Powerscourt

By Powerscourt on 29/10/2020

Powerscourt Coronavirus Briefing – 29 October 2020

ANALYSIS

For most of the coronavirus pandemic, President Trump has been able to count on a strong stock market to underpin his thinking about the virus.

US conservatives and members of the President’s blue collar voter base have been able to count on steadily rising markets as evidence that the US is weathering the storm or “rounding the turn” as the President repeats like a mantra, in spite of high infection rates. Stock markets on both sides of the Atlantic and in Asia have generally been strikingly resilient, despite gloomy jobs news.

Until now. With the election just four days away and with large swathes of Europe locking down again, the stock markets pulled the rug from underneath that thesis.  

The S&P 500 fell over 3.5% on Wednesday, its third consecutive session lower and now down 8% from a record closing high in September. Even the hitherto Teflon Nasdaq Composite is down close to 4% with the stock prices of Facebook, Alphabet and Twitter under pressure for political reasons. News that planemaker Boeing will have cut one in five of its workforce in total by the end of 2021 added to the continued gloom.

The soaring virus infection rates are a clear testament to the fact that the US is not, by any stretch of the imagination, nearing the end of its battle with coronavirus.

At least 81,181 new cases were reported in the United States on Wednesday and 1,016 new coronavirus deaths. The number of new cases per day has increased by 41 percent from the average two weeks earlier.

The coronavirus second wave is washing its way across Europe, with cases surging, new lockdowns being imposed and stock markets plunging.

France and Germany have both announced second national lockdowns. French President Emmanuel Macron said the country was being “overrun” by a wave which would be “harder, more deadly than the first”. France has closed non-essential shops, bars and restaurants and people at large for any reason will need to provide documentation to show why they are out.

Germany has imposed similar restrictions, closing many bars, culture and leisure facilities amid warnings that the country’s previously respected test and trace system is under pressure.

Other European countries are in similar states: Spain and the Czech Republic both remain in a state of emergency, amid gloomy warnings that the health services of both regions are on the brink of collapse. Ireland remains under lockdown.

The UK government is still strongly resisting another nationwide lockdown, but with cases soaring and a significant portion of the country under the most significant restrictions anyway, it may only be a matter of time.

New research from Imperial College London on Wednesday warned that the pandemic has reached a “critical” stage in England, with prevalence of the virus doubling over the last month. Leaked documents from government adviser SAGE warned that Britain’s death toll from coronavirus could reach 85,000 in a “reasonable worst-case scenario”, with the potential for fatalities to remain high for at least three months.

Case numbers remain high in the North of England, but infection rates are now accelerating in the South, which has hitherto had lower levels of the virus, and particularly in London. On Wednesday the UK environment secretary George Eustace sounded a gloomy note ahead of the festive season, saying that families would be prevented from coming together in large gatherings at Christmas or Diwali if the infection rate required this. 

The blue-chip FTSE 100 index plunged by 2.5%, hitting its lowest close since April.

As always, science provides some hope. The Times reports that the UK has bought 20 million doses of the experimental vaccine from Pfizer and Biontech, which is expecting a Phase III data readout imminently. Pfizer CEO Albert Bourla has already pushed back an anticipated readout but remains hopeful that the data will be available ahead of other competing vaccines.

Asian shares were lower into Thursday following the stumble on western markets, but without the sharp sell-offs that had characterised trading in the US and Europe, amid broad recognition that the region has been much more successful in getting infection rates under control.

 

WHAT ARE COMPANIES SAYING?

 

Industrials

Airbus SE
The European multinational aerospace corporation has reported its Nine-Month 2020 results. Airbus stated that global air travel recovery had been slower than expected and announced a 1.2-billion-euro restructuring charge that drove it to a loss despite better-than-expected underlying operating profit. “After nine months of 2020 we now see the progress made on adapting our business to the new COVID-19 market environment. Despite the slower air travel recovery than anticipated, we converged commercial aircraft production and deliveries in the third quarter and we stopped cash consumption in line with our ambition,” said Airbus Chief Executive Officer Guillaume Faury.

