Powerscourt

By Powerscourt on 06/06/2020

Powerscourt Coronavirus Briefing – 06 June 2020

ANALYSIS

Global stock markets rallied yesterday after the US economy showed extraordinary resilience. Figures showed it added 2.5m non-farm jobs last month, stunning investors, who had been expecting a fall of 7.5m and an unemployment rate close to Great Depression levels of 20%, rather than the actual rate of 13.3%.

Encouragingly, the job gains were spread across the US economy, with people working in construction rising by 464,000 and by 225,00 in manufacturing. Retail payrolls increased by 368,000, with clothing stores and auto dealers adding substantial numbers and the health industry seeing a big uptick, as dentists and doctors’ offices reopened. The biggest gains were recorded in restaurants and pubs, where the number of people employed rose by nearly 1.4m.

In Europe, the US jobs numbers added to the optimism created this week by the ECB’s expanded stimulus programme. The Stoxx Europe 600 index gained more than 2%, with a similar gain in the FTSE 100. The major stock averages are now down only a few percentage points from the all-time peaks they hit in February. But the improving figures led some commentators to ask whether the world economy needs the degree of support it’s getting, with central banks in the US, Japan, the UK and China having added $18tn to their combined balance sheets since 2007.

As many of the protections around the world economy begin to roll off, governments are increasingly focusing on the economic effects of the second phase, with ministers in the UK expecting the number of businesses laying off workers to increase substantially when the furlough scheme starts to wind down. Though Chancellor Rishi Sunak is delaying a big stimulus package of tax cuts and spending until the autumn, dampening expectations of a summer Budget, Downing Street is drawing up a range of measures to assist the economy, with Sunday trading laws suspended for a year and cafés and pubs receiving fast-track approval to serve food and drink outside. Businesses are speaking up more loudly than ever, with British Airways’ parent IAG confirming that it was consulting lawyers in an attempt to block the UK’s quarantine policy, due to be introduced from Monday. CEO Willie Walsh said it was likely that other airlines would also bring legal challenges and claimed that the quarantine was an “irrational piece of legislation” which had “torpedoed” BA’s attempts to resume flights.

However, new data on the virus showed that easing of the lockdown can’t be taken for granted, with the infection rate passing the threshold where case numbers begin to grow in two regions of the UK, as the lockdown eases. The R number is above one in the North West and South West of England, with experts warning that increases could halt the decline in Britain’s coronavirus death rate by mid-June.

Finally, the sheer lack of knowledge around Covid-19 continues, with new research showing that bald men may be at higher risk of suffering from severe symptoms. The link is so strong that some researchers are suggesting baldness should be considered a risk factor called the “Gabrin sign”, after the first US doctor to die of Covid-19 in the US, Dr Frank Gabrin, who was bald.

 

WHAT ARE COMPANIES SAYING?

Consumer & Retail

Gap 
The US clothing retailer has reported losses of almost $1bn in just three months, after having to close 90% of its stores worldwide during the coronavirus shutdown. The company reported a loss of $932m in the three months to 2 May, compared with a profit of $227m made during the same period last year. 

Victoria’s Secret 
The company’s UK arm has fallen into administration, putting more than 800 jobs at risk across its 25 stores, all of which have remained closed since March. The retailer confirmed yesterday that it has called in administrators from Deloitte after being severely impacted by the coronavirus pandemic, with 785 of its employees currently on furlough. Deloitte has said that there will be no immediate redundancies as it tries to find a buyer for the chain. 


Industrials & Transport 

Bombardier
The group has announced that it will be cutting 2,500 jobs from its aviation division after a sharp fall in air travel caused by the worldwide restrictions. This represents around 11 per cent of its global workforce. President David Coleal said: “We are now faced with the difficult decision to adjust the size of our business, considering both disruptions in our supply chain as well as industry-wide forecasts calling for approximately 30 per cent year-over-year drops in unit deliveries due to the pandemic.

British Airways 
Willie Walsh, the Chief Executive of British Airway’s owner IAG, has shared that the company is consulting with lawyers about possible action into what he labelled “terrible” measures requiring international passengers to isolate for 14 days upon arrival in the UK in an attempt to prevent a second coronavirus peak. He explained that these plans had “torpedoed” efforts to restart passenger flights next month. Speaking on Sky News yesterday he said: “I suspect there are other airlines who are doing so because it’s important to point out there was no consultation with the industry prior to enacting this legislation and we do believe it’s an irrational piece of legislation”.

Bentley 
The luxury car-marker is to cut 1,000 jobs, nearly a quarter of its 4,200-strong workforce, as it tries to rein in costs following a two-month closure of its facilities. Chief Executive Adrian Hallmark told the Financial Times that the company “has literally done everything possible” to compensate for a seven-week shutdown”, adding that the crisis could cause the business to fall to a loss this year. 

Jaguar Land Rover 
The carmaker has agreed a £560m three-year revolving credit facility with a syndicate of five Chinese banks, including Bank of China, Industrial and Commercial Bank of China, and China Construction Bank, to support the company’s working capital requirements as the coronavirus pandemic takes its toll on supply chains and sales.

 

Financials & Real Estate

Taylor Wimpey 
The housebuilder has reported a sharp rise in customer interest since reopening the majority of its sales centres and showhomes across England, with a threefold increase in appointments last week, and a jump in website traffic of 32 per cent compared with the same period last year. The company shared that “forward indicators” had improved with “a strong level of interest” from potential buyers of new homes. 

 

IN THE NEWS

Plans to open shops all day on Sundays The Times 

Sunak pushes back stimulus plan until AutumnThe Financial Times 

US unemployment declines to 13.3% as economy restores 2.5m jobs in MayThe Guardian




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