AIG, Amgen, Boston Scientific, BGC Partners, Boeing, eBay, GE, KLA, Pinterest, Thursday – Archers Daniel Midland, Amazon, Alphabet, Apple, Yum Brands!, Molson Coors, Friday – Abbvie, Altria, Aon, Pitney Bowes, Exxon Mobil, Colgate-Palmolive, Weyerheuser, KKR, Chevron, Honeywell

Economic data to be posted this coming week – Monday – US New Home sales, Tuesday – UK CBI Distributive Trades, UD Durable Goods, US House Prices, US Consumer Confidence, Wednesday – US MBA Mortgage Applications, Thursday – Japan’s BOJ Rate Decision, UK Nationwide House Prices, Germany Unemployment (EST: 6.5%), UK BoE Consumer Credit & Mortgage Lending, UK Car Production, EU Economic & Industrial Sentiment, US GDP 3rd Q (Q/O/Q +30%), US Initial Jobless Claims, US Pending Home Sales, ECB Rate Meeting, Friday – EU Unemployment rate (EST: 8.6%), US Personal Income & Spending, US Chicago PMI