WEEKLY FAYRE – Monday, 3rd August 2020

August 3, 2020

How do I love thee? Let me count the ways.
I love thee to the depth and breadth and height
My soul can reach, when feeling out of sight
For the ends of being and ideal grace.
I love thee to the level of every day's
Most quiet need, by sun and candle-light.
I love thee freely, as men strive for right.
I love thee purely, as they turn from praise.
I love thee with the passion put to use
In my old griefs, and with my childhood's faith.
I love thee with a love I seemed to lose
With my lost saints. I love thee with the breath,
Smiles, tears, of all my life; and, if God choose,
I shall but love thee better after death.

 

Elizabeth Barrett Browning – poet – 1806-1861

 

Having been left out of the First Test against the West Indies, everyone was chuffed to bits to see Stuart Broad, after 13 years of hard graft, playing for England and an immense amount of talent, take his 500th test wicket at Old Trafford last Monday, He took 10 wickets in the match. It was wonderful to see him pay tribute to not only Jimmy Anderson and the team, but also to Frank Hayes and David Steele, who taught him at Oakham in his formative years.

Fulham was a touch lucky to make the EFL play-off final at Wembley next Tuesday against Brentford. The Whites made a very heavy weather of vanquishing a spirited Neil Harris managed Cardiff City over two legs at the Cottage. Brentford are an extremely talented team. Hopefully, Fulham’s greater experience might be enough to see them back in the Premiership! We shall see!

 

INDEX

27th July 2020

31st July 2020

% Loss/Gain

FTSE

6123

5897

-3.70%

DAX

12865

12358

-3.94%

CAC

4944

4805

-2.81%

DJIA

26447

26428

-0.07%

S&P 500

3257

3271

+0.43%

NASDAQ

10421

10745

+3.12%

SHANGHAI

3210

3310

+3.12%

HANG SENG

24909

24595

-1.26%

NIKKEI 225

22495

21710

-3.49%

 

 

The principle economic data posted last week, especially in the US, was expected to be fearful and not by any stretch of the imagination was anyone disappointed with what they were presented. US 2nd quarter GDP was shocking – no other word for – -32.9%, a smidgen better than the 34.1% estimate. Business investment fell by 27%, exports nosedived by 64.1% and imports by 53.1%. Personal consumption cascaded down hill by 34.6%. Covid19 seems more virulent than ever, with little sign of this toxic pandemic abating.

In the EU, the 2nd quarter drop in GDP was - 12.1%, however, it was the lowest level posted last Friday, since records began. How the EU has fared requires some explanation. In the first quarter growth fell by 3.6%. The ECB expects growth in 2020 to fall by 8.7%. German GDP fell by 10.1%; Italy’s sank by 12.4%; France’s fell by 13.8%; and Spain’s shrank by 18.5%. It is important to note that the US posting is on an annualised basis, whereas the EU is quarterly. So, to draw any reasonable comparison, one should divide the US number by about four – so circa about 9%. UK GDP fell 19.1%, according to the ONS in the three months to the end of May. It will be interesting to see if there has been any improvement in June. Some economists think the figure will be marginally under 15%.

Last Wednesday FED Chairman Jay Powell endorsed his support for the US economy with the FOMC leaving interest rates close to zero and they are likely to remain so indefinitely. Powell reiterated that he expressed his concern that Covid19 was doing irreparable damage to the US economy and was alarmed at the inability to control it. What was slightly worrying was the fact that Congress headed for the holiday period without agreeing the $1 trillion stimulus package. What no one seems to know is whether the GOP is gerrymandering or if the Democrats are being disruptive. Whatever the case, it is dangerous for a protracted period of inertia to prevail. At Thursday’s ECB meeting, the board opted to maintain its emergency coronavirus bond-buying programme at its current levels and left interest rates unchanged. In March, the ECB embarked on a stimulus programme to mitigate the economic shock from the pandemic. Many thought it was inadequate. Last month, it expanded its Pandemic Emergency Purchase Program by €600 billion, bringing the total stimulus program to €1.35 trillion.

