Powerscourt

By Powerscourt on 31/07/2020

Powerscourt Coronavirus Briefing – 31 July 2020

ANALYSIS

The scale of the devastation coronavirus has wreaked upon the US economy was laid bare on Thursday.

US Commerce Department figures showed that US GDP fell by just under a third on an annualised basis or 9.5% compared with the preceding quarter, the steepest decline since records began. Meanwhile, Labor department data showed unemployment benefits rising for a second week following four months of decreases since the March height of the crisis, a clear suggestion that the economy is in decline again due to soaring virus numbers in the US.

President Trump appeared to deflect attention from the grim economic data as only he knows best, starting a fire in another corner of the internet by tweeting the suggestion that the US should delay the November election, a tactic which was met with widespread eye-rolling and explicitly rejected even by some prominent members of his own Republican party. Trump is trailing his presumptive rival Joe Biden in the polls in many parts of the US, even in the reliably Republican Texas.

But the economic pain is not evenly distributed. The four big tech companies, Alphabet, Amazon Apple and Facebook on Thursday posted blow-the-lights-out quarterly earnings, boosting their collective market capitalisation by $230 billion at a stroke in after-market trading and confirming the extent to which coronavirus has turbo-charged tech’s ascendancy.

This won’t have escaped the attention of the new John Lewis boss Sharon White, whose Ground Zero plan to modernise the British retailer emerged. Ms White’s long-awaited plan – which made its way into the newspapers via a memo to staff – proposes that the store, the archetypal department store for the aspirational middle classes, will become “digital first”, an admission of the extent to which bricks and mortar selling has become a burden to retailers. The plan also sees John Lewis’s increasingly redundant real estate portfolio being converted into garden retailing and even affordable housing.

In the UK, concern over rising coronavirus numbers in the North of England has prompted authorities to impose new restrictions on around four million people in the Greater Manchester area. From midnight tonight, people from different households will not be able to mix indoors until further notice. The Health Secretary Matt Hancock said this was largely attributable to failure to observe social distancing.

And little wonder, according to research from University College London, which found that less than half of UK 70,000 adults surveyed had a “broad understanding” of the new post-lockdown measures, a continuing headache for authorities as they seek to balance “normalising” the economy with continued vigilance in monitoring the virus.

Major global indices were all lower into Friday morning as concern about the US economic outlook and the continued impact of coronavirus dragged down any optimism from strong tech earnings.

 

WHAT ARE COMPANIES SAYING?

 

Retail & Consumer

John Lewis
Dame Sharon White, chairman, has told staff that her transformation plan should deliver “green shoots over the next 9-12 months”, while she gave a longer three to five-year timetable for profits to recover. Profits have plunged by a quarter to £123 million in the past year, prompting the mutual to close 8 of its 50 department stores and make deep cuts to its head office staff. “As we repurpose and potentially reduce our shop estate, we want to put our excess space to good social use,” she said. “We are exploring with third parties the concept of new mixed-use affordable housing.

Amazon
Amazon increased its revenues by 40 per cent in the second quarter during the coronavirus lockdown. Sales rose from $63.4 billion to $88.9 billion between April and June, with net income doubling to $5.2 billion. Jeff Bezos, Amazon’s founder and chief executive, said the company had created more than 175,000 new jobs since March to cope with demand.

EssilorLuxottica
Oakley and Ray-Ban maker EssilorLuxottica, reported almost a halving of second-quarter revenue on Friday due to store closures to curb the spread of the coronavirus and said the third quarter would be another period of transition. “At this stage, the situation remains too volatile to re-instate financial objectives for the year,” the company said in a statement. Sales in the second quarter of the year dropped 46.1% at constant currencies to 2.45 billion euros (2.22 billion pounds).

 

Industrials & Transport

Glencore
Glencore, the world’s biggest producer of seaborne thermal coal, plans to reduce thermal coal output as Covid-19 hits demand. The miner expects cut coal production guidance to 114m tonnes from 132m previously. Glencore also said its marketing, or trading arm, was on course to deliver earnings before interest at the top end of a $2.2bn to $3.2bn range. Glencore Chief Executive Officer, Ivan Glasenberg said, “Glencore has delivered an overall strong first-half operating performance amid the unprecedented challenges presented by Covid-19, reflecting both the ability and dedication of our teams to adapt to these difficult conditions. As a responsible operator, our top priority has been to protect the health and safety of our people and the communities that host our businesses.”
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IAG
British Airways owner IAG has announced plans for a capital raising of up to €2.75bn to strengthen its finances due to the impact of the pandemic on the aviation industry. IAG reported a €4bn loss in the first half and warned it will take at least until 2023 for passenger demand to recover to last year’s levels. Chief executive Willie Walsh said: “The industry will recover from this crisis, though we do not expect this to be before 2023, and there will be opportunities for IAG to capitalise on its strength and leadership positions.”
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Air France-KLM
KLM, the Dutch arm of Air France-KLM said it would cut 1,500 additional jobs as part of a restructuring in which it needs to cut emissions by 50% by 2030 as well as prepare for recovering traffic after the coronavirus crisis. Air France-KLM reported a 1.55 billion euro (1.40 billion pounds) operating loss for the second quarter, with traffic down 95% from a year earlier. reported a 1.55 billion euro (1.40 billion pounds). The company said, “expectations are that the road to recovery will be long and fraught with uncertainty… demand is only expected to recover by 2023 or 2024 at the earliest.”

