By Powerscourt on 07/07/2020
One of the oddities of recent weeks has been the persistent disconnect between rising infection rates in the United States, the world’s largest economy, and the stubborn equity market optimism, which appeared to be discounting the impact of the infection rates on the economy or, at the least, expecting a rapid bounce. That may be about to change.
On Monday Raphael Bostic, the Chairman of the Atlanta Federal Reserve and one of America’s most senior economic policymakers, told the FT that there had been a “levelling off” of economic activity following earlier signs of recovery. “There are a couple of things that we are seeing and some of them are troubling and might suggest that the trajectory of this recovery is going to be a bit bumpier than it might otherwise,” Bostic said.
Bostic’s jurisdiction includes Florida, one of the hardest hit of all US states. Florida on Sunday reported over 200,000 coronavirus cases and in Miami Dade county infection rates in tests were being returned at a level as high as 20%. The Republican National Convention is scheduled for next month in Jacksonville in northern Florida. Jacksonville had the most new cases of any metropolitan area in the US last week and the Food and Drug Administration said yesterday that it was too early to say if the convention could proceed safely.
So far US markets are still singing, with the S&P 500 closing up 1.6% and the Nasdaq up 2.2%, driven mainly by stock markets in China. But a note from investment bank Jefferies on Monday also suggested the economy had “flatlined” and that the rising infection rates had yet to impact on the employment market.
The bifurcation between the Americas, which account for three of the world’s five worst-hit countries (the US, Brazil and Peru), and the rest of the world is becoming increasingly sharp. While newspapers in the US and Brazil are dominated by stories about coronavirus, the European media now has the leisure to report on general news.
In the UK the focus remains for now on how to stimulate economic recovery. UK Chancellor Rishi Sunak is expected on Tuesday to unveil a £3 billion scheme designed to allow UK homeowners to pay for green home improvements and stimulate jobs. Germany’s Ifo predicted that German firms expect production to increase.
A study in Spain showed over 5% of the population has been exposed to coronavirus. The study also suggested that any immunity conferred by the virus may be short-lived: 14% of people who had earlier tested positive from the virus subsequently tested negative.
WHAT ARE COMPANIES SAYING?
Consumer & Retail
The owner of Premier Inn hotels has warned that the outlook for hotels is uncertain as booking patterns in countries that have relaxed lockdown controls remain volatile. The company reopened 19 hotels in Germany as the government there relaxed controls in mid-May and said that it now had 270 of its UK hotels open following the reopening of hotels, restaurants and bars in England from July 4. Alison Brittain, Whitbread’s chief executive said: “It is still very early days and therefore too early to draw any conclusions from our booking trajectory”. The closure of its entire 820-strong estate, except for 39 hotels kept open to host health workers, meant that sales declined in the three months to the end of May by 80%. In May Whitbread undertook a £1bn rights issue warning that it could be “materially lossmaking” this year. The company was burning £80m cash per month, it said. Brittain added that where booking patterns were discernible, Premier Inn had good demand for its hotels in traditional domestic tourist destinations but that London was “subdued”.
Reach will cut 550 jobs and move to “fewer locations”, as the UK’s largest regional news company said revenues for the three months to June dropped by 28 per cent. The decision, which will affect 12 per cent of the company’s workforce, comes after it put roughly 1,000 members of staff on furlough in April, as the pandemic reduced advertising spend that many news groups rely on. Jim Mullen, the company’s chief executive said “structural change in the media sector has accelerated during the pandemic” requiring “plans to transform the business”. He added: “Regrettably, these plans involve a reduction in our workforce…the company will now begin a 45-day consultation with staff regarding the job cuts”.
The FTSE 100 fashion retailer has posted long-delayed full-year results, which cover the 12 months to February 1, before the lockdown hit retailers. Pre-tax profits rose to a better-than-expected £438.8 million, up from £355.2 million. Revenue over the period rose £6.1 billion. Notably, it said that it was too early to extrapolate performance since its UK stores had reopened or give meaningful guidance for profits in the current year.
