WEEKLY FAYRE – Monday, 7th September 2020

September 7, 2020

“ Now the leaves are falling fast,
    Nurse's flowers will not last;
    Nurses to the graves are gone,
    And the prams go rolling on.

    Whispering neighbours, left and right,
    Pluck us from the real delight;
    And the active hands must freeze
    Lonely on the separate knees.

    Dead in hundreds at the back
    Follow wooden in our track,
    Arms raised stiffly to reprove
    In false attitudes of love.

    Starving through the leafless wood
    Trolls run scolding for their food;
    And the nightingale is dumb,
    And the angel will not come.

    Cold, impossible, ahead
    Lifts the mountain's lovely head
    Whose white waterfall could bless
    Travellers in their last distress.”

 

WH Auden – poet – 1907-1973

I must confess to having loved every minute of the two T-20 games between England and Australia at the Rose Bowl, Southampton. They were tough contests, with some brilliant cricket played by both sides in the best possible spirit - always great to beat Australia. However, on this occasion special thanks should go to Australia, West Indies, and Pakistan for agreeing to play cricket in empty grounds here in England and for having to live in a bubble for many weeks for the privilege of doing so. We in the UK owe all three teams a huge debt of gratitude! As for Australia they came to these shores, having played virtually no cricket with the lockdown and their winter interfering with the opportunity to play. Thank you from all cricket lovers!

The EU’s Chief negotiator, Michel Barnier, visits London for faltering talks with Sir David Frost next week on fishing rights, aviation, nuclear co-operation, and regulations. At present it is pistols at dawn, but good sense will hopefully prevail after thespian posturing on both sides.

 

INDEX

3rd January 2020

31stAugust 2020

% Loss/Gain

FTSE

7604

5963

-21.6%

DAX

13385

12945

-3.3%

CAC 40

6041

4947

-18.1%

DJIA

28868

28430

-1.5%

S&P 500

3257

3500

+7.6%

NASDAQ

9092

11775

+29.5%

SHANGHAI

3085

3398

+10.1%

HANG SENG

28543

28430

-11.5%

NIKKEI

23204

23143

-0.3%

ASX 200

6684

6066

-9.2%

 

 

 

 

 

INDEX

31stAugust 2020

4thSeptember 2020

% Loss/Gain

FTSE

5963

5799

-2.75%

DAX

12945

12842

-0.80%

CAC

4947

4965

+0.36%

DJIA

28430

28133

-1.04%

S&P 500

3500

3426

-2.11%

NASDAQ

11775

11313

-3.92%

SHANGHAI

3398

3355

-1.27%

HANG SENG

25254

24695

-2.21%

NIKKEI 225

23143

23205

+0.27%

ASX

6066

5925

-2.32%

 


After the dramatic fall global equities experienced in March – between 20%-30% - the recovery process in the US over the past 5 months to the end of August almost defies logic, if not gravity. In the case of the NASDAQ its rally has been astonishing, driven by breath-taking momentum from Amazon, Apple, Microsoft, Alphabet, Netflix, Tesla and Zoom. Shanghai has also performed well, having started its Covid-19 recovery before the rest of the world. Conversely the Hang Seng has had geopolitical problems to deal with for over a year and the NIKKEI, so reliant on Asia and the US for exports, has all but recovered its poise.

The disappointing performers have been in Europe. The DAX and the CAC40 are numerically small indices, sporting thirty and forty constituent stocks, respectively. The UK’s FTSE 100 has been the real laggard with the banking sector (-40%) enjoying a shocker and the energy/travel sector performing poorly, due to moribund activity. Retail has also suffered at the hands of Covid-19, which put the fear of God into the consumer. The third quarter earnings are expected to be guided by much-improved GDP expectations (BoE estimate of +18%), but there are unknown conundrums in relation to 4th quarter GDP.

