WEEKLY FAYRE – Monday, 27th April 2020

April 27, 2020

The orchards half the way

From home to Ludlow fair

Flowered on the first of May

In Mays when I was there;

And seen from stile or turning

The plumes of smoke would show

Where fires were burning

That went out long ago.

 

The plum broke forth in green,

The pear stood high and snowed,

My friends and I between

Would take the Ludlow road;

Dressed to the nines and drinking

And light in heart and limb,

And each chap thinking

The fair was held for him.

 

Between the trees in flower

New friends at fairtime tread

The way to Ludlow tower

Stands planted on the dead.

Our thoughts, a long while after,

They think, our words they say;

Theirs now’s the laughter,

The fair, the first of May.

 

Ay, yonder lads are yet

The fools that we were then;

For oh, the sons we get

Are still the sons of men.

The sumless tale of sorrow

Is all unrolled in vain:

May comes tomorrow

And Ludlow fair again”

 

            AE Housman – poet – 1859-1936

 

 

There is a limited amount of time that one can spend watching escapism on Netflix. I know I am not speaking for all of you, but I am having withdrawal symptoms over ‘no sport.’ It is a real problem for me. So, a good friend of mine told me to watch BT Sport’s documentary on ‘Greavsie,’ Who is ‘Greavsie’ some might say? My riposte would be Jimmy Greaves of Chelsea, AC Milan, Tottenham Hotspur and West Han United – the best striker ever to play in the First Division and for England. Jimmy was diminutive in size, strong, stocky and very hard to knock off the ball. He just knew when to turn up in space at the right time.  Give him a ‘sniff’ in the goal mouth, and ‘Greavsie, with his renowned and cultured left foot, would steer or slam the ball into the goal, often making a significant bulge into the back of the net. He scored a total of 357 goals in ‘top-flight’ football – 44 for England and 266 for Spurs.

It must have upset him that Sir Alf Ramsay never selected him for the 1966 World Cup, preferring Liverpool’s Roger Hunt, whose work rate was higher. Watch this tribute – magical. Comments and input from Ian St John, Denis Law, Harry Redknapp, Harry Gregg, Tommy Docherty, Glenn Hoddle and many others make the documentary even more worthwhile. Jimmy is 80 years of age and not too well. I hope he gets an honour soon, which he richly deserves – maybe an OBE, while he can enjoy the accolade.

News That PM Johnson will be returning to Downing Street today should lift a few flagging spirits. A sense of direction, charisma and chutzpah have been in short supply in recent weeks. Let us hope a bit of hope and confidence returns to the agenda!

 

INDEX

20th April 2020

24th April 2020

% profit

FTSE 100

5786

5752

-0.59%

DAX

10704

10336

-3.43%

CAC40

4531

4393

-3.05%

DJIA

24095

23775

-1.33%

S&P 500

2845

2836

-0.32%

NASDAQ

8553

8634

+1.06%

SHANGHAI

2840

2808

-1.13%

HANG SENG

24503

23831

-2.74%

NIKKEI 225

19689

19262

-2.17%

 

Over the past decades I have always enjoyed the US President of the day often ending his speech on many occasions with ‘God Bless, America!’ The phrase is charmingly peculiar to the United States, but incredibly genuine and very patriotic. I imagine that most investors in the US would like to shout from the roof tops – ‘God Bless the FED!’ Chairman Jay Powell and the FED have done an amazing job, responding to the savage human devastation felt by thousands from Covid-19.  Initially the FED distributed rescue help to business and the community to the tune of $2.2 trillion and again last week the ‘House’ voted to pass a bill with $484 billion in funding for small business aid, hospital grants and coronavirus testing. 

