WEEKLY FAYRE – Monday, 4th May 2020

May 4, 2020

Bent double, like old beggars under sacks,

Knock-kneed, coughing like hags, we cursed through sludge,

Till on the haunting flares we turned our backs,

And towards our distant rest began to trudge.

Men marched asleep. Many had lost their boots,

But limped on, blood-shod. All went lame; all blind;

Drunk with fatigue; deaf even to the hoots

Of gas-shells dropping softly behind.

 

Gas! GAS! Quick, boys!—An ecstasy of fumbling

Fitting the clumsy helmets just in time,

But someone still was yelling out and stumbling

And flound’ring like a man in fire or lime.—

Dim through the misty panes and thick green light,

As under a green sea, I saw him drowning.

 

In all my dreams before my helpless sight,

He plunges at me, guttering, choking, drowning.

 

If in some smothering dreams, you too could pace

Behind the wagon that we flung him in,

And watch the white eyes writhing in his face,

His hanging face, like a devil’s sick of sin;

If you could hear, at every jolt, the blood

Come gargling from the froth-corrupted lungs,

Obscene as cancer, bitter as the cud

Of vile, incurable sores on innocent tongues,—

My friend, you would not tell with such high zest

To children ardent for some desperate glory,

The old Lie: Dulce et decorum est

Pro patria mori.

 

           Wilfred Owen – poet & soldier – 1893-1918

 

Last weekend ‘Match of Yesterday’ brought back wonderful memories. The second televised match was Portsmouth v Fulham – 11th May 2008. My beloved Fulham, who were then managed by Roy Hodgson needed to win this final match of the season to remain in the Premiership. I paid £39 to see this game on TV. I was a nervous wreck until the 76th minute when the most unlikely person to score a goal using his head – skipper Danny Murphy headed in Jimmy Bullard’s beautifully floated free kick to win the game 0-1. It was such a scrappy neurotic affair. Who cared? All the mattered was the result – a win and safety!

I spent the ninety minutes sitting on the end of my chair chewing my fingernails down to the bone. It was such a great day and it compared favourably as to when the Cottagers beat Juventus over two legs in the Europa Cup in November 2010, on the way to losing the final to Atletico Madrid 0-2.  Of course, vanquishing Aston Villa 0-1 at Wembley in front of 35,000 fans, all decked out in a sea of ‘White’, was up there with the best of memories.  This joyous victory enabled Fulham to head back to the Premiership, thanks to a beautifully executed goal by Tom Cairney from an exquisitely weighted pass from Ryan Sessignon in May 2018. This was sublimity personified.

 

 

INDEX

27th April 2020

1st May 2020

% profit/Loss

FTSE 100

5752

5763

+0.12%

DAX

10299

10861

+5.46%

CAC40

4387

4572

+4.24%

DJIA

23866

23723

-0.60%

S&P 500

2854

2830

-0.84%

NASDAQ

8724

8604

-1.38%

SHANGHAI

2834

2860

+0.92%

HANG SENG

23835

24643

+3.39%

NIKKEI 225

19331

19619

+1.49%

 

Prior to recounting the weeks important corporate and economic events, there are certain issues, which are really bothering investors and so they should. Firstly, and most importantly is the rest of the world’s on-going relationship with China. This whole coronavirus pandemic has been a disgrace. China’s duplicitous and mendacious behaviour has been something to behold. How and why the Chinese authorities kept its toxicity from other countries is beyond comprehension. Why the WHO, which is supposed to have a great relationship with China, chose not declare that this virus was pandemic until 11th March, when the stock market virtually spelt it out in words of one syllable a month earlier, starting on 12th February 2020, escapes me.

The WHO may have been a catalyst, but China is surely guilty of treachery. By hiding the lethal toxicity of this virus from the rest of the world for so many months, China has inflicted irreparable damage to the global economy. It may take years to recover. Superficially, China does not seem to be remotely apologetic. There are no signs of contrition. It also appears that China is reluctant to cooperate in any enquiries, as suggested by Australia, US and the EU. The WHO is also not invited to China's internal COVID-19 investigations in Wuhan. I doubt many countries will be bought off by a few million PPE masks and gowns.

