By Powerscourt on 22/09/2020
Powerscourt Coronavirus Briefing – 22 September 2020
ANALYSIS
Coronavirus is back with a vengeance in Europe, and the other shoe has just dropped for global stock indices.
Mounting anxiety tripped up the Dow Jones Industrial Average by more than 500 points on Monday, with the FTSE-100 crashing by over 3% in a major reset of the previous optimism about recovery from the coronavirus crisis. Of all the major sectors, only technology didn’t fall.
Signs of a bleak midwinter in Europe are just one of a series of reasons not to be especially cheerful for world markets.
Investors have become significantly less optimistic that there will be a package of US fiscal stimulus before the forthcoming US elections in November, the FT reported. Febrile politicking in the US continues in the build-up to the election: this week’s row is over who will replace the revered Supreme Court Justice Ruth Bader Ginsburg, who died at the weekend.
And significantly, there is growing anxiety that the optimism which the market has invested in the race for a coronavirus vaccine may have run away with itself. An analysis by UBS posits that roughly 40% of the gains made by markets globally since May can be attributed to investor optimism that vaccines to protect against COVID-19 will work and be approved for widespread human use.
Vaccine trials led by companies such as AstraZeneca, Pfizer and Moderna are now in the home stretch with pivotal data expected within the next couple of months. On Monday Sir Patrick Vallance, the Chief Scientific Officer to the UK government (and a former senior pharmaceutical industry executive), said in a televised briefing his expectation was that a vaccine could be widely available to the population by the end of the first half of 2021, later than many were expecting.
Conclusive success in a clinical trial by any of the major candidates would be a turning point in the war against coronavirus and would likely engender euphoria in markets, although there would be some delay between demonstrating the success of a virus in trials and implementing it through the population.
But this relies on success in clinical trials, which have notoriously difficult odds for investors at the best of times.
Meanwhile amid the continued arms race in vaccine development, an astonishing example came to light on Monday of the politicisation of communications around science due to coronavirus. It emerged on Monday that a senior publicist at the US National Institutes of Health has been forced out of his job after being unmasked as a semi-professional troll for the right-wing website RedState.
William B Crews worked as his day job for the US medical research agency and promoted its work while moonlighting for the hard-right website. In June, he wrote anonymously on RedState: “it is safe to say that the entire Wuhan virus scare was nothing more or less than a massive fraud perpetrated upon the American people by ‘experts’ who were determined to fundamentally change the way the country lives and is organized and governed.”
In the UK, Prime Minister Boris Johnson is set to announce a new 10pm curfew for pubs across England as part of a tightening of restrictions in response to a whipsawing in virus infection numbers, with the UK’s virus threat level officially raised. The Prime Minister will address the UK later today to reverse may of the freedoms which were implemented over the summer.
Yesterday Sir Patrick Vallance and Sir Chris Whitty, the UK’s Chief Medical Officer, warned in a televised address that the UK faced “a very challenging winter”, with the prospect of more draconian measures still on the table if short-term restrictions prove inadequate. Northern Ireland has banned households from mixing indoors.
The Dow, S&P 500 and FTSE-100 all sustained heavy losses on Monday. Asian markets opened weaker on Tuesday.
WHAT ARE COMPANIES SAYING?
Consumer & Retail
Whitbread
The hospitality company has announced that it is entering into consultation with its UK hotel and restaurant colleagues on proposals that could result in up to 6,000 redundancies. Despite the vast majority of its hotels and restaurants in the UK having reopened by the first week of August, total sales for the six months to the end of August were 77 per cent lower year-on-year. Total UK sales (including accommodation, food and beverage) in August were 38.65 per cent lower than they were in the same month last year. CEO Alison Brittain said: “it has been clear from the beginning of this crisis that even as restrictions are eased and hospitality businesses such as ours reopen their doors, that demand would be materially lower than FY20 levels for a period of time”.
TUI Group
The Anglo-German travel and tourism company has issued a pre-close trading update, in which it announced that “significant self-help action” has been taken to address the impact of Covid-19 on the business, with cash fixed costs reduced by over 70 per cent during the immediate lockdown period. Since restarting operations in Markets & Airlines in mid-June, it has carried 1.4m customers, although bookings for Summer 2020 are still currently down by 83 per cent year-on-year.
Kingfisher
The home improvement company has released its half year results for the six months ended 31 July, reporting a fall in like for like sales of just 1.6 per cent as the adverse impact of Covid-19 in Q1 was offset by a strong recovery in Q2. E-commerce sales have increased by 164 per cent and now make up 19 per cent of total Group sales, increasing from 7 per cent in the previous year. Adjusted pre-tax profit has increased by 23.1 per cent year-on-year, with the Group intending to repay the £23m it received in furlough payments from the UK government as a result. CEO Thierry Garnier said: “The crisis has prompted more people to rediscover their homes and find pleasure in making them better. It is creating new home improvement needs, as people seek new ways to use space or adjust to working from home”.
Financials & Real Estate
Close Brothers
The merchant banking group has released its preliminary results for the year ended 31 July 2020. It reported that the loan book has remained stable at £7.62bn, compared with £7.65bn in July 2019, reflecting an increase in activity since the easing of lockdown restrictions in June and July. However, adjusted operating profit for the year has fallen by 47 per cent, to £144m from £270.5m. The board is proposing a 40.0p dividend in respect of the full financial year, reflecting its “confidence in the group’s business model and strong financial position, notwithstanding the current uncertain environment”.
Beazley
The specialist insurance group has announced that its April estimate for the cost of Covid-19 claims to its first party business (contingency, accidence and health, marine, property and reinsurance) of $170m was dependent on events resuming in September, which it no longer expects to be the case. The business is heavily weighted towards the UK and the US, with the largest segment being conferences. Those that were postponed earlier in the year are now being cancelled, and the group anticipates further claims, based on its exposure for events in 2021. Given this, its total estimate for first party Covid-19 claims has increased to $340m net of reinsurance.
TMT
Euromoney
The B2B information services provider has issued a trading update in which it announced that ongoing restrictions on travel and gatherings continue to impact business activities, with it unlikely that it will run physical events between October and December 2020. As a consequence, it is undertaking a further restructure and cost reduction programme, further details of which will be provided at the company’s full year results in November.
IN THE NEWS
Boris Johnson to announce 10pm pub closing time across England – Financial Times
World markets slide on worries of new lockdown – The Times
Second Covid shutdown begins as Boris Johnson prepares to announce new restrictions – The Daily Telegraph
