WEEKLY FAYRE – Monday, 6th April 2020

April 6, 2020

“If I should die, think only this of me:

That there’s some corner of a foreign field

That is for ever England. There shall be

In that rich earth a richer dust concealed;

A dust whom England bore, shaped, made aware,

Gave, once, her flowers to love, her ways to roam;

A body of England’s, breathing English air,

Washed by the rivers, blest by suns of home.
 

And think, this heart, all evil shed away,

A pulse in the eternal mind, no less

Gives somewhere back the thoughts by England given;

Her sights and sounds; dreams happy as her day;

And laughter, learnt of friends; and gentleness,

In hearts at peace, under an English heaven."


Rupert Brooke – poet & soldier – 1887-1915

There have been many thoroughly deserved plaudits and effusive levels of praise for the NHS, the armed forces and essential services – all have performed beyond the call of duty. The general public MUST do the same. 95% are doing so. We MUST get back to work to save our economy. The longer it takes the less it will recover. So, in many ways, it’s down to us, as to how quickly we can put our shoulder to the wheel. The alternative in three months’ time is to take our chance – a dangerous game!

INDEX

30th March 2020

3rd April 2020

% loss

FTSE 100

5510

5415

-1.72%

DAX

9725

9525

-2.06%

CAC40

4362

4154

-4.77%

DJIA

21678

21052

-2.89%

S&P 500

2558

2488

-2.74%

NASDAQ

7583

7373

-2.77%

SHANGHAI

2739

2736

-0.11%

HANG SENG

23020

23236

+0.94%

NIKKEI 225

18884

17820

-5.63%

To coin one of those hackneyed phrases used 50 years ago by Sir David Frost – ‘That was the week, that was!’ Looking at the data above, in the current climate you might be forgiven for thinking that the outcome for the week was almost acceptable. The previous week we had seen this meteoric 3-day rally (DJIA +21% and FTSE 100 +16.5%) courtesy of a slightly ‘gung-ho’ approach by JP Morgan, that there may be some bargains out there that should not be missed, based on the premise that this toxic virus could have run its race in the US by late spring, aided and abetted by comments made by President Trump, which subsequently he was forced to almost retract, if not dramatically alter. The death rate in the US was even more alarming than in Spain and Italy, with the UK coming boldly up on the rails. New York has been savaged by this debilitating coronavirus.

There are so many conundrums to consider going forward. How long before the world’s economy is trashed to a level that it will be difficult to recover from? - 6 months from now? Who knows? One fact is for sure is that the financial crisis of 2008/9 will look like a vicarage tea party in comparison to what we are going to experience in the next few months. The economic data posted last week was bordering on calamitous. Employment data in the US was particularly ominous. Initial Jobless claims doubled last week from 3.3 million to 6.65 million. How many million next week. Friday’s non-farm payrolls number was the first negative posting in 113 months - -710k, yes MINUS. Next month the consensus is that it could be between 14 million and 17 million – that’s the equivalent of 14 to 17 % unemployment! Disturbingly the St Louis FEDis of the opinion than 47 million Americans could lose their jobs in the second quarter as a result of this pandemic, sending the unemployment rate to 32%. That seems excessive and I only quote the number as the source is respected. The most important added ingredient is that the US’s 325 million people spend $13 trillion a year on goods and services. To lose a large chunk of that would have a very damaging effect on not only the US economy, but it could also spill over on the world’s wellbeing.

Though these forecasts are all guess work, based on the analysis of complex data, the trend is heart breaking. Here in the UK, GDP for the first quarter of 2020 is forecasted on average to come in at -1.5%, which many would settle for. The 2nd quarter could look like economic Passchendaele - -13%, with unemployment reaching 8.5% by the end of July (7 million)! Many might say - Ah well – that’s temporary. Let’s hope so, but a rapid recovery seems less likely the longer this crisis prevails. Assuming some of this data is relatively accurate, house prices in the UK could drop by 13% by the end of the 2nd quarter. I also fear for commercial property. If this crisis has taught us very little in a positive vein, it has taught us to work from home effectively and efficiently; so, the need for cities like London, New York, Paris to maintain large and astronomically expensive offices must surely diminish.

The IMF has adjusted its forecast for global GDP from +3% to -2.7%. Our neighbour Italy, which has been severely and metaphorically dismembered by coronavirus saw its PMI output drop from 50 to 17.4 last month. As for Germany, the mother of the EU, some are concerned that Germany’s economy (GDP) could go in to reverse by 20% in the second quarter. The EU rescue plan remains muddled with Mme Lagarde looking to introduce ‘coronavirus bonds.’ Ah thanks, but I am not that much the wiser.