The number of cars built in the UK over the past six months slumped to its lowest level since 1954. A total of 381,357 cars were made the six months to June, down 42% on the period last year, said the Society of Motor Manufacturers and Traders (SMMT). The trade body estimated that 11,349 jobs were lost in the past six months at carmakers and companies which supply them with parts and services. Car production fell by 48% in June compared to the same month a year ago, with 56,594 units made, as social distancing measures and weak demand across global markets continued to restrict output. In June, manufacturing for car sales in the UK market was down by 63%, while exports were 45% lower. Other economic data worthy of comment came from China, which saw industrial profits soar by 11.5% year on year.

For much of last week there appeared to be a ‘battle royal’ fought between equity geeks, especially those with bulging portfolios of US NASDAQ based tech giants, especially Apple, Amazon, Facebook and to a lesser degree Alphabet, which posted ‘blow-out’ 2nd quarter earnings on Thursday, and economic reality. The equity luminaries won the fight on a technical knock-out. Covid-19 has done wonders for business and their respective share prices. The likes of Tesla and Netflix also made sure that they joined in the party. These main tech stocks on Thursday added over $200 billion to their value. Apple’s revenue for the previous quarter was up 11% at $59.9 billion, with iPhone sales of $26.4 billion. Shares were up 6% after hours. Shares of Apple reached $412 on Friday, putting the company's market value at $1.762 trillion. That was slightly more than Saudi Aramco's market value, worth $1.759 trillion at Friday's intraday high. 

In the case of Amazon, it reported a record quarterly profit of $5.2 billion with a 40% sales growth to $88.9 billion, backed by strong COVID-related demand. CEO Jeff Bezos also promised to spend $4 billion on safety and security. Amazon will also be offering its ‘prime’ customers free delivery service for groceries for those spending over £40 per order. iCloud activity provided the bright spot in Alphabet’s (Google) earnings, though advertising revenue was down, which caused the shares to fall 3.7% on Friday. Revenue came in at $31.6 billion with a profit of $6.96 billion, slightly below expectations. Google also agreed to lay a fibre optic cable from Cornwall to New York to improve satellite communications and quicker access to data.

The US earnings season was far from plain sailing for many global operators. McDonald’s saw sales tank by 30% to $3.77 billion with profits down 68% to $483.8 million. In the US same store sales were down 19.2%. Starbucks saw revenues decline nearly 38.1% year over year to nearly $4.22 billion. Starbucks also informed that due to the coronavirus pandemic, it lost nearly $3.1 billion in consolidated revenues. The downside was primarily caused by store closures, limited sales channels, reduced operating hours and dismal customer traffic. General Motors posted a loss of $866 million, thanks to a 34% drop in sales. This time last year GM posted a profit of $2.42 billion. Having been in the doldrum for year, thanks to the dramatic drop in demand for cameras and photographs, Kodak shares rallied by over 2000% on a Covid drug loan dealfor $765 million from the US government to make drug ingredients.

The UK earnings week was dominated by the banking sector. I have already written reams on these results. The eyewatering provisions for bad debts, many due to Covis-19 from Barclays, Lloyds, Standard Chartered and NatWest, totalling about £9 billion, was enough to prevent any gains on their respective share prices. We must be grateful for UK bank balance sheets being relatively strong, thanks to increased capital requirements, but banks have proved a desperate investment for the past 12 years, much of it down to £50 billion of PPI charges.

The market heard from HSBC this morning. Earnings were far from satisfactory. Its pre-tax first half profit plunged 65% to $4.3 billion on revenues of $26.7 billion. Impairment provisions and credit losses of $6.9 billion were higher than expected, as tension grew over its support or tolerance of the Chinese government’s stance towards HK. It is thought severe cuts to its global operation will be made, especially as the performances of its European and US operations were far from distinguished. Tier one capital at 15% was good, but a 3.8% return on equity will be unacceptable to the board and shareholders. There is talk that the Bank of England could agree to the reintroduction of dividends by the banking sector. This may be a rather precipitous idea in the current climate of poor results, despite the necessity to keep shareholders sweet. 

