Powerscourt

By Powerscourt on 18/05/2020

Powerscourt Coronavirus Briefing – 18 May 2020

ANALYSIS

The oracles of the US and European economies have dashed any hopes of a V-shaped recovery.

Jerome Powell, Chairman of the US Federal Reserve, warned at the weekend that the US economy would not recover fully from the impact of coronavirus until the end of 2021 and a vaccine may be required for full confidence to return. The European Central Bank’s Chief economist, Philip Lane, made a similar projection in El Pais newspaper for the eurozone.

The sobering comments come amid evidence that people around the world are adapting to the half-in, half-out world they find themselves in.

Protests in cities around the world led by libertarians pushing for greater freedom, alongside relaxation of restrictions, spring weather and lockdown fatigue, all contributed to an inching back to normality over the weekend, with people in cities including London and New York photographed outside in parks and beaches.

That may be short-lived, however, with warnings from New York governor Andrew Cuomo that infection rates are ticking up in response to relaxation. Officials in Northeastern China have reintroduced lockdown measures after a new virus cluster was identified in Jilin.

The UK government, for its part, has warned that it will only progress to the next stage of relaxation, scheduled for early June, if health data remains on a downward trajectory.

Different business sectors face different challenges on the road back to normality. In the UK, pub operators, one of the worst-hit sectors, are lobbying the government to reduce the two-metre social distancing rule. They claim the rule is more stringent than the WHO recommendation, and halving it could allow four times as many customers into pubs. Jonathan Neame, CEO of British pubs chain Shepherd Neame, said attempting to keep pub customers two metres appear would be “profoundly challenging”.

Asian markets rose steadily early Monday as oil prices hit a five week high, despite data showing Japan fell into an official recession for the first time since 2015. The FTSE 100 and FTSE 250 both opened more than 2% higher.

This week sees the 73rd meeting of the World Health Assembly, the key decision-making body of the World Health Organisation. We can expect further criticism of China. Reuters reported this morning that the US was considering a $25 billion reshoring fund to pay American businesses to move supply chains from China.

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Aldi
The supermarket has announced that it is planning to trial a home delivery offering by partnering with takeaway specialist Deliveroo. From Monday, the supermarket will offer a rapid delivery service from a store in Nottingham, central England, before extending the trial to a further seven stores across the East Midlands in June. If successful, the service could roll out to further Aldi stores by the end of 2020, it said. The company did not link the announcement with Covid-19, clearly this will help customers access their products without having to visit stores in person.

 

Industrials & Transport 

Ryanair

The Irish low-cost airline announced in its full year results today that it recorded a profit of just over €1 billion, up on the previous year. However, it said that it expects a loss of €200m for Q1 of 2020 and to carry less then 80m passengers in 2020 compared with the pre-Covid target of over 150m. The company also points out that it has “not taken state aid” and goes on to list the other European airlines which have taken what it calls “unprecedented quantums of State Aid”. It suggests in the statement that this has significantly “distorted” the competitive landscape in Europe and that it expects at or below-cost discounting from competitors going forward.

Centamin

Gold miner Centamin said in its full year results that the impact of Covid-19 remained uncertain however it was going to maintain its guidance for the FY2020. It did note that “non-essential capital expenditure has been temporarily deferred”. CFO Ross Gerard said “Our clean balance sheet, with no debt nor hedging, offers pure exposure to the gold price and our long cash position of c.US$379 million underpins the financial strength of the business and self-funds current growth investment.”

Hochschild Mining

The precious metals miner said it would restart production at its Inmaculada and Pallancata mines in Peru, targeting full output from these locations in the coming weeks. The company operates two mines in southern Peru and one in Argentina and said it would reissue its full-year forecast once full production is achieved and the overall impact of the output suspensions due to COVID-19-related restrictions were clear. Last month, Hochschild withdrew its 2020 forecast citing the uncertainties related to the coronavirus crisis.

 

Financial Services & Real Estate 

Intu

The British real estate investment trust provided an update today on lender discussions, noting that significant market uncertainty remains regarding the impact of Covid-19 on its operations. With the exception of those deemed essential, all stores remain semi-closed until at least 1 June 2020. It shared that Intu believes that in order to provide a stable environment in which to address the situation, standstill-based agreements with relevant financial stakeholders across its structures are the best course of action, and its primary focus to maximise value.

Accor
French hotel business Accor said that it had secured an additional €560m credit facility on top of its existing €1.2bn credit facility. In a market update, the company reported “initial signs of business improvement” with 250 of its hotels reopening since the end of April after a near shutdown for the travel industry. It also said that revenues per available room (RevPAR) were starting to show some recovery in China

 

TMT

Softbank
Tech and telecoms conglomerate and manager of the Vision Fund Softbank reported a record 1.4 trillion yen ($13 billion) operating loss in the April-March financial year. The fund’s $75 billion investment in 88 startups was worth $69.6 billion at the end of March, after booking losses on U.S. office space sharing firm WeWork and U.S. ride hailing firm Uber Technologies Inc. It was also announced that Jack Ma would be leaving the board.

Apple
The US tech giant has announced that it is opening an additional 25 stores in the US, having opened its first 10 early last week. Apple closed all of its stores outside China in March as a result of the Covid-19 pandemic. “Our commitment is to reopen our stores when we are confident the environment is safe,” Deirdre O’Brien, Apple’s head of retail, wrote on Sunday in a note on the company’s website.

 

IN THE NEWS

Jay Powell warns US recovery could take until end of 2021 – Financial Times

Commuters told to expect new controls as unions warn of ‘high-risk strategy’ – Sky News

We’re looking at negative interest rates, Bank of England’s Andy Haldane says – The Times




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