To date the US government has had significantly more success distributing this ‘life and business-saving largesse’ than the UK has on a pari-passu basis. The US of course has an army of regional banks in each of its 51 states to deal with this logistical problem, whereas in the UK, HMRC, the five major banks plus other much smaller financial institutions are experiencing a nightmare distributing billions of funds for the job retention scheme and survival loans to maybe as many as 10 million applicants. Hopefully, Chancellor Sunak will agree a 100% government guaranty deal on these desperately needed loans. This will be essential to prevent businesses collapsing, resulting in the lengthening of the dole queue.

Though many of the US earnings were quite decent last week – Lockheed Martin, General Dynamics, United Technologies, Netflix, Alcoa and Kimberly-Clark, to name but a few, all posting good numbers, it is important to remember these earnings are historical and may play little if any relevance to what the immediate future may hold. Intel’s numbers were more than acceptable. However, after hours its shares fell by 6% on news that Apple would be making their own chips by the end of 2021. Coca-Cola also announced that its sales had dropped 25% since the start of the pandemic.

In terms of economic data posted last week, how much graver could the picture painted be?  The outlook could not look more toxic.  In no special order – Thursday’s US Initial Jobless Claims yielded another 4.4 million seeking unemployment benefit, making 26 million in just over four weeks. Then dreadful PMI manufacturing numbers from the US, UK and Germany – truly chilling. UK Inflation came down from 1.7% in February to 1.5% in March. However, it could drop to 1% in a couple of months due to a drop in oil prices and a general collapse in economic activity, as pointed out by Simon French, Chief Economists at Panmure Gordon & Co. UK Retail sales dropped by 5.1% last month, the worst drop in living memory – clothes down 34%. Food up 10% and booze up 31%. On-line sales accounted for 22% of the total in a deeply contracted market. UK employment data posted on Tuesday was totally irrelevant when one considers that it could be 10% by July. The prospect that the UK economy could contract by 35% in April-June 2020 is an option, with public sector borrowing to hit 15% of GDP gathering momentum. Borrowing could rise from £55 billion to £273 billion in the next year.

Last week WTI’S crude oil’s price fell out of bed, even though Saudi Arabia and Russia had settled their differences with OPEC. The May contract saw WTI crude price fall heavily into negative territory (-$37 a barrel) due to an excess of oil, which is expensive to store. Prices recovered well towards the end of the week for the June and July contracts (WTI $15.55 and Brent $21.05 a barrel), though the message was clear that oil may well be prove to be an accurate barometer of economic activity, which temporarily seems to be falling off a cliff.

Personally speaking, I have been very disappointed at the EU, and particularly the ECB’s response to the crisis. So, I was pleased that Simon French pointed out to me that the EU Council is set to consider a €2 trillion package to support the recovery from Covid-19 disruption. It will be interesting to see if some opportunistic protectionism manifests itself, especially as the negotiations between the EU and the UK appear to have made little progress.

Last week, apart from the NASDAQ, other global indices surrendered a little ground, though still seem quite resilient. Equity markets tell us that the world is going back to work in stages between May and June. To the novice observer, the world’s leaders do not seem to be on top of their game. Maybe they have paid too much attention to a variety of scientific advice offered and have stuck religiously to it, when many of the experts would now appear to be at odds with each other. Cutting the devastating death toll is of paramount importance. However, there are many other considerations apart from the death rate. At the top of the agenda is the world’s economy. It must not be trashed out of existence. There is a limit as to how long it can be left, without finding there is little left to save. It is essential to get the balance correct. 

An extended spell of society remaining in the wilderness could be very damaging to mental health, the well being of the population, morale and getting hundreds of thousands off the dole queue. The lack of disposable income will take a heavy toll on restaurants, bars, gyms, pubs, holidays and leisure in general. Many will be very reluctant to go out and about, exposing themselves to this pandemic for several weeks. The NHS could remain under huge pressure for several months from those people who did not deal with their illnesses such as cancer, heart conditions and arthritis. So those who are of the opinion that the recovery could be very quick, I have my doubts. Getting millions of unemployed back to work will prove a task of Herculean proportions. Bank of England Governor, Andrew Bailey has also warned against a precipitous return to work. If impatience led to another wave of the virus, confidence in the recovery of the economy could be shot to ribbons.

