Powerscourt

By Powerscourt on 15/06/2020

Powerscourt Coronavirus Briefing – 15 June 2020

ANALYSIS

A few weeks after the hugely-curtailed celebrations of the 75th anniversary of VE Day (end of World War II in Europe), the lights are slowly coming on across Europe. Non-essential shops are open in the UK from this morning with predictions of a wave of bargain hunters testing the limits of social distancing. Meanwhile, President Emmanuel Macron declared “first victory” over the virus on television last night allowing hotels and restaurants in Paris to reopen with kids back to school next week. He said: “We will be able to turn the page on this first chapter across all our territory.” 

It isn’t just politicians who are trying to be optimistic. Economics may be derided as a “dismal science”, but Morgan Stanley’s economics team is grabbing headlines today with its reassertion that we can expect a V-shaped recovery. The Wall Street firm is predicting that global GDP growth will trough at -8.6% year on year for Q2 2020 but will rebound to 3% in Q1 2021.

There is also lots of bad news. The new outbreak at a Beijing seafood market leaves a recent gentle return to growth for China looking fragile. The National Bureau of Statistics has revealed the shape of the country’s nascent recovery, with growth in industrial production in May but falls in fixed asset investment and retail sales. This might be at risk after mass testing in Beijing has uncovered almost double the number of cases first found, spread throughout almost half of Beijing’s districts. After over fifty days of no new cases or deaths in the city, strict lockdowns are being reintroduced, leading Asian stock markets to fall.

In the US case numbers continued to rise after lockdown measures were recently eased. They increased by more than 25,000 over the weekend with big numbers in Texas and Florida.

Australia is wrestling with the issue of whether to open borders to business travel. The country’s chief nurse scotched media reports that restrictions were to be relaxed for business travellers, highlighting that almost half the country’s new infections were acquired overseas.

As we said, the UK will start to see the return of non-essential retail today but with the World Health Organisation’s warning ringing in our ears that the nation remains in “a very active phase of the pandemic”. Dr Hans Kluge, the WHO’s Director for Europe, urged no more easing of lockdown until the government’s contact tracing system has been proved to be “robust and effective”. Whether this stops bargain hunters from visiting John Lewis, Debenhams or Waterstones will depend upon how reassured they are by measures such as two metre distancing markings, closed fitting rooms and set aside policies for goods touched by customers. Same old story: green v fear.

The British Retail Consortium experts predict modest pick-up in the coming days.

 

WHAT ARE COMPANIES SAYING?

Consumer & Retail

Hennes & Mautitz
The Swedish high-street retailer has announced today that it saw sales cut in half during its second quarter, but has seen a small recovery in the first two weeks of June, with sales down by 30 per cent.  82 per cent of the retailer’s 5,058 stores are now open. At the peak of the coronavirus outbreak, four-fifths of its stores were closed, with the company seeing weekly sales declines of up to 70 per cent during this time. 


Industrials & Transport 

BP 
The oil giant has announced that it is lowering its long-term price assumptions, writing off between £13bn and $17.5bn from the value of its assets as it reduces its forecast for oil prices from $75 a barrel to $55 a barrel. This is due to an expectation that the coronavirus pandemic will have an enduring impact on the global economy, with the potential for weaker demand for energy for a sustained period. The company’s management also predicts that the aftermath of the pandemic will accelerate the pace of transition to a lower carbon economy and energy system, as countries seek to “build back better”. 

Bunzl
The international distribution company has released a trading update this morning, sharing that it expects to deliver a strong half year performance, with a revenue increase of approximately 6% at both actual and constant exchange rates. It attributes this to the breadth of the sectors and geographies that the Group operates in, and the wide range of products that it supplies. As a result of the better than expected trading performance, the company intends to repay employee-related government support packages and bring forward the settlement of tax deferrals where possible. 

AstraZeneca 
The pharmaceutical giant has announced that it has reached an agreement with Europe’s Inclusive Vaccines Alliance (IVA) to supply up to 400 million doses on the University of Oxford’s Covid-19 vaccine, with deliveries starting by the end of 2020. Pascal Soriot, Chief Executive Officer, said: “This agreement will ensure that hundreds of millions of Europeans have access to Oxford University’s vaccine following approval. With our European supply chain due to begin production soon, we hope to make the vaccine available widely and rapidly. I would like to thank the governments of Germany, France, Italy and the Netherlands for their commitment and swift response.”

 

Financials & Real Estate 

Scottish Investment Trust 
The company has released its half year results today, announcing that for the six months to 30 April 2020, the share price return total was -4.4%, and the net asset value per share total return was -5.8%. It still intends to pay an increased dividend for the year ending 31 October 2020 however, and announced a second quarterly dividend of 5.7p, sharing that it has “long prepared for such a scenario by building, during more plentiful periods, a substantial revenue reserve”. 

 

TMT

SThree 
The British recruitment firm released its half year trading update this morning, reporting a 7% fall in net fees compared to the first half of last year, as companies around the world paused their hiring activity due the coronavirus pandemic. Chief Executive Officer Mark Dorman said: “Whilst lockdowns are currently being eased to differing extents globally, we still see heightened uncertainty continuing for some time”. 

 

IN THE NEWS

More than 1m locked out of UK coronavirus support schemesThe Financial Times

Woe for retailers as half of shoppers could stay at homeThe Daily Telegraph

UK economy to contract by 8 per cent this year, says EY Item Club The Times




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