WEEKLY FAYRE – Monday, 5th October 2020

October 5, 2020

"Promise me no promises
So will I not promise you:
Keep we both our liberties,
Never false and never true:
Let us hold the die uncast,
Free to come as free to go:
For I cannot know your past,
And of mine what can you know?

You, so warm, may once have been
Warmer towards another one:
I, so cold, may once have seen
Sunlight, once have felt the sun:
Who shall show us if it was
Thus indeed in time of old?
Fades the image from the glass,
And the fortune is not told.

If you promised, you might grieve
For lost liberty again:
If I promised, I believe
I should fret to break the chain.
Let us be the friends we were,
Nothing more but nothing less:
Many thrive on frugal fare
Who would perish of excess."

 

Christina Rossetti – poet – 1830-1894

 

It was disappointing to witness ‘Enable’, Prince Khalid Abdulla’s brilliant mare failing to win her third Arc de Triomphe at a ‘rain-sodden’ Longchamp yesterday afternoon. Her trainer John Gosden warned punters at Newmarket on Saturday that adverse ground conditions could damage her prospects and that proved to be the case. Jean-Claud Rouget’s ‘Sottsass’, third last year, proved to be a worthy winner. 

….and Aston Villa walloping champions Liverpool 7-2 in the Premiership yesterday! Wonders never cease! Everton, currently top of the table, will have sent their fans home, delirious with both results. What a feast of sport this weekend!

 

INDEX

3rdJanuary ‘20

2ndOctober ‘20

% Loss/Gain

FTSE

7604

5902

-22.2%

DAX

13385

12689

-5.2%

CAC

6041

4824

20.1%

DJIA

28868

27682

-4.1%

S&P 500

3257

3348

+2.8%

NASDAQ

9020

11075

+22.8%

SHANGHAI

3085

3218

+4.3%

HANG SENG

28543

23459

-17.8%

NIKKEI 225

23204

23029

-0.75%

ASX 200

6690

5791

-13.4%

 

As the old expression goes – It never rains, but it pours! The US Congress was starting to get its act together over the $1.2 trillion stimulus package.  The economic data was starting to improve in the US.  Investors were  hopeful that the earnings seasonwould near enough pass muster in many cases plus a wave of interesting IPOs likely to hit the Street of Dreams in the coming weeks, similar to Palantir, the data titan, which enjoyed a 14% premium on the first day of trading on Thursday of last  week, valuing the company at $21 billion. Then ‘wham bang!’ POTUS contracts Covid-19. This was not wholly unexpected news in ‘hindsight’, but it has rocked the US back on its heels and could conceivably create some market oscillation for a few days, let alone throw the US Presidential election campaign into turmoil, if not uncertainty. The news on President Trump’s recovery process looks a little hazy and mixed in content. This is not helpful in uncertain times.

Observers paid not the slightest attention to last Friday’s US non-farm payrolls, often considered the most important economic indicator of the month. The US economy added 661,000 jobs in September of 2020, easing sharply from an upwardly revised 1.489 million in the previous month, and below market forecasts of 850,000. In September unemployment fell to 7.9%. In normal circumstances this was significant, but Wall Street investors could not have given a ‘tinker’s damn’, such as their concern about the President’s condition. The previous day initial joblessclaims saw job recovery continue, albeit at a slow pace, as another 837,000 Americans filed for first-time unemployment benefits last week, on a seasonally adjusted basis. There were still unemployment clouds of uncertainty such as American and United Airlines threatening to lay-off 32,000 staff. 

As can be seen from above table, the DJIA, which only has 30 stocks, has suffered from under-performing constituents, such as Boeing, Exxon Mobil, Chevron and Walgreen Boots. These companies have taken this index just below the Plimsoll line.  Apart from the DJIA, the Street of Dreams has performed outstandingly in the past nine months, with the tech sector blazing the trail, especially the formidable contributions made by Apple, Amazon, Microsoft, Facebook, Netflix and the relative newcomer – Zoom! It is interesting to note that any valuation combination of two from Apple ($1.96bn), Amazon ($1.57bn) and Microsoft ($1.56bn) is worth double the entire value of FTSE 100! 

The FTSE 100’s performance is the worst of all the major indices, with hopeless contributions from UK banks and massive losses incurred by energy stocks such as BP and Shell, as well as travel titans such as IAG, Tui and Rolls Royce taking a heavy toll on London’s main index. I suspect that the DAX and CAC 40, with only 30 and 40 stocks in their respective indices has protected them from incurring greater losses. The Hang Seng has had its own domestic issues to deal with, apart from the pandemic. The Nikkei 225 has held on ‘for dear life’ through these precarious nine months and of course the Shanghai Composite has been in a recovery mode ahead of the rest of the world. Wuhan now seems just like a bad dream. It is now clear of Covid-19.

Here in the UK, final readings for UK GDP 2nd quarter were posted - -19.8%, slightly better than the -20.4% forecast, but still desperate. This is the worst performance since data was accumulated by the ONS in 1955. Bank of England Chief Economist Andy Haldane gave an inspirational speech urging the country not to be too downbeat, suggesting that Britain’s rapid recovery from its Covid-19 slump is being put at risk by undue pessimism and a “Chicken Licken” fear that the sky is about to fall in. He felt it was simply not the case. It was in most cases mind over matter. The fact that business investment had fallen 26.5% in recent months was a concern. However, saving was up a staggering 29% in the same period.  Many commentators expressed alarm at the continuing deterioration of the UK retail sector. It is thought that £9 billion (40% down on last year) worth of sales have been lost and that 14,000 shopping units have been closed. The outlook for pubs is also desperate. According to Aix Partners, one pub in four have closed – a total of 28896, so far this year. The omens continue to look unappetising. 