Even though the world’s economy is looking into the vortex of despair, there are still fascinating deals being negotiated. Mark Zuckerberg of Facebook fame paid $5.7 billion for 10% of Reliance Jia, the Indian telecom titan, which has 370 million subscribers. In terms of a vehicle for social media penetration this looks an inspired deal. Even though the hotel business is temporarily ‘hanging in rags’ the Barclay twins finally sold the Ritz Hotel for about £750 million, having paid £75 million for it in 1995. The new owner is a 40-year old Qatari well connected businessman, Abdulhadi Mana Al-Hajri. It is believed that the new owner is prepared to spend a substantial amount renovating and upgrading what is still arguably the finest hotel in London.  

In London last week Unilever and Pearson both posted some average earnings. Unilever’s sales were flat for the last quarter at £10.8 billion. However. Unlike many other companies, both will continue to pay a dividend. Sainsbury posts results this coming Thursday and may meet resistance to the proposed dividend of £247 million. Sales are expected to be slightly down to £28.9 billion. When the dust finally settles, many companies will be looking to raise fresh capital. I hope that UK brokers, bankers and advisors throw their hats in to the ring to compete with the Goldmans, JP Morgans, Morgan Stanleys and UBSs of this world. The slate is clean and there is no reason, despite their colossal influence over many years, why UK operators should not compete on a level playing field, especially when advising mid-caps. The likes of Numis, Peel Hunt and Panmure Gordon, I am sure can produce the goods.

It is interesting to note that the share capital value of Microsoft ($1.33 trillion), Apple ($1.24 trillion) and Amazon ($1.2 trillion) is more than double the value of the entire FTSE 100 companies (£1.45 trillion). These three companies have been the beacon for US business in the past decade.

Finally, the pressure on a measured but quicker return to work is gathering momentum in the UK. It is imperative not to spoil the brilliant scientific and medical work that has been done. Notwithstanding that fact, the longer it takes to get back to work, the more the economy will be damaged; therefore, it may take much longer to recover. Certainly, the Tory grandees are treading all over the Government’s corns to act quickly – Messrs Spencer, Angest, Caudwell, Hargreaves, Morgan and Caring – to force an early cessation to the lock-down. All will be revealed by PM Johnson before too long.

UK companies posting earnings this week – Tuesday – HSBC, Coca-Cola EP, TP Group, Wednesday – Standard Chartered Bank, Barclays Bank, N Brown, Thursday – Sainsbury’s, Reckitt Benckiser, Kaz Minerals, Willis, Towers Watson, Lloyds Banking Group, Friday – Aon, RBS, Royal Dutch Shell

US companies posting interim results this week – Monday – United Health Services, Tuesday – 3Ms, Caterpillar, DR Horton, Omnicom, PepsiCo, Pfizer, UPS, Harley-Davidson, Starbucks, Unisys, Ford Motor Company, Wednesday – Humana, Hasbro, Yum! Brands, Boeing, Mastercard, Valero Energy, Microsoft, Archer, Daniels Midland, eBay, Tesla, Facebook, Thursday – Twitter, Kellogg, Dow, Cigna, Conoco-Phillips, Amazon, Apple, Kraft Heinz, American Airlines, United Airlines, Visa, US Steel Corp, Amgen, Whirlpool, Friday – Weyerheuser, Abbvie, Chevron, Exxon Mobil

Economic data to be posted this coming week – Tuesday – BOJ rate decision, US Redbook, USI Crude Oil stocks, Wednesday – US MBA Mortgage applications, US GDP Q1, US pending Home Sales, US Crude Oil stocks, FOMC Meeting, Thursday – UK Nationwide House Prices, EU Inflation & GDP, US Initial Jobless Claims, Friday – BoE Consumer credit, UK mortgage lending, US PMI & ISM Manufacturing, US Construction spending