Does the rest of the world just say – “oh well, it was just one of those things?” Should there be any economic restitution from China? Certainly, the mood in the US towards China has turned very sour. To have seen their economy trashed before their eyes, involving thousands of deaths, has not been digested without significant pain and anger. President Trump has certainly raised the temperature in terms of the US’srelationship with President Xi. Jingoistic rhetoric may not help, but the situation as it stands is unacceptable. Another trade war between the two largest economies looks a very likely option. The US will be concentrating on getting back to work as soon as possible, but it will not let the ‘China Syndrome’ situation rest. As I understand it, the US is currently rather more interested in beating this lethal virus, than worrying about who will be their next President.  I suspect that emphasis will alter the closer we get to November.

The EU Commission President Ursula Von Der Leyen was interviewed by CNBC Geoff Cutmore on Friday. She was as cool as a cucumber in inviting China to be involved in all future conversations on viruses. She said nothing about how the coronavirus had decimated the EU’s economy and what did China have to say on the subject. Is the EU really going to leave it there? Is trade pragmatism the name of the game? Is the UK going to carry on with Huawei, as if nothing has happened? Surely, some action must be taken. The likelihood of China providing open and truthful answers in response to this crisis which manifested itself initially in Wuhan, is zero. China has a capitalist system cocooned by communism. There is no requirement for China to respond, as far as its government is concerned. Their business and political culture is totally different.

‘Uncle Vlad’ has been very quiet in recent weeks. One suspects that coronavirus has damaged Russia’s economy more than their officials are prepared to admit. With crude oil falling through the floorboards, despite a strong rally last week to $19 and $27 a barrel for WTI and Brent respectively, Russia’s economy will have taken a real beating. The word on the street is that unemployment in Russia will reach 15%. Has Putin ever been under more internal pressure than he is at present?

If my contacts in the Far East are as reliable as I think they are, once the coronavirus crisis dies down, Hong Kong intends to raise its game against mainland China, where relationships are at an all-time low. I am told that civil unrest is all but guaranteed. With the world in utter turmoil, perhaps it is time for a strategic rethink. China as a market is humungous and hugely important. However, as each country in Europe, the Commonwealth, North America, Japan and parts of the Far East and Middle East attempts to rebuild their respective economies, maybe they should develop manufacturing and industrial capabilities to trade amongst each other rather than rely entirely on China. Maybe this is ‘pie in the sky’ thinking as China produces so many goods cheaper, as well as being so much a larger market than in other parts of the world. However, to take this terrible international human tragedy on the chin, without any economic retribution, seems ludicrous to many. China all but owns Africa economically and South America looks increasing like decent low hanging fruit to pick!  So, the next few years could prove crucial in rebuilding the world’s economy and I hope there will be some fresh and innovative thinking from Western democracies.

Last week, it felt as though the writing was always going to be on the wall for equity markets. Equities in the US and Europe continued to blaze the trail with a degree of gay abandon, even though investors knew that many of the 1st quarter earnings were going to be historical. However, the exceptions to the rule were ‘the heavy brigade’ - Apple, Alphabet, Amazon and Microsoft – none of which disappointed – in fact, they have probably benefited from coronavirus pandemic. Alphabet (valued at $899m) is the only one of these four companies not to have a share capital value in excess of a $1 trillion. Unsurprisingly, Exxon Mobil and Chevron’s share prices were meted out some rough treatment, as the earning reflected the drop in demand for oil reflected by crude oil prices. By Thursday morning, sentiment on equities went negative on the Street of Dreams and there was a significant sell-off by the end of the week.