And so, to last week, with schools finally opening their doors, but not without some setbacks, mainly in the Manchester area, Leeds and around Leicester and in Norfolk. The fear is still out there, despite the data improving dramatically in terms of fatalities. However, the argument over safety against economic necessity continues to rage, which has led to a wholly inadequate response in terms of returning to the workplace. The figures reported in the Sunday Times last week of between 19% and 13% in our larger cities could only be described as derisory. The message from the government has been rather ‘low-key’ in terms of exhortation and I’m afraid the ‘I’m alright Jack, Blow you!’ brigade has taken a commanding lead in this argument and seem to be in an unassailable position. This week the same newspaper blithely tells us that working from home will cost the UK £15 billion a year.

At some time, soon, the country must pick up the tab for this debilitating pandemic. For the time being borrowing at such cheap rates will keep the wolf from the door. Inevitably the books will need to be balanced.  It has been rumoured that Chancellor Sunak has been ruminating over imposing higher inheritance taxation together with an increase in CGT and corporation tax. Business has told the Chancellor in words of one syllable, please desist, unless you intend to throw the baby out with the bathwater and send the UK’s brittle recovery into ‘free fall.’ Luminaries such as Paul Johnson of the IFS, the CBI’sDame Carolyn Fairbairn and Dr Adam Marshall, the Director-General of the British Chamber of Commerce have warned against such a precipitous over-reaction, even though debt could surge above 100% of GDP. The distinguished economist Dr Gerard Lyons insisted growth must come before any thoughts of increased taxation. We should also not forget the millennials are likely to fear debt every bit as much as climate change. One fearful statistic appeared last week on debt. Projections show a US federal budget deficit of $3.3 trillion, or 16% of GDP – the most since 1945 – information courtesy of the FT.

The Chancellor has further been told that £44 billion worth of increased taxation will need to be raised to avoid making spending cuts – an awkward conundrum, especially as PM Johnson promised no return to austerity. The Government had added problems, such as a drop in consumer confidence and the loss of at least 250,000 jobs since March and the likelihood of 2.7 million possibly being unemployed by Christmas, according to Panmure Gordon’s Simon French. Also 1.5 million out of 5 million self-employed could not access emergency support, which is worrying news for the service sector.

Though it is thought that the UK economy is likely to experience a considerable bounce in the third quarter, in a keynote speech Bank of England Governor, Andrew Bailey told us that consumer caution could derail the recovery and that necessary investment could be withheld, though household spending is almost back to pre covid-19 levels. Just in passing, the UK is not the only country that is struggling economically: Germany is thought to have one in every six companies that could become zombies. There are 550k companies in that category.

As is so often the case, last week’s global performance table does not give a true picture of what happened during the week. Progress was made in most countries in the early part of the week with the US’s NASDAQ and S&P 500 reaching record levels. Apple was the first company to enjoy a $2.2 trillion price tag in terms of share capital value – worth more than the entire FTSE 100. Last Monday Zoom posted profits, which meant that since going public its value increased by 3300% to $125 billion.

By Thursday investors felt that markets in the US had become too frothy and too rich for most peoples’ blood. The S&P lost 3.4% and the NASDAQ Composite 4.82%, with Apple down 8%. It looked as though the savaging of tech stocks was likely to continue during Friday. However, August’s Non-Farm payrolls were rather better than expected with 1.37 million jobs created against Dow Jones’s estimates of 1.32 million. The unemployment rate dropped to 8.4% from 10.2% in July, well below expectations of 9.8%. Government hiring led the way, with gains also coming in retail and education and health services.

According to the FT, Softbank, the Japanese conglomerate is purported to have bought billions of dollars of equity derivatives in a series of trades during the past month that have stoked the fevered rally in large tech stocks, before Thursday’s and Friday’ sharp pullback. This activity is in addition to the £100 billion Vision Fund Softbank has accumulated in support of aspiring tech operators. Some fear that this raid on the options market may be bordering on reckless. In August alone, Tesla’s shares shot up 74%, with Apple gaining 21%, Alphabet 10% and Amazon 9%. Despite the magnitude of this sortie, some feel the accumulation of these options may not yet be completed. Softbank’s appetite would appear to be voracious.

