By Powerscourt on 27/05/2020

Powerscourt Coronavirus Briefing – 27 May 2020


Stocks continued their recent upward momentum on Tuesday in the US amid hopes the economic bounceback in the developed world may be quicker than many expected and vastly better than some of the more apocalyptic forecasts.

The S&P 500 index on Tuesday rose to its highest level since the pandemic took hold in early March, with signs that investors are moving back into riskier asset classes including travel and leisure stocks, although tensions over Hong Kong helped drag Asian markets lower early Wednesday. A strikingly optimistic note from Exane BNP Paribas, quoted in the Financial Times, ventured that “the recession has likely ended”. That most potent symbol of capitalism, the trading floor of the New York Stock Exchange, on Tuesday reopened after a two-month hiatus, with Governor Andrew Cuomo ringing the opening bell in a face mask.

Surging stock markets and rising economic optimism are, for now, enough to gloss over a number of potential geopolitical flash-points amid continuing concern about the virus.

Tensions are mounting in Hong Kong, following the decision of the Chinese government to rapidly impose a new security law last week. This morning as the legislature debated laws making the Chinese national anthem compulsory in schools, police fired pepper rounds at protesters.

President Trump, who has consistently used the pandemic as leverage against China, has promised unspecified US “action” later in the week.

Closer to home, the UK Government continues to suffer fallout from the Dominic Cummings affair. A YouGov poll for The Times on Wednesday showed that the Government has seen its support fall by nine points over the course of a week due to its handling of the matter. Cummings, a senior adviser and strategist for the Prime Minister, broke lockdown rules at the height of the crisis to drive his wife and son to the North-East of England seeking childcare at a time when the Government was requiring all citizens to remain in their homes. Cummings was himself a key architect of the lockdown rules.

As many as 39 Conservative MPs are demanding Cummings’ resignation, according to the papers, fearing the Government’s refusal to sack him has significantly undermined its authority to require the British public to comply with rules and any future restrictions.

As the UK health data slowly improves, with new infections and deaths inching down in most regions, UK retailers gear up to reopen in mid-June. But several major retail outlets said  on Tuesday they would start with only a small part of their estate. John Lewis, Next and Primark all said that only handfuls of shops would open on Day 1.


Consumer & Retail

Auto Trader
The automotive marketplace has released an updated on its response to Covid-19 today, noting the recent government guidance that vehicle retailers in England may reopen on 1 June. The company has advised customers on the support it will provide as they resume trading, which includes a 25% discount for the month of June. CEO Nathan Coe said: “This recent government announcement is an important step forward for the automotive industry, and we will continue to support our customers as they resume trading”.

The soft drinks business has announced its interim results today, reporting that it has deferred payment of its interim dividend as profits fell by 9% to £75.7 million and revenue fell by 9% to £769.2 million in the six months to April 14. It explained that government restrictions introduced in mid-march on the movement of people had significantly impacted out-of-home and on-the-go consumption. CEO Simon Litherland said: “The world is a very different place from the one it was a few months ago, and I am proud and humbled by the resilience and dedication shown by the entire Britvic team”.  

Industrials & Transport 

The British motor racing team is to cut 1,200 jobs as the Covid-19 pandemic takes its toll on car sales. This represents more than a quarter of its 4,000-strong workforce. It had already made many of its workers redundant temporarily under the taxpayer-funded furlough scheme, with its race drivers Carlos Sainz and Lando Norris taking voluntary pay cuts. Executive Chairman Paul Walsh said “it is of course an action we have worked hard to avoid, having already taken dramatic cost-saving measures across all areas of the business. But we now have no other choice”.

In its full year results released this morning, the gold mining company announced a fall in profit for 2019 by 0.8%, from $25.9 million to $25.7 million. Group revenue increased by 48% however, from $499.8 million to $741.6 million, reflecting higher production volumes and a higher average gold sale price. For 2020, it confirmed that it is on track to meet its full-year production targets, noting that a number of steps have been taken to protect its employees from coronavirus, including adjusted mining shift patterns, designated isolation zones, and 14-day quarantine periods for contractors arriving on site. 


Financial Services & Real Estate 

British Land 
In its full year results released this morning, the property developer announced that pre-tax losses had widened to £1.1 billion from £320 million year-on-year as net rental income fell 10.1%. The company shared that it had seen a financial impact of £2 million from releasing smaller retail, food & beverage and leisure customers from rental obligations for the three months to June, and had deferred around £35 million of rent for customers experiencing financial challenges as a result of the pandemic.

St James’s Place 
The wealth management group issued an update today on new business inflows and funds under management for the month to April 30, reporting that gross inflows had been £1.17 billion, compared to £1.35 billion for the same month last year. Net inflows increased slightly from £800 million to £810 million. CEO Andrew Croft said: “We are encouraged by the robust gross and net inflows we have continued to experience during May, though the short to medium-term impact of government measures and economic volatility on our flows remains uncertain.”

Metro Bank 
The high street bank has warned that it is bracing for an increase in bad loans as the economy slows, explaining yesterday that while it is too early to predict the full fallout from the coronavirus crisis, its loan book would be impacted. Sir Michael Snyder, the bank’s interim chairman told its annual meeting: “We are seeing short-term economic disruption, which will naturally result in significantly higher credit risk impairments than in recent years”.

Provident Financial 
In a trading update published today, the sub-prime lender reported that tighter underwriting standards across the Group saw new business volumes fall in April, but signs of recovery have been seen in May. It shared that lending to new customers by its Consumer Credit Division was paused following the government lockdown, and overall lending to existing customers currently at c.30% of expected volumes.

The investment manager has provided an update ahead of its AGM this morning, in which it shared that total assets under management and administration were £323 billion at 31 March 2020, compared to £352 billion at the end of 2019, which it attributes to the shock to markets in March from the coronavirus outbreak. It announced that given its financial strength, it will pay dividends of £410 million on 29 May. Its 6,000 staff will continue to work from home until it is safe for them to return to the office. 



UK economy faces 5% annual deficit by 2024, say economistsThe Financial Times 

Tory MPs revolt as voters turn on Dominic CummingsThe Daily Telegraph

World stock markets rise as lockdowns are relaxedThe Times