Powerscourt

By Powerscourt on 30/05/2020

Powerscourt Coronavirus Briefing – 30 May 2020

ANALYSIS

The war of words between the US and China replaces the virus as the big economic this weekend. President Donald Trump said that the US would revoke special trade privileges for Hong Kong and sanction officials from the territory and mainland China.  This could remove a way for Chinese firms to easily access international capital via Hong Kong.  Trump also said he would look at the listing rules for Chinese firms listed on US exchanges suggesting that they ‘don’t play by the same rules’.  Trump said the actions, which includes preventing Chinese nationals with ties to the People’s Liberation Army from obtaining student and work-exchange visas, are meant to target China’s “military-civil fusion strategy”.  The news came after Beijing moved to impose new security laws on the former British colony.

Investors used to such rhetoric-bombs were relieved at the lack of specificity on anti-trade measures and the main US indices closed a little higher,  recovering from earlier falls.

The President had a busy day. He also announced that the US will terminate its relationship with the World Health Organisation, making good on a threat he has made throughout the coronavirus pandemic. Citing the need for the WHO to reform and be more transparent, Trump went on to say that the “world needs answers from China on the virus.”  The funds will be redirected to support public and global health in other ways.

The Twitter Storm between President Trump and the eponymous social media company escalated on Friday afternoon – when Twitter hid two the of President’s tweets behind a warning suggesting they were glorifying violence.  Mr Trump has suggested that he would send in the National Guard to quell riots in Minneapolis (which started after the death of a black man who was being arrested).  The President had said ‘when the looting starts, the shooting starts.’  In related news, Mark Zuckerberg has pledged to take down Coronavirus misinformation from Facebook.

Moving to European news, in attempts to restart the economy, Greece has announced that it will open national borders to tourists from 29 countries from June 15 – but not ones from the UK, US, France and Ireland – countries which have been hard hit by the pandemic.  The 29 countries have been deemed ‘low-risk’.  In other eurozone news – the risk of deflation has risen – with data in May showing prices increased by just 0.1per cent.  Inflation turned negative in 12 of 19 eurozone countries leading investors to expect further monetary stimulus from the European Central Bank – which meets virtually next week.

At yesterday evening’s Downing Street Press Conference – the UK Chancellor Rishi Sunak outlined the changes to the furlough scheme. Sunak says that in June and July the furlough scheme will continue as before, but employers will be asked to cover National Insurance and employer pension contributions in August.  By September, businesses will pay 10% of wages for furloughed staff, and in October 20%.  Sunak also said the Government was working on a significant job creation scheme to stop the spectre of mass unemployment.

There was continued ‘good news’ in the UK.  Following reports that the country’s employment data was moving in the right direction at the end of last week; the FT examined a host of other economic factors. The paper suggested that: household spending was contracting less sharply than previously thought; Brits were increasing the journeys they are making on the country’s roads; and the nation’s obsession with property was returning – with online property searches having jumped in the still fragile housing market.  Don’t anyone say ‘green shoots’.  The overall picture is still one of depressed levels of activity compared with before the pandemic.

And finally: for those of you missing live sports – we know the gambling companies are – we have seen confirmation of plans announced this week to restart the Premier League Football in England (17 June); and La Liga – also Football – in Spain (11 June).   Cricket will also resume next week in Australia – with a T20 tournament.  For a nation where many believe the captain of the national cricket team is a more important job that the Prime Minister – this will come as a relief. 

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WHAT ARE COMPANIES SAYING?

Consumer & Retail

B&M
A surge in demand for DIY equipment and gardening tools has driven up sales at B&M Bargains by almost a quarter during the pandemic. The discount retailer has been able to keep the majority of its 950 stores open and so their like-for-like sales had jumped 22.7% after “exceptionally strong demand” for gardening and DIY products. Stripping out these products, like-for-like sales were 10.3% higher. 

JDE Peet’s
Shares in coffee group JDE Peet’s climbed more than 12% in its first day of trading, after it raised €2.25bn to complete Europe’s biggest initial public offering since 2018. The float on Friday marks one of the biggest IPOs since the coronavirus pandemic hit global economies and put a severe chill on the market for new listings around the world. JDE Peet’s, whose brands include Douwe Egberts, Kenco and Peet’s Coffee, climbed to a valuation of €16.8bn as its shares rose to €35.51 in early Amsterdam trading. 