 

Financials & Real Estate

NatWest
NatWest tumbles to first half loss after setting aside a fresh 2.1 billion pound provision against a potential surge in loan losses due to the COVID-19 pandemic. NatWest posted a 770 million pound pretax loss for the first half, compared to a 2.7 billion pound profit the previous year.

Swiss National Bank
The Swiss National Bank posted a profit of 39 billion Swiss francs (32.76 billion pounds) during its second quarter. “The first half of 2020 was dominated by the effects of the coronavirus pandemic, which led to high volatility on the financial markets. Strong fluctuations are therefore to be expected, and only provisional conclusions are possible as regards the annual result,” the central bank said in a statement. “BNP Paribas was able to quickly mobilise its teams, resources and expertise to meet the needs of its clients across Europe and beyond,” Chief Executive Jean-Laurent Bonnafe said.

BNP Paribas
BNP Paribas reported stronger-than-expected results. Revenue at its corporate and institutional bank rose by 33.1%, as fixed income, currencies and commodities (FICC) trading revenue surged 153.8%.

Swiss Re
Reinsurance company Swiss Re reported its loss of $1.1 billion (837.58 million pounds) in the first half of the year. “We expect the claims and reserves (2.5 billion) we have booked in the first half of 2020 to cover the majority of our ultimate COVID-19 losses,” said Chief Executive Christian Mumenthaler.

 

TMT

Facebook 
Facebook posted double-digit revenue growth despite headwinds from the pandemic, but warned that a boycott of its advertising services would impact growth in the current quarter. Revenues in the three month to the end of June rose 11 per cent year-on-year to $18.7bn. It expected advertising revenue in the current quarter to grow about 10 per cent citing the effect from “certain advertisers pausing spend on our platforms” due to a boycott and tightening privacy regulation in the US and Europe for example.

Google
Google has suffered its first recorded revenue decline due to coronavirus. It saw a per cent loss from advertising income in the latest quarter and a drop in Alphabet’s revenues by 2 per cent from the year before. Sundar Pichai, chief executive, said Google had seen “the early signs of stabilisation, as users returned to commercial activity online.

BT
BT, Britain’s biggest broadband and mobile operator, reported a 7% drop in both revenue and core earnings in its first quarter after the COVID-19 pandemic impacted its BT Sport television revenue and reduced demand from business customers. It expected to produce adjusted core earnings between 7.2 billion and 7.5 billion pounds on 5-6% lower revenue for its 2020/21 financial year.

Apple
Apple reported revenue of $59.69 billion and profit of $2.58 per share in the three months to June 2 despite Covid-19 forcing it to shut many of its stores worldwide. iPhone revenues had risen to $26.42 billion during the third quarter. “Apple’s record June quarter was driven by double-digit growth in both products and services and growth in each of our geographic segments,” CEO Tim Cook said. The company announced a four-for-one stock split yesterday, to “make the stock more accessible to a broader base of investors”. It has declared a cash dividend of $0.82 per share, payable on August 13.

ProSieben
German broadcaster ProSieben reported a net loss in the second quarter as the coronavirus pandemic hammered advertising, but said it saw first signs of a recovery in July. The company made an adjusted net loss of 52 million euros (47.10 million pounds), down from a year-earlier profit of 85 million euros. CEO Rainer Beaujean said the economic situation was beginning to brighten in ProSieben’s German, Austrian and Swiss markets, with ad revenues down 20% in July and trending at -10% for August.

Nokia
Nokia reported an unexpected rise in its first-quarter underlying profit on Friday despite the COVID-19 crisis. Nokia said its April-June underlying earnings rose to 0.06 euros per share from a profit of 0.05 euros a year ago. The company had warned of a weak second quarter due to the virus, upgraded its forecast for 2020 underlying earnings per share to between 0.2 and 0.3 euros from 0.18 to 0.28 euros.

 

IN THE NEWS

Lockdown tightened in northern England at short notice – Financial Times

Global markets in retreat as US falls into recession – The Times

Bank of England to keep policy on hold as COVID prognosis murky – Reuters




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