There was neatly illustrated by the fact that Warren Buffett’s Berkshire Hathaway had lightened up its equity portfolio by $6 billion, with its appetite for stakes in US airlines, dissipating by the day. If airlines are no longer in vogue, one can understand why Boeing announced 15,000 redundancies. And so, the ‘domino affect’ comes in to play. Last night Rolls Royce CEO Warren East announced the possibility of 8000 redundancies, mainly from its Derby plant. Despite better than expected electric car sales, a ‘tweet’ made by Tesla CEO, Elon Musk, to the effect that the company’s share price looked too high, wiped $14bn (£11bn) off the carmaker's value.

Last month the DJIA added 11%, the S&P 500 12% and the NASDAQ 15% - a record for April and the biggest monthly rally since 1987. The ‘kissing just had to stop’ for the time being - The economic data was just too awful.

US Initial Jobless Claims last Thursday saw another 3.8 million seeking unemployment benefit – now over 30 million in five weeks. US 1st quarter GDP saw a MINUS 4.8% posted, with a double digit plus number outcome nigh on guaranteed outcome for the 2nd quarter. GDP in Europe looked almost as desperate – Eurozone -3.9%, France -5.8%, Spain -5.1%, Italy -4.7%, Belgium -3.9%. It will be interesting to see how the UK compares when figures are posted. If Friday’s manufacturing, which is not the UK’s strong suit, and more importantly the fall in exports is anything to go by, the figures will not be encouraging. The shock estimates for GDP in the US, EU and UK at between 20% and 35% are now beginning not to look like ‘Walter Mitty’ guess work!’ The only way to guarantee a quick return to growth is to find a vaccine PDQ!

As for UK equities last week, all the major banks posted numbers and without exception billions of pounds have had to be set aside for impairment charges as the country enters a vortex of economic despair. In terms of share value, all the banks have surrendered between 30% and 50% in value since the start of 2020. Sainsbury had a bumper week in March with sales up 28%, but the earnings for the year were flat. There always was going to be trouble for the airlines and so it transpired, with BA cutting its workforce by 12,000 in the weeks to come from a total of 42,000. The ink was hardly dry on this notice before Ryanair announced 3,000 redundancies. It will be some months before there are any meaningful recovery signs for airlines. The price of WTI crude did recover significantly from $11 to $19 a barrel (+72%) and Brent from $19 to $26 (+37%), but this bounce was from an over trashed position.

Royal Dutch Shell announced on Thursday that it would be cutting its dividend for the first time since the 1940 by two-thirds. Oil companies have been the stalwarts of FTSE 100 in terms of dividend contributors.  Add the banks, the likes of Pearson and most insurance companies plus a few from retail to that ever-increasing list and that will make a significant difference to ailing pension funds and retail investors. Though BP’s results were indifferent, the company maintained a dividend. The Sunday Times thought it very likely that BT Group might cut its dividend by £1.5 billion.

UK companies posting earnings this week – Monday – Card Factory, Wednesday – Avacta, Virgin Money, Ocado, Smith & Nephew, Direct Line, ITV, Thursday – IAG, Intercontinental Hotels, AA, Trainline, BT Group, Mondi, National Express, RSA, Superdry, Flutter Entertainment

US companies posting interim results this week – Monday – Tyson Foods, Pitney Bowes, Loew’s Corp, Tuesday – BGC Partners, Marathon Petroleum, Newmont Corp, Walt Disney, Brinks, Wednesday – Wendy’s, KKR, Lyft, Zynga, MetLife, Thursday – Bristol Myers Squibb, JetBlue, Raytheon, Viacom, Motorola, Uber Technologies

Economic data to be posted this coming week – Monday – US ISM business conditions and US Factory Orders, Tuesday – UK PMI Construction & Services, US PMI Services, US Non-ISM Manufacturing, US API Crude, Wednesday – US ADP Employment, Thursday – MPC meeting, FPC statement, BoE Monetary policy Report, Halifax House Prices, UK FSR Report, US Initial Jobless Claims, Friday – UK Gfk Consumer Confidence, US Non-Farm Payrolls US Unemployment rate