Powerscourt

By Powerscourt on 28/05/2020

Powerscourt Coronavirus Briefing – 28 May 2020

ANALYSIS

Stocks rose strongly in the US again on Wednesday and into Thursday in Asia with more signs from businesses around the world of growing optimism that economic recovery may be steeper than previously feared. However, the war of rhetoric between the US and China continued to escalate.

Financial stocks led the charge in Wednesday trading, in part driven by comments from JP Morgan CEO Jamie Dimon at a conference that “you could see a fairly rapid recovery”. Upbeat actions from major companies in leisure and entertainment – two of the worst-hit sectors – have turbo charged optimism. Walt Disney Co said on Wednesday it planned to reopen its Florida theme park in July, while MGM Resorts said it would reopen four casinos in June.

Scepticism abounds over how sustainable the current rally is in the face of mounting real world hardship. US unemployment data from the Labor Department is expected to show that unemployment claims remain at record levels, and on Wednesday Boeing cut 12,000 jobs in the US. But for now, investors are focusing on the positive.

The European Union on Wednesday proposed a EUR750 billion stimulus package which would knit together the union in a far-reaching way and is already leading to controversy over its size and ambition and, inevitably, who will pick up the tab for bailing out those states in the region worst-hit by the virus. Negotiations over the package will last several weeks.

The US asked the UN Security Council to look at China’s plans to introduce national security legislation to Hong Kong. The US said the issue was an “urgent global concern” with implications for international peace and security. China said it was an internal Chinese matter and nothing to do with the mandate of the council. The US linked Hong Kong to China’s “gross cover-up and mismanagement of Covid-19, its constant violations of its international human rights commitments and its unlawful behaviour in the South China Sea.” China responded: “Facts prove again and again that the US is the trouble maker of the world.” The China-US rivalry looks like it will outlast the virus.

Meanwhile, the US tech giants, arguably the only real “winners” of the crisis to date, are now in the crosshairs of US President Trump. Earlier this week Twitter incurred his wrath when it fact-checked two of Trump’s more questionable tweets under a new system, prompting a threat that the President would move to close the network down.

It isn’t just rhetoric. Reuters reported overnight that the White House has drafted an executive order requiring the Federal Communications Commission (FCC) to propose new regulations under the Communications Decency Act which exempts online platforms from legal liability for posts on their platforms. The order will establish the White House Tech Bias Reporting Tool to police the platforms for bias.

The UK is preparing to move to the next phase in the relaxation of its coronavirus restrictions, underpinned by its so-called “test and trace” system for identifying contacts of anyone known to have the virus, set to be launched today. The Government continues to be dogged by poor approval ratings following the failure of Prime Minister Boris Johnson to sack its controversial adviser Dominic Cummings.


WHAT ARE COMPANIES SAYING?

Consumer & Retail

Cineworld 
The group announced today that it has secured agreement from its lenders to amend the covenants on its credit facility, as well as securing an additional $110 million in liquidity through an increase in its revolving credit facility. It currently expects government restrictions related to cinemas to be lifted by July. Subject to this and confirmation of the schedule for film releases, it plans to reopen all of its cinemas at this time, with procedures in place to ensure a safe experience for its employees and customers. 


Industrials & Transport 

EasyJet 
In an update released this morning, the airline shared that it does not believe that the levels of market demand seen in 2019 will be reached again until 2023, with expectations that it will fly at approximately 30% of planned capacity in the fourth quarter. It announced too that it is to start a consultation in the coming days to reduce its staff numbers by up to 30%, to reflect a reduced fleet, improved productivity, and more efficient ways of working. This puts approximately 4,500 jobs at risk. 

Boeing 
The aircraft manufacturer has announced plans to cut over 12,000 jobs in the US, delivering involuntary lay-off notices to 6,770 employees this week. Another 5,520 applied and were accepted for voluntary lay-offs in exchange for severance packages. The company has also announced 630 job losses outside the US, in Australia, New Zealand and Canada so far, with more expected to follow. 

Stagecoach 
The coach company published a trading update today in which it announced that plans are in place to increase regional bus mileage close to pre-Covid levels in the near future, with this figures currently at c.40%. It also shared that commercial sales at its local regional bus operating companies are now at c.17% of those seen last year. Chief Executive Martin Griffiths said: “We see a lasting effect of the Covid-19 pandemic on travel patterns with an acceleration in trends of increased working from home, shopping from home, telemedicine and home education. We anticipate that it will be some time before demand for our public transport services return to pre-Covid levels”. 

Ryanair 
The budget airline is to begin laying off pilots and cabin crew, with CEO Michael O’Leary saying that it was inevitable in a year where the airline expects to carry half the expected number of passengers. He added that there were hopes the forecast figure of 3,000 job cuts, representing around a sixth of the workforce, could be lower as a result of pay cuts and the airline’s quick return to flying.

FirstGroup
The transport company has today welcomed the funding programme announced by the Department for Transport, which will support the provision of services by regional bus operators in England during the ongoing pandemic. It shared that it has introduced a number of measures to offer safe and socially-distanced space across its bus fleet, including live tracking to allow customers to check in real time how full each bus is, and cashless payments or e-tickets to reduce the need for contact between the passenger and the driver.

GSK 
The pharmaceutical company has announced that it intends to manufacture one billion doses of its vaccine efficiency boosters, which are known as adjuvants, in 2021 to support the development of multiple Covid-19 vaccine candidates, following a review of its global supply network. Roger Connor, President of GSK global vaccines said: “We believe that our innovative pandemic adjuvant technology has the potential to help improve the efficacy and scale-up of multiple Covid-19 vaccines”. 

 

TMT

Daily Mail and General Trust 
The British media company released its half year results today, in which it reported that Group revenues decreased by an underlying 23% in April, compared to the same month in previous years. It explained that the Covid-19 pandemic is adversely affecting the Consumer Media, UK Property Information and Events & Exhibitions businesses, with their combined revenues decreasing by an underlying 36% for the month. As part of its response to the effects of the pandemic, a scheme has been introduced to replace a portion of the April to June 2020 salary of high earners with equity in DMGT, to support cash generation and help align employees’ and shareholders’ interests. 

Draper Espirit 
The venture capital firm released its full year trading update today, in which it announced that it has made a provision for a £99 million adjustment across parts of its portfolio due to the impact of the coronavirus pandemic. It shared that the majority of its portfolio is well positioned to benefit from the acceleration of certain trends as a result of  Covid-19, with companies focused on secure cloud, automation, online financial services and gaming or entertainment continuing to trade well, and included that no staff have been furloughed or made redundant. Its Executive Directors have elected to defer 20% of their salaries for three months, using these balances when paid to purchased shares in the company.

PayPoint 
In its preliminary results published today, the company announced that its network continues to function with over 96% of its retail partners remaining open throughout the lockdown. During the period of 18 April to 17 May 2020, it has seen card payment transactions increase by 74.4% compared to the same time last year. On the other hand, ATM transactions and parcel volumes have fallen by 33% and 23% respectively as consumers avoid using cash throughout the pandemic and remain at home where possible.

 

IN THE NEWS

UK tops coronavirus death rate rankings The Financial Times

World faces ‘lockdown generation’ as one-sixth of young workers lose jobsThe Daily Telegraph

UK loses foreign investment crown to France after two decades at topThe Times 




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