Powerscourt

By Powerscourt on 18/04/2020

Powerscourt Coronavirus Briefing – 18 April 2020

ANALYSIS

The stock market continues to gallop ahead of the “real” economy, with markets appearing to price in a sharp recovery for which there’s not yet any economic evidence.

The Dow Jones Industrial Average closed up just under 3% as US markets continued to surge. A second week of gains left the major US indices just 11% below pre-crisis highs.

Boeing announced it would reopen factories in some states and Procter & Gamble reported its biggest sales increase in decades, reflecting the stockpiling that set in in the initial weeks of the coronavirus crisis. Gilead Sciences’ experimental drug remdesivir, a potential treatment for coronavirus, meanwhile, posted further encouraging clinical data. The upbeat corporate news comes against a drumbeat of bullish remarks from US President Donald Trump and signs some US states are preparing to open the doors for business to resume.

But the economic data doesn’t support the market optimism. China on Friday posted its first quarterly fall in economic growth in 30 years, and while there are signs of recovery in some sectors, consumption and services suggest demand may remain limp for some time. Next week the UK’s Office of National Statistics will post monthly economic figures – likely to be grim reading. 

Tensions mounted in the US between some Democrat-led states who are pushing back against President Trump’s apparent desire to reopen the US economy and protesters who fear the impact further restrictions will have on their economies.

In Europe, Germany said on Friday its coronavirus outbreak was “under control”, but the UK government is still struggling to show anything that looks like control. A report in the Guardian said NHS staff have been asked to wear aprons after running out of protective gowns, while the Times said senior members of the Conservative party believe the Government is not being clear enough with the public on the coronavirus exit strategy.

 

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Procter & Gamble

Consumer brands giant P&G reported a 10% jump in organic sales in the US and 6% in western Europe for the three-month period to the end of March. The company said that it had seen a surge in demand for household cleaning products and essentials, showing yet another example of where some companies appear to be seeing real benefits from coronavirus lockdown measures. Sales of cosmetic products were weaker, which impacted the Chinese arm of the business where beauty products make up a much greater proportion of overall sales. The company also noted in its scheduled update that it was redirecting resources to produce 10m face masks per month to be donated to health services and charities.

Honest Burgers
The UK burger restaurant with nearly 40 locations announced yesterday that it was producing “DIY burger cuts” to be delivered to customers during lockdown. The kits are worth £35, however Honest have asked customers to make a donation of whatever they choose to the restaurant’s ‘Honesty Box’ which will be donated to three charities supporting groups affected by the coronavirus. 

Debenhams
The department store business has announced that it is permanently closing 7 stores which will not reopen after the lockdown, resulting in the loss of more than 400 jobs. The company entered administration last week and has been able to strike deals regarding 120 of its 142 sites, however these seven are being exited as no deal could be reached with landlords. The chief executive said “I’d like to express my thanks to our colleagues in these stores at what I know is a difficult time for everyone.”

Walmart

The company has announced it is hiring 50,000 more workers for its stores, clubs and distribution centres in order to meet the surge in demand for food and household essentials in the US. This is in addition to the 150,000 workers that the company has already hired six weeks ahead of schedule, which equates to 5,000 people per day. All the companies US staff are required to wear masks or face coverings at work, in line with public health guidance. 85% of the new workers are going into temporary or part-time roles.

 

Travel and Leisure 

Virgin Atlantic

The airline lobbying for a £500m coronavirus bailout package has been asked to resubmit its proposal, after the government was left “unimpressed by the initial bid.” The Financial Times reported that the airline had not done enough to show that it had explored other options to bolster cash before asking for state aid. However, the article also reported that the bid for support, now led by investment bank Morgan Stanley, was ongoing and that talks were “constructive”.

 

Financial Services & Real Estate

M&G
The UK asset manager has raised the fees it charges clients to run some funds after the value of them shrank due to recent market turmoil. In response to an article from Bloomberg, the company said that some funds had seen a two-basis-point reduction to their discount due to “the fund size changing over the past few weeks.”

 

Industrials 

Boeing

The US media reports that Boeing is planning to call 27,000 employees back to work next week to begin building airplanes again. The company said in a statement that “the health and safety of our employees, their families and communities is our shared priority”, and that this “phased approach” would help to resume essential work for customers safely. It is estimated that the grounding of planes so far has cost the company approximately $19 billion.

Ford
The US carmaker revealed it was happy to pay 11% interest rates in order to access the bond market. The company launched an $8bn fundraising on Friday, having posted a $2bn loss in the first quarter. However, despite initial concerns, reports said that the company is now due to pay 9.6% yield on $1bn of 10 year debt, with another $7bn worth of five-year and three-year bonds at decreasing yields down to 8.5%. The only Ford factories that are producing and selling cars at this point are in China, where the economy is now reopening.

Airbus
Airbus announced that it will furlough 3,000 staff across three French sites, while in the UK it is preparing to return workers to its wing plants after following current shutdowns. The three sites in Toulouse, Nantes and Saint-Nazaire will be on leave from Monday 20 April until mid-May. In the UK, workers will return to work at sites in Broughton and Filton on Monday after a break of over three weeks.

 

Healthcare

Gilead

The US pharmaceutical company announced on Friday that it had shown very strong positive results in a clinical trial for their covid-19 treatment. The drug reportedly has shown rapid recovery in almost all of the more than 100 hundred severely ill patients. The company however urged caution in its statement, saying that while they “understand the urgent need for a Covid-19 treatment,” they needed to analyse “the totality of the data” before any conclusions could be drawn and “anecdotal reports” were not a good enough basis. They said further data would become available in May.

 

TMT

Netflix

Netflix has added an additional $50m to its coronavirus emergency relief fund bringing the total to $150m. The fund was announced in March and was established to assist the hardest-hit workers on its own productions and in areas where the company has a large production base. Some of the money is being allocated through non-profit groups that are helping the industry, with assistance being provided in the US, Canada, UK, Italy, India, France, Mexico, Spain, Brazil and the Netherlands.

Uber Technologies
Ahead of its May earnings report, Uber has withdrawn 2020 guidance on the basis of Covid-19 uncertainty. Shares however rose 6.5% on Friday as the investors responded well to the statement. The company reported that while there was a near term impact, in parts of the world beginning to recover such as Hong Kong, they were seeing a gradual rebound which was likely to be replicated across their markets.

 

 

IN THE NEWS

Andrew Bailey backs forecast of big UK economic downturn – Financial Times

China’s economy shrinks for first time in 30 years – The Times

Coronavirus Job Retention Scheme extended until end of June – Sky News

 




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