WEEKLY FAYRE – Monday, 7th December 2020

December 7, 2020

Because I could not stop for Death –

He kindly stopped for me –

The Carriage held but just Ourselves –

And Immortality.

We slowly drove – He knew no haste

And I had put away

My labor and my leisure too,

For His Civility –

We passed the School, where Children strove

At Recess – in the Ring –

We passed the Fields of Gazing Grain –

We passed the Setting Sun –

Or rather – He passed Us –

The Dews drew quivering and Chill –

For only Gossamer, my Gown –

My Tippet – only Tulle –

We paused before a House that seemed

A Swelling of the Ground –

The Roof was scarcely visible –

The Cornice – in the Ground –

Since then – 'tis Centuries – and yet

Feels shorter than the Day

I first surmised the Horses' Heads

Were toward Eternity –“

Emily Dickinson – poet – 1830-1886

 

Forgive me for indulging myself over Fulham’s unexpected, but well-orchestrated win away to Leicester City (1-2) last Monday night. Manager Scott Parker produced perfect tactics for the occasion. ‘The boys in White’ ran themselves in to the ground with a Herculean effort – 3 points richly deserved!

However, on Saturday there was a reality check awaiting Fulham. What a footballing lesson Fulham took from Man City at the Etihad! However, I will give Scott Parker's men in 'Yellow' as they were on Saturday, full marks for never giving up or folding. City were a class act and Fulham supporters will have seen signs of improvement with hope for the future. All is not lost, but in all fairness Manchester City toyed with the Cottagers. I just do not understand why City have stuttered in recent times.

 

INDEX

30thNovember ‘20

4thDecember ‘20

% Loss/Gain

FTSE

6367

6550

+2.87%

DAX

13270

13298

+0.21%

CAC40

5564

5609

+0.81%

DJIA

29854

30218

+1.22%

S&P 500

3634

3699

+1.79%

NASDAQ

12224

12464

+1.98%

Shanghai

3418

3444

+0.76%

Hang Seng

26853

26835

-0.06%

NIKKEI 225

26830

26751

-0.29%

 

The week’s market activity has been built around expectation. Pfizer’s vaccine is soon be distributed globally, hopefully to be followed by others such as the Astra/Oxford University vaccine once the regulator approves it. This has provided ammunition for economists to improve their outlook for growth across the globe. In the case of the UK, we may be looking at 10% GDP rather than 5.5% and unemployment may come in early next year at 7% rather than 7.5%, with many believing it could fall to 4% by the beginning of 2022. However, it is fair to say that not everything in the economic garden is necessarily rosy. There were still a few imponderables to consider, which I will touch on below. Let us start with UK; car registrations were down 27% for November against November last year – 156k to 113k.

The unemployment rate for the Euro area came in at 8.4% for October and at 7.6% for the EU. There is also the small matter of a trade deal between the UK and the EU to consider. At the time of writing, negotiations have reached fever-pitch with grave differences remaining over ‘fishing rights’, where some progress appears to have been made, a level playing field for business activity and the role of the ECJ. One hopes that good sense will prevail as both parties desperately need a deal to help with economic recovery. I shall not be holding my breath, though!

Jerome Powell, the FED chairman, warned Congress that explosion of Covid-19 cases could prove very challenging for the US economy in the next few months, despite encouraging news on the vaccine development front providing significant momentum for the economy in the medium-term. Mr Powell did not directly challenge Steve Mnuchin, the outgoing Treasury Secretary’s opposing views on some issues in his testimony, but he said the FED’S actions during the crisis had “helped unlock almost $2 trillion of funding to support businesses large and small, non-profits, and state and local governments since April”. The immediate introduction of a $900 billion stimulus package, which has recently been thwarted by consistently truculent Nancy Pelosi and her colleagues, could go some way in providing a much needed ‘shot-in-the-arm’ for the bruised US economy. This package is apparently close to being agreed.

US initial claims for jobless benefits fell by 75,000 in the week ended Nov. 28 to a total of 712,000, according to seasonally adjusted data released today by the US Department of Labor. Initial claims were at their lowest level since the start of the Covid-19 crisis in March.

The US economy added the fewest workers in six months in November, hindered by a resurgence in new Covid-19 cases that, together with a lack of more government relief money, threatens to reverse the recovery from the pandemic recession. US non-farm payrolls increased by 245,000 jobs last month after rising by 610,000 in October, the Labor Department said today. Reports on consumer spending, manufacturing and services industries have suggested a slowdown in the recovery from the worst recession since the Great Depression. 

The US is in the middle of a fresh wave of Covid-19 infections. Nearly 200,000 new cases were reported on Wednesday and hospitalisations approached a record 100,000 patients. However, the unemployment rate fell to 6.7% from 6.9% in October. 

The Street of Dreams purred after an almost euphoric week’s achievements, with all three main US indices reaching record levels. There were upbeat earnings numbers from Dollar Tree (+4%) and Smith and Wesson (+5%). Zoom posted numbers on Monday, with revenues growing by 367% on an annualised basis, but its achievements are showing signs of moderating with life likely to be more normal by the middle of next year. Its shares had risen over 500% this year but eased by 15% last week. Two major acquisition were announced last week – Salesforce buying the UK’S Slack for $27 billion and S&P Global paying $33 billion for IHS Markit. Overall investors’ appetite for risk was there for all to see, though there was certainly an element of fear in “missing out” on a recovery that was well on its way.