In the US, Disney’s news to shed 28,000 jobs from their virtually unattended theme park operation in California came as no great surprise. Unless Covid-19 can be destroyed sooner rather than later, the ‘sword of Damocles’ must surely be hanging over its operations in Florida, Paris and Tokyo. JP Morgan Chase, the most celebrated of US banks had a $900 billion fine imposed on it for market manipulation. With LVMH having bailed out of its commitment to buy Tiffany’s for $16 billion, Bernard Arnault’s emporium finds itself in the embarrassing position of being sued for breach of contract. LVMH believes that Tiffany’s underperformed in the sector. 

The news flow in the UK was relentless last week, though companies reporting results and trading statements, were thin on the ground. The Blackburn based brothers, Mohsin and Zuber Issa, who built their fortune out of a portfolio of garages, won ASDA’shand in marriage in a £6.8 billion offer. However, Walmart, which was a keen seller, hoping to focus its resources in the US and India, will retain a minority stake. The Issa brothers managed to fight off competition from Lone star and Apollo. 

There were other corporate finance deals to ruminate over. Caesar Entertainment’s £2.9 billion bid for William Hill, whose presence in the US Caesar found attractive, was formerly agreed. There is talk that Betfred’s Done brothers, whose stake in Hills has made them an added fortune, may ‘run the ruler’ over Hill’s 1,400 betting shops, which are not seen as that synergistic to Caesar Entertainment’s operations. We shall see. Gard World, the Canadian Security titan has made a £3 billion hostile bid for G4S. G4S consider the amount offered to be wholly inadequate. G4S has530,000 employees worldwide with annual revenue of £7.8 billion against Garda’s 102,000 employees with revenue of £2.1 billion. So, it is a bit of a ‘David & Goliath’ act, but ‘David’ appears to have the management prowess. With Huawei only allowed 35% of UK’s 5G network by 2023, BT Group have entered negotiations with Nokia to spearhead the UK telecom giant’s 5G operations. This business will account for 63% of BT operations at 11600 radio sites across the UK, in this field. BT has been under considerable pressure recently, so, this initiative may help to ease the pressure on CEO Philip Jansen. 

Rolls-Royce has unveiled plans to raise £5 billion in emergency funds to shore up its balance sheet. The aircraft engine maker intends to seek support from shareholders to help bolster its finances which have been devastated by the Covid-19 pandemic. If approved by the Treasury, the £2billion rights issue could unlock another £1 billion loan from the Government's UK trade finance body, UK Export Finance. Rolls also plans to borrow another £1 billion by issuing new bonds to investors and said it has secured a £1 billion loan on top of this. Warren East, the CEO, is further under the cosh with potentially 9,000 redundancies, not forgetting the share price has fallen 83% since January. 

On the employment front, the news remained toxic with Shell confirming it will be dispensing with 9000 jobs, as the energy titan threatens to turn ‘green’, in the wake of action taken by BP a few weeks ago. Pizza Hut will close 29 of its 244 outlets putting 450 people on the dole. Reach, the owners of Express and Mirror newspapers will be making 500 redundant. 

B&M and Halfords posted excellent trading statements with the former seeing sales up 23% and the latter’s performance saw its shares bounce by nearly 30% on Thursday. Boohoo received adverse publicity from an inquiry into the company’s involvement in the Leicester factories where their garments are made. Low wages and intolerable working conditions were exposed, which will not have enhanced Boohoo’s reputation. Boohoo has promised to rectify the situation.

Last week Ocado’s share capital value ‘flip-flopped’ with Tesco. £21.7 billion played £21.1 billion. However, it appears that Waitrose has not felt the draught, since its connections were severed with Ocado. Waitrose’s on-line weekly orders have increased by 20% since 1stSeptember 2020. The Sunday Times tells us that China’s Jingye Group, having bought Scunthorpe’s steel works, is now thinking of buying Port Talbot from Tata. All will be revealed.

UK companies posting interim results this week – Tuesday – Restaurant Group, Wednesday – Tesco, Vertu, Thursday – Hargreaves Lansdown, Robert Walters, Friday – Aldermore Group

US Companies posting interim results this week – Monday– Mattel, Carnival, Manchester United, Tuesday – Levi Strauss, Thursday, – Delta Airlines, Domino Pizza

Economic data to be posted this coming week – Monday – UK car sales, IHS Markit Composite PMI, HIS US Composite PMI, US ISM Non-Manufacturing, prices, new orders and employment, Tuesday – UK PMI Construction US Balance of Trade for August, FED Chairman Powell Speech, Wednesday – Halifax House Prices, US MBA Mortgage applications, US Consumer Credit, Thursday BoJ Kuroda speech, BoE FPC Statement, US Initial Jobless Claims, Friday – UK Balance of Trade, Construction Output, Industrial Production, Manufacturing Output for August, UK GDP Y/O/Y August (EST: -7.2%)