Other UK earnings were mixed. Reckitt Benckiser pleased its acolytes as did Astra Zeneca, which under Philip Soirot, have made great strides in cancer treatment as well as covid-19 vaccines. Astra has agreed to pay £4.7 billion to Daiichi Sankyo for a cancer treatment. GSK, despite an agreement with Sanofi-Aventis on vaccine activity, this drug mogul seems to have fallen behind the curve with its drug/vaccine pipeline, with sales of £1.1 billion against expectations of £1.26 billion. Royal Dutch Shell made a massive provision with impairment charges totalling $18.1 billion – not unexpected. Vodafone’ earnings were far from exciting, but news that its £20 billion Vantage Towers IPO would be heading for Frankfurt was very disappointing. It supposedly had nothing to do with BREXIT. Frankfurt was favoured because most of 68.000 platforms in nine countries are in Europe. I wonder? IAG had a shocker. It will require a £2.5 billion cash call, having announced a loss of £1.3 billion. It has cut 32 747s and postponed the delivery of 68 new aircraft and made 12,000 redundancies. CEO Willie Walsh has seen IAG’s share price lose 64% in value since the turn of the year.

On the employment front Pizza Hut will almost certainly be cutting staff from its 244 outlets. Alexander Dennis, the maker of double decker buses in Falkirk will shed 650 jobs and Tui Travel will close 166 shops which could result in the trimming of its 8000 ‘work force.’

Finally, the MPC/Inflation Report next Thursday will be of significant interest. Rates will almost certainly be kept on hold and few believe there will be any addition to the QE facility of £745 billion. However, Governor Andrew Bailey’s prognosis on the current economic situation, growth prospects, and what the BOE is and is not ready to do, will be of great importance. BP posts earnings on Tuesday and no one will be surprised if the dividend is cut.

UK companies posting interim results this week – Monday – HSBC, Purple Bricks, Hiscox, Senior, Capita, Countrywide,, Joules, Informa, Fever Tree, NSF, Tuesday – BP, Direct Line, Diageo, Rotork, International Game Technology, Centamin, Keller, Wednesday – Hastings, Segro, Metro Bank, Morgan Siddall, Wm Hill, Flutter Entertainment, Ferrexpo, PageGroup, L&G, Thursday – Aggreko, Aviva, Funding Circle, Mondi, Spirent, ITV, Glencore, Coca-Cola EP, Evraz, Mylan, GW Pharma, Serco, Cineworld, Hammerson, Friday – Hikma, Rightmove, Hargreaves Lansdown, TP ICAP

US Companies posting interim results this week – Monday – Tyson Foods, Loew’s, Marathon Petroleum, Virgin Galactic, Dolby Labs, KLA Corp, Tuesday – AIG, Lear Corp, Ralph Lauren, Liberty Global, KKR, Ingersoll Rand, Walt Disney, Wednesday – Moderna, Wendy’s, Humana, Zynga, Thursday – Bristol Myers Squibb, Metlife, Jack-in-the-Box, Uber Technologies, Motorola Solutions, Friday - Groupon

Economic data to be posted this coming week – Monday – Japan 1st Quarter GDP, UK Markit Manufacturing PMI, US PMI & ISM Manufacturing, Tuesday – US Total Vehicle Sales, US Factory Orders, Wednesday – UK New Car Sales, UK PMI Services and Composite, US ADP Employment, US Imports & Exports, US PMI Services & Composite, US ISM Non- Manufacturing, Thursday – UK MPC & QE, UK Inflation Report, US Initial Jobless Claims, Friday – UK Halifax House Prices, US Non-Farm Payrolls & Unemployment (Est 10.5%), US Consumer Credit

SOURCES – BBC, CNBC, Reuters, Daily Mail, FT, The Times, Sunday Times, Telegraph Group, Bloomberg, Yahoo Finance