Here in the UK, there was plenty of gossip in the media to chew over. Flutter, better known as Paddy Power/Betfair- extended their tentacles by increasing their exposure in the US by paying $3.1 billion for a larger stake in Fastball. On Thursday, the London Stock Exchange’s share price bounced by 9.6% to $86.50 on news that confirmation over its purchase of Refinitiv for £20 billion would shortly be ratified by the EU. Primark, owned by AB Foods, having missed out on £430 million of sales during the pandemic, was hopeful of beating total sales and profits than in the previous year. The queues in recent days outside their shops have been gargantuan. Canada’s Garda World increased their bid for G4S from 190p per share to 235p per share valuing the takeover at £3.7 billion. This deal should be consummated soon. Ryanair’s Michael O’Leary extolled the virtues of Boeing’s 737 MX by buying 75 planes. Boeing could not have asked for a better salesman itself!

Surprisingly, Bill Ackman’s Pershing Capital made the FTSE 100 – an unusual occurrence for a US fund manager. It was also a very sad week for Arcadia and Debenhams, which both headed for administration, as did Bonmarche. More of the Arcadia saga later. However, there a glimmer of light appeared over the weekend for Debenhams. Fraser’s Mike Ashley is keen to save the group. He did own 29% of Debenhams, now valueless. He may be prepared to pay up to £200 million, dependent on how much stock was sold in last week’s sale. Not all jobs will be saved or all 124 units, but a rescue package of sorts is possible. While there is life there is hope!

EG Group (Issa Bros), which recently bought ASDA for £8.8 billion, has put in an offer for the ailing Caffe Nero, which has 640 outlets and employs 5000 people. The brothers are excited by the synergy. However, Caffe Nero have applied for CVA and believe they can make it though the crisis. No sooner had HSBC’S Charlie Nunn been appointed to succeed Antonio Horta-Osorio as CEO of Lloyds Banking Group from next June, than Credit Suisse announced that Mr Horta Osorio was to become its new chairman to succeed Urs Rohner. In passing Mr Nunn will have the ability to earn remuneration totalling £5.5 million – not bad, considering the dreadful performance of Lloyds’s share price – 39.05p – down 38% year to date.

I think investors and the public at large were delighted that the main supermarkets, triggered by Tesco’s fresh CEO Ken Murphy’s initiative, agreed to repay excess business rate relief, based on their incredible sales during the Covid-19 pandemic. Tesco set the ball rolling offering up £585 million, followed, in no particular order, by Sainsbury £440 million, Morrison £274 million, ASDA £340 million, Aldi £100 million, B&M £80 million and Pets at Home £29 million – a total of circa £1.8 billion. Lidl was eventually embarrassed in to repaying £100 million. Let me come to the defence of Waitrose, which did not step up to the plate. Waitrose is part of the John Lewis Partnership, which posted a £650 million loss last trading period and under Dame Sharon White’s chairmanship, the partnership is undergoing a very painful reorganisation upheaval with 1500 redundancies, with a £300 million cost cutting exercise.

Finally, to the High Street debacle of last week; It looks as though the party is over for Arcadia as a group. One imagines that the administrator will be dealing with the ‘break-up’ of Arcadia. There are some great brands, especially Top Shop. There will be bidders for Sir Philip’s online business with perhaps the likes of Boohoo, ASOS and perhaps even M&S ‘taking a look’ at the shop-soiled goods, that might be on offer. Then there is the small question of the ‘pension black hole.’ Lady Tina Green has offered £50 million as a down payment. However, that parsimonious amount of money will be treated with derision by Stephen Timms MP, the chairman of the Parliamentary Work and Pensions Select Committee, especially as the deficit is thought to be £350 million.

Mike Ashley was incandescent over is the demise of Debenhams, of which he owned 29%, having never been allowed the opportunity of rescuing it. It looked as though the ‘Debenham Party’ was well and truly over. However, Mike Ashley is making a dash to rescue the operation, which could save many of the 12,000 jobs at risk. The deal could be valued at £200 million, depending on how much stock is left, after the frenzied sales on Friday. This deal would be welcome with JD Sports having pulled out last week.

There are many who believe than Rob Templeman, Michael Sharp, John Lovering and Chris Woodhouse have abused their privilege in purportedly taking £35 million out of the ring, after Debenham’s flawed return to the stock market, when many believed the business was not robust enough to warrant support. It is possible that as many as 25,000 employees in Arcadia and Debenhams are vulnerable to lose their jobs. It is interesting to note that retailers believe that sales were down 25% on the equivalent Saturday last year and the footfall in London was down 40%

In closing, many were amazed to hear that Ivan Glasenberg has decided to resign as CEO of Glencore, the mining magnet and turn his hand to farming in Lithuania! Over the years Mr Glasenberg built a brilliant trading operation which was eventually complimented with mining. He added Xstrata to Glencore’s portfolio, when paying £39 billion in 2012.

UK companies posting interim results this week – Monday – Ashtead Group, Tuesday – Stagecoach, Ferguson, Wednesday – Superdry, DS Smith, Ocado, First Group, Marston’s, Thursday – Character Group, Fuller, Smith & Turner, Friday – Fraser Group

US Companies posting interim results this week – Monday – Toll Brothers, Casey’s, Tuesday – Autozone, H&R Block, Barnes & Noble, Wednesday – Adobe Systems, Campbell Soup, Thursday – Christopher & Banks, Oracle, Ciena, Costco, Vail Resorts, Friday – Johnson Outdoors

Economic data to be posted this coming week – Monday – Halifax house prices, Japan’s Tankan Survey, Tuesday – EU 3rd quarter GDP, Germany’s ZEW Index, US MBA Mortgage applications, BoE Stability Report, Thursday – UK Manufacturing Output and Industrial Production for October, UK Balance of Trade, UK GDP Y/O/Y for October, ECB rate decision, US Inflation (November), US Initial Jobless Claims, Friday – US PPI, US Michigan Consumer Expectations, EU Summit