PizzaExpress
PizzaExpress is planning to launch a pasta brand to bring in extra revenue amid negotiations over its large debt pile and the potential closure of some of its restaurants. The chain’s owners are considering options for its future, including a company voluntary arrangement, an administration process that would allow the business to reduce its costs by closing some of its 627 restaurants. The UK government has suggested that restaurants could reopen on July 4, but an adviser to one group of PizzaExpress creditors said it was “unimaginable that they could reopen all their sites” and that the company was “moving towards a CVA”. 

Rentokil
The pest control and hygiene specialist Rentokil has not been left unscathed by the COVID-19 pandemic. While ongoing revenue rose by 7.2% at constant currencies in the first quarter of 2020, this slowed to 4.4% in March. Unsurprisingly, activity relating to hotels, restaurants and catering and offices have been hit the hardest. The group is guiding to a larger impact in the second quarter as global lockdown measures continue. 

Sports Direct
Following the drafting in of health advisors, Sports Direct owner Mike Ashley is poised to open most of the chain’s stores next month. Ashley is working with consultants at safety firm Risk Source to reopen approximately 500 outlets on June 15, including branches of Sports Direct, luxury brand Flannels, Jack Wills and Game. House of Fraser is expected to open later the same week as it awaits guidance from Whitehall regarding larger stores with cafes and restaurants on site. 

Ted Baker
Ted Baker is close to issuing a new share placing in a bid to survive the coronavirus lockdown, which has brought trade at the already struggling business to a halt. The company said a noticeable impact on sales in the wake of the pandemic, coupled with poor trading last year was making the need for a wider transformation more acute. As a result, the company is in an advanced stage of preparation for placing an open offer.


Industrials & Transport 

Renault
Renault plans to cut approximately 15,000 jobs, shrink production and restructure some of its French factories as they seek to slash €2bn in costs amid falling demand and the aftermath of the 2018 arrest of Carlos Ghosn. After recording their first loss in a decade last year, Renault is trying to achieve more than €2bn in savings during the next three years while cutting global production capacity from 4m vehicles in 2019 to 3.3m by 2024. 

Rolls-Royce
Rolls-Royce shares were the top faller on the FTSE100 yesterday after Standard & Poor’s cut the company’s credit rating to junk status. The BB mark that the leading rating agency put on Rolls-Royce’s financial stability leaves the aerospace group at sub-investment grade, the sort of company to which normal financial institutions might not usually lend, or if they did, they would charge higher interest payments. Much of Rolls-Royce’s income is tied to the number of hours commercial aircraft spend in the air and the production of new aircraft, both have which have been severely curtailed because of the pandemic.

Volkswagen
Volkswagen will invest more than €2bn into expanding its production of electric vehicles in China, even as the world’s largest car market suffers a prolonged decline that has been worsened by the coronavirus pandemic. The German group said that it would boost its stake in an existing electric car joint venture while separately investing in a Chinese battery manufacturer. The deal marks the first significant commitment by a global automaker to China since the COVID-19 outbreak pummelled sales in the early part of the year. 

 

Financials & Real Estate 

Aviva
Aviva this week defended its decision to axe its final dividend for 2019, despite a barrage of criticism from retail shareholders at its remotely held AGM. The insurer surprised many investors when it cancelled the 21.4p per share payout, citing the unprecedented challenges COVID-19 presents for businesses, households and customers, and the adverse and highly uncertain impact on the global economy.

Bank of England
Finance chiefs are rushing to break a deadlock that has stopped cheap Bank of England funds from flowing to struggling fintech companies, mortgage providers and alternative lenders. Banking groups led by the Finance & Leasing Association has proposed a “Term Funding Pipeline” to rescue non-bank lenders that provide huge amounts of credit to consumers and small firms. This comes amid growing fears that many non-bank lenders could collapse as rescue talks stall.

IN THE NEWS

Donald Trump to revoke Hong Kong trade privileges in China escalation Financial Times

UK economy shows early signs of improvement from lockdown low Financial Times

Data can help solve the COVID crisis The Daily Telegraph

COVID-19 is spreading too fast to lift lockdown in England The Guardian




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