Ironically, Warren Buffett’s Berkshire Hathaway has just laid out $6 billion for stakes in Itochu, Mitsubishi, Mitsui, and Sumitomo. Though Microsoft, aided by Walmart and Oracle, are flat to the boards to agree a deal to buy social network Tik-Tok’s US operations, it is possible that Beijing will refuse permission for this deal to be ratified.

Though the August holiday period was coming to a ‘close’, there were plenty of nuggets of business news to chew over last week. We said ‘sayonara’ to ITV, demoted from the FTSE 100 with share capital valuation of only £2.5 billion. It was replaced by B&M. ITV’s CEO Dame Carolyn McCall has struggled with declining advertising revenues, despite producing top rated dramas such as ‘Belgravia.’ Dame Carolyn has been hell-bent on digitalising its screening operations – maybe a little too late on the scene. Surely, it is time to be gobbled up by a Fairy Godmother such as Liberty Media or Vodafone.

Ocado’s new relationship with M&S has made a stuttering start, with a few tech glitches, which need ironing out. Heathrow has lost £1 billion during this pandemic, which may cause 25% of the workforce to lose their jobs. I really believe the Government needs to get its act together over ‘testing’ at all UK airports. The movement of goods and people are fundamental to an economic recovery. It is thought that Wizz is well-placed to pick up the slack of airlines that are struggling. Barratt Development posted profits that had halved to £492 million. However, the Company withdrew from its £175 million furloughing benefit. Their house prices have risen by 3.7%. Though house buying activity is currently on fire in the shires, when people realise how difficult it is to sell houses in London with a view to moving to the country, this euphoria is likely to simmer down indecently quickly. BP have also served notice that it will be selling its Ropemaker Street head office in the City, as the company seeks a new identity in the world of non-oil energy under the exuberant guidance of Bernard Looney.

We hear that Credit Suisse, which employs 5,500 people in Canary Wharf will be downsizing its operation in London and will be setting off ‘hot-foot’ to Madrid. They have already sent a forward party of 50 to relocate part of its successful wealth management operation. We wish them well, though many believe Credit Suisse will quickly realise that Madrid is not London as a financial centre of excellence. 

The LSE will host its first major IPO since the coronavirus pandemic began and the biggest market debut by a British company in more than a year. The Hut Group confirmed that it will go public later this month. The IPO is expected to raise £920 million and value the e-commerce firm at £4.5 billion, according to a statement from the Company. BlackRock, Janus Henderson, and the Qatar Investment Authority have committed to buying shares worth £565 million as part of the deal. The Hut Group operates e-commerce websites Lookfantastic, Skinstore and Mankind, as well as beauty subscription brand Glossybox. The Company also sells its own nutrition and beauty products. In 2019, sales increased 24% to £1.1 billion.

It will be the first London IPO to raise more than £500 million since mobile provider Airtel Africa and travel platform Trainline went public in June 2019, August was the strongest month on record for public offerings in the United States, with 41 deals worth $16.4 billion. September is expected to be even busier, starting with Palantir, a data analytics titan, valued at $20 billion.

On the positive news front, Amazon is to employ a further 9000 people in the UK as its business continues to expand.

UK companies posting interim results this week – Monday – AB Foods, Dechra Pharmaceuticals, Tuesday – Halfords, Ashtead Group, Avacta Group, JD Sports, McBride, Travis Perkins, Genus, Wednesday – Aquis Exchange, Computacenter, Galliford Try, S4 Capital, Tullow Oil, Thursday – Wm Morrison, Sportech, Dunelm, Rank Group, Friday – Ashmore

US Companies posting interim results this week – Tuesday – Peloton Interactive

Economic data to be posted this coming week – Monday – UK Halifax House Prices, Tuesday - Japan GDP 2nd quarter, EU GDP estimate 3rd quarter, US Consumer Credit, Wednesday – US MBA Mortgage applications, Thursday – US Initial Jobless Claims, US PPI, EU Mme Lagarde Speech, Friday – UK Manufacturing output, Construction & Industrial production, UK GDP July 2020 MoM YoY, US Inflation