The company in a trading update has said that as bike specialist it was an essential UK retailer that stayed open throughout the lockdown. It also said that trading had been better than it forecast when the government put nationwide restrictions in place in March. Sales for the year to April 2021 could be down as little as 5% in its best-case scenario. But it warned more of its revenues were coming from lower-margin cycling equipment rather than its motoring business.
Industrials & Transport
Air New Zealand
The airline has put international bookings for flights into the country on hold at the request of the government to reduce pressure on coronavirus quarantine facilities. Today it has said that a three-week suspension of bookings would “help ensure the country is able to provide quarantine accommodation for inbound passengers”. All arrivals into the country must undergo a 14-day quarantine at government-managed isolation facilities. New Zealand has pursued a policy of eliminating coronavirus from its shores involving strict quarantines. Authorities have found 60 cases of people entering the country with the virus, with 22 cases currently classed as active. Some passengers with existing bookings may be moved to another flight as the airline aligns “daily arrivals with the capacity available”. The airline will operate a reduced international schedule until August 31 with 19 return flights each week to countries including Australia, China, the US and the UK.
Financials & Real Estate
Online trading broker Plus500 reported a record number of active customers with quarterly revenue almost tripling as turmoil in the markets spurred a boom in trading activity. The Israel-based group said today it has made David Zruia its permanent chief executive. Mr Zruia has been in the post as interim boss since April 20, when his predecessor Asaf Elimelech, who had held the position since 2016, resigned with immediate effect. Market volatility remained “heightened” in the second quarter, which drove a high level of activity. The group said its second-quarter revenue rose to $247.6m, from $94.1m a year earlier. In the quarter the group added more than 88,000 new customers to have a record 115,225, with an all-time high in the number of active ones using its platform. London-listed Plus500 offers contracts for difference (CFDs) that allow individual traders to make bets on moves in currencies, stocks and cryptocurrencies. The group said its financial position remains robust, driven by strong margins and high cash generation. The board remains “very confident” about the outlook, Tuesday’s statement said.
TikTok will exit the Hong Kong market within days, a spokesman told Reuters late yesterday, as other technology companies including Facebook suspend processing government requests for user data in the region. The short form video app owned by China-based ByteDance has made the decision to exit the region following China’s establishment of a sweeping new national security law for the semi-autonomous city. A TikTok spokesman in response to a Reuters question about its commitment to the market said: “In light of recent events, we’ve decided to stop operations of the TikTok app in Hong Kong”.
The company has flagged a 23% rise in second-quarter operating profit today, beating analysts’ estimates on solid chip sales to data centers catering for a work-from-home economy during the coronavirus pandemic. The sales offset weak demand for smartphones and TVs, while one-off gains from its display business, which counts Apple as a customer, also boosted profits, the company said. It gave no further details. The world’s top memory chip and smartphone maker said operating profit was likely 8.1 trillion won in the quarter ended June, far above the 6.4 trillion won analyst forecast by Refinitiv SmartEstimate. It would be the highest quarterly profit since the fourth quarter of 2018.Revenue likely fell 7% to 52 trillion won from a year earlier, Samsung added, giving only limited data in a regulatory filing ahead of its full earnings figures later this month.
The UK-listed tech group that has been struggling to integrate the HP Enterprise software business it bought in 2017, has written down almost $1bn of goodwill. It blamed increased economic uncertainty, expected disruption to new sales and timing pressure on renewals for the $922m goodwill writedown, dragging it to a $1bn half-year loss. It made $1.4bn in profit for the same period last year.
IN THE NEWS
Stage set for Rishi Sunak’s £3bn giveaway – The Telegraph
Sunak to unveil £3bn green package as part of coronavirus stimulus – Financial Times
Hospitalizations jump 50% in California as coronavirus infections soar – Reuters