Powerscourt

By Powerscourt on 20/08/2020

Powerscourt Coronavirus Briefing – 20 August 2020

ANALYSIS

The news on the pandemic is bad. News on the economy is good.

First, the good stuff. On Wednesday, the President of the St Louis Federal Reserve, James Bullard, said he thought that soaring US stock markets have it “about right”, days after the Nasdaq index hit a record high.

“I expect more businesses to be able to operate and more of the economy to be able to run…successfully in the second half of 2020,” Bullard said in an interview with Reuters, predicting that the US economy would shrink by 4% in 2020, less than the 6.5% prediction made by his Federal Reserve colleagues in June.

Bullard’s strikingly upbeat comments come a day after Apple Inc became the world’s first ever $2 trillion market cap company, crowning a soaring Nasdaq market and cementing the ascendancy of technology across the world.

His perspective contrasts with the more sober assessment of his Federal Reserve colleagues on the US economy:  At the July 28-29 session, the Federal Reserve’s policymaking arm voted to keep short-term interest rates anchored near zero, citing fears about economic outlook.

But economic data in the UK also provide tentative signs of a sharp uptick in economic activity. Investment bank Jefferies said yesterday that energy consumption had risen by 500 basis points in the past week and was at 97 per cent of normal levels. Lloyds Banking Group also said the UK was recovering faster than many other economies.

But these days the sunny uplands of recovery are always at risk of being clouded by infection resurgence.

With infection rates on the rise again in Europe, France has proposed a law to make the wearing of face coverings mandatory in all workplaces. The seven-day moving average of reported new daily cases has more than doubled since the end of July in the five largest European countries, nearing 11,000, the Wall Street Journal reported. And frustratingly for authorities, the source of these infections isn’t always clear.  

While Spain reported 127 deaths on Wednesday, the first time over 100 since May, it is worth remembering that in April the daily toll was  above 950.

Numbers aren’t great in the US. Florida saw 181 deaths on Wednesday, making it the fifth US state to pass 10,000 fatalities.

Policymakers around the world are also grappling with the awkward implications of the demographics of how the virus spreads and whom it mainly hurts: while the greatest risk by far is to older people, it is mainly young people – upon whose consumption economies depend – who are driving infection rates.

The World Health Organisation’s western Pacific regional director, Takeshi Kasai, said earlier this week the epidemic was being driven by people in their 30s, 40s and 50s. “Many are unaware they are infected. This increases the risk of spillovers to the more vulnerable.”

This challenge is top of mind for policymakers ahead of the imminent return across Europe of millions of schoolchildren, in many cases after six months out of education, and with contrasting data points about their role in spreading infection. Although young children are thought to be very low drivers of the infection rate, some studies have shown that teenagers carry the virus at similar rates to young adults.  

The UK government, which has almost been unravelled in recent days by a series of mis-steps around the bungling of exam results and the allocation of university places to students, will be praying that schools do not turn out to be the gigantic disease vectors some have speculated they could be.

Asian markets opened lower on Thursday following the Federal Reserve policy minutes and their implications for the US economy.

 

WHAT ARE COMPANIES SAYING?

 

Retail & Consumer

AO World
The online electrical goods retailer has confirmed that sales took off as the improved trading momentum noted in July continued. UK revenues in the four months to 31 July jumped 58.9% to £401.3 million year-on-year and by 91.5% to €74.3 million in Germany. AO added that demand remained strong even with the reopening of competitor stores, reaffirming its belief that a structural shift in the way people shop for electrical goods is underway.

Frasers Group
Mike Ashley’s retail group Frasers today said it intends to spend £100 million investing in its online business after digital revenues soared in lockdown. The annual results, delayed a week from last Thursday, announced pre-tax profits fell to £143.5 million in the year to April 26, down from £179.2 million. Revenues rose to £3.96 billion from £3.7 billion at the group. 

 

Industrial 

Antofagasta
The FTSE 100 Chile-based copper mining company posted a lower profit for the first half of the year as copper production and prices declined amid the pandemic. Antofagasta reported a net profit of $135.2 million for the six months ended 30 June, down from $302.4 million for the same period last year. EBITDA dropped 22% to $1.01 billion, in line with the market consensus of $1.01 billion taken from FactSet and based on five analysts’ estimates.

Capital Limited
The African-focused mining service company this morning reported H1 2020 revenue of $65.1 million, up 18.8% on H1 2019 and 8.5% on H2 2019. EBITDA margins increased from 23.2% in H1 2019 to 23.7% in H1 2020, despite higher labour costs associated with the management of COVID-19, reflecting the sustained focus on cost management by the company. Despite the uncertainty, the business continues to perform strongly and expects the strengthening gold price to be a positive indicator for capital, given over 90% is derived from this sector. 

CRH
Building materials group CRH has reported lower revenues and pre-tax profits for the six months to the end of June in what it called a robust performance in a challenging environment. Half year revenues fell by 3% to $12.2 billion, while profit before tax from continuing operations came in at $518m compared with a profit of $717m the same time last year. The company also said that COVID-19 has resulted in limited visibility for the fourth quarter and into 2021.

John Laing Group
Infrastructure investor John Laing Group said on Thursday it was unlikely to meet its target of £1 billion of investments by the end of 2021, given the impact of the pandemic on the industry and its business. Low investment activity in the period, largely due to delays in public procurement and bid processes from 2020 to 2021, was driven by COVID-19 disruption, the company stated.

Premier Oil
Premier Oil has outlined the main terms of a proposed refinancing which would extend its debt maturities from May 2021 to March 2025. The group, which completed its previous refinancing in 2017, said it had agreed the details with creditors representing more than 45% of its debt facilities. As well as extending the maturities for Premier’s £2.2 billion of debt, the plan would involve a £230 million equity raise to reduce debt, over and above the £175m it intends to raise for the acquisition of North Sea assets from BP.

QANTAS
QANTAS Airways has reported a A$2bn annual loss due to the impact of coronavirus and called on Australian federal and state governments to clarify rules regarding the reopening of state borders to enable resumption of domestic flights. The airline warned on Thursday that lack of clarity on when domestic borders could reopen risked putting companies out of business, causing job losses and damaging the national economy. 

 

TMT

Airtel Africa
The leading provider of telecommunications and mobile money services in Africa today announced a strategic partnership with MoneyGram, a global leader in cross-border P2P payments and money transfers. CEO Raghunath Mandava stated that maximising access to global remittances across the continent is key, especially given the disruption and economic hardship faced by many as a result of the pandemic. 

Apple
Apple has become the first $2 trillion US company in a landmark moment after a stock market boom that has made tech companies more valuable than ever – despite the economic havoc wreaked by COVID-19. Shares in the iPhone maker crossed $467.77 on Wednesday, an all-time high that lifts its market value about $2 trillion. The milestone comes just two years after Apple became the first publicly traded company to cross the trillion-dollar threshold. 

 

IN THE NEWS

London needs Eat Out to Help Out extension, says Greene King boss – The Daily Telegraph

Care homes ask for insurance cost help – BBC




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