Apart from the world’s economy threatening to collapse, the other big story of the week was oil. The spat between Saudi Arabia and Russia was supposedly coming to an end, which triggered over a 20% jump in crude oil prices to $34 a barrel for Brent, as a result of an expected cut in production of 1.5 million barrels a day. President Trump certainly flagged it up, but his comments may have been precipitous. The virtual meeting between OPEC and its allies scheduled for Monday may be postponed, as tensions between Saudi Arabia and Russia mount. The meeting will now “likely” be held on Tuesday. Those investors shrewd enough to have picked up BP shares on 18th March at 233p will have accrued a 44% gain in just over 2 weeks – remarkable.

The Bank of England has leant heavily on the banking fraternity on three fronts – stopping the payment of any dividends this year, which may trigger HSBC’S repatriation to Hong Kong, where 30% of their retail investors are domiciled. They have also been asked to be cancel bonuses and that the CEOs take a cut in remuneration. Some of the banking sector’s CEOs have eyewatering levels of remuneration, considering it has been about the worst performing sector for investors since the banking crisis. Finally, the BoE and the FCA have been displeased with the response from the banks to this current crisis. There have been 130k applications for help and only 1000 have received a positive response. Terms for these loans are too draconian for the current climate. Maybe some clarification from Government will help. I think it is unreasonable to ask banks to sanction loans to people they believe have no chance in repaying it without government guarantees and they may not be forthcoming. It is interesting to note that since the beginning of the year bank share prices have all halved in value! Bank dividends total about £8 billion. However, many other companies will not be paying them either – totally possibly as much as £33 billion. Much is conjecture, but that figure could turn out to be accurate.

However, there seems to be an inadequate number of bank branches to deal with this crisis and the distribution of favourable loans. Hopefully, Chancellor Sunak will come to the rescue over how this problem can be solved and also hopefully, he will release some desperately needed cash for the employed and self-employed on a monthly basis to tie them over for 3 months – say £500 per month. Again, this is a massive administrative operation. The Treasury and DWP seem disinclined to accept help from outside for this gargantuan task. There are private enterprise technical operations than can help. Hopefully, the authorities will have responded in the days to come. The situation is desperate.

It appears that half of UK companies will be seeking or have sought to furlough their staff, whilst claims are made for 80% of the salaries for three months. Let’s pray that the situation has eased by then. Certainly, airlines are in desperate need of help with BA announcing that it will suspend 36,000 staff, around 80% of its total workforce, because of the coronavirus pandemic. easyJet has suspended flights for at least a month and Virgin is understood to be seeking a £7.5 billion bail-out. The Transport Secretary Grant Shapps did not seem over-enthusiastic and implied that were there to be help forthcoming, the terms may include some state ownership. Virgin Atlantic has lost money for the past four years.Since 12th February, when the WHO announced coronavirus was pandemic, BA’s share price has dropped by 64% 347p to 124p on Friday and easyJet by 69% from 1552p to 475p.

If the economy looks like Passchendaele, then the high street and retail, apart from supermarkets in general, looks like ‘Verdun!’ Retail sales last month were down 34.1%, with fashion down 40.45, having been up 8.5% that month a year ago. Poor Debenhams – well it looks like ‘For Whom the Bell Tolls!’ with 22000 staff members vulnerable. The situation at Arcadia looks bad with Sir Philip Green’s empire possibly walking away from paying rent on as many as 550 units, with 14,000 staff likely to be furloughed. The situation does not look great for New Look and Cath Kidston; both look to be under the cosh. The restaurant business has almost certainly 500,000 out of work – pro-tem. For those working at Fraser/Sports Direct, Morrison and M&S there have been trinkets of good news for staff. Ocado have irritated their 350k regular customers by building their client base to 800k, without the facilities to service that kind of volume.

Though China may be on the road to recovery by turning its factories back on. However, there is now ‘no-one’ to buy their products as the Western World goes into lockdown. Meanwhile supply chains in the West break down due to the lack of people available to assemble machinery, pick tomatoes etc. So, on both sides, jobs evaporate, and cash won't come fast enough to ensure businesses survive. This promises to be a major problem.

To end on a slightly positive note; those that had the foresight to buy shares in Zoom at the beginning of the year at $69, it will not have escaped their notice that they reached $128.10 in Friday – up 84.9%!

Kraft Heinz post earnings on Thursday 9th April 2020 and Tesco posts quarterly update on Friday 10th April 2020.

Economic data known to be posted this week – Monday – UK PMI Construction, Tuesday – OPEC Meeting, EU Industrial production.