Volkswagen AG
The German automaker announced today a return to profitability, due to countermeasures implemented worldwide against the COVID-19 pandemic showing results. It stated that while the Group’s business was heavily impacted by the COVID-19 pandemic in the first nine months of 2020, it has recovered noticeably in the third quarter. This means that the declines in deliveries, sales revenue and profit as of the end of September were significantly more moderate than at the half-year mark. The Group announced sales revenue decreases by 16.7 % to EUR 155. billion and an 18.7% decrease in deliveries of vehicles. However, in an overall market that contracted at a faster rate, the Group was able to expand its global passenger car market share by 0.4 percentage points year-on-year to 13.0%. 

 

Financials & Real Estate 

Credit Suisse Group AG
The leading financial services company today announced a 38% fall in third-quarter net profit, as a surge in investment banking failed to offset a slowdown in wealth management. Despite this, it also announced that would renew dividend payments, beginning a buyback program in the coming months. In a statement, Credit Suisse said it is focused on supporting clients “through the persisting COVID-19 pandemic and the resultant economic challenges. We would expect this environment to continue to result in elevated levels of transactional and trading activity.”

Lloyds Banking Group
The UK’s largest retail bank posted profit before tax of £1 billion in the third quarter, despite the worsening Covid-19 pandemic. Lloyds reported that it had  increased open mortgage book lending by £3.5 billion in the third quarter. It announced that due to its financial performance it has been able to further reinforce its capital position to 15.2% and enhance its guidance for impairment and risk-weighted assets. It stated that “The pandemic has accelerated many trends around ways of working and digital adoption and our long-run investment in digital propositions has positioned the Group well to continue to support our customers.”

Samsung Group
The South Korean technology group reported record revenues of $59bn in its third quarter. Strong revenues were driven by a 50% increase in smart phone sales, while sales of microchips jumped 82%. Samsung’s third quarter net profit was $8.3 billion – a 49% increase over the same period last year. It is likely that the tech group’s mobile and chip businesses were likely boosted by US sanctions against Chinese company Huawei. Chipmakers have also seen success throughout the COVID-19 pandemic, as the transition to working from home has fueled demand for certain technologies.

 

Retail & Consumer

Smith+Nephew
The global medical technology business, Smith+Nephew announces its trading results for the third quarter ended 26 September 2020. It reported a Q3 revenue of $1,200 million down -3.7% on a reported basis and -4.2% underlying, a significant recovery from Q2 underlying decline of -29.3%. The US market returned to growth, up 0.9% on an underlying basis, offset by -6.2% decline from Other Established Markets. Emerging Markets declined -14.5%, with growth in China offset by COVID-19 impacts in LATAM and India. Roland Diggelmann, Chief Executive Officer, said: “I am pleased with our progress in the third quarter and how the business and our employees have responded to challenging circumstances. We were well prepared as global levels of elective surgery recovered and delivered a substantial improvement in performance over the previous quarter, led by growth in both the US and China, our two largest markets.”

Hilton Food Group Plc
The leading international specialist food packing business has today provided a trading update for the period 13th July 2020 to date. Hilton stated that it has benefitted from consumers eating out less often due to the ongoing impact of Covid 19. It announced that turnover in the UK is therefore higher and driven predominantly by red meat and fish volumes. It stated “The Group’s financial position remains strong and we continue to explore opportunities to invest in and to grow the business in both domestic and overseas markets.”

 

TMT

BT Group plc
The British multinational telecommunications holding company has today announced its results for the half year to 30 September 2020. It has reported a strong operating performance despite the ongoing impact of COVID-19, and its revenue has remained relatively resilient at £10,590m, down 8%, primarily due to the impact of coronavirus. This impact includes reduced BT Sport revenue and a reduction in business activity in BT Group’s enterprise units, and declines in legacy products. Reported profit before tax was £1,062m, down 20%, and driven primarily by reduced EBITDA. Philip Jansen, Chief Executive, commenting on the results, said “BT delivered financial results in-line with expectations for the first half of the year, thanks to strong operational performance during exceptional circumstances. Customer demand during the pandemic has shown how critical our networks have become, and our significant network investments have helped us double the number of Openreach’s FTTP orders compared to this time last year and have seen our leading 5G network expand to 112 towns and cities across the UK.”

WPP plc
The British creative transformation company has said today that it expects full-year sales declines due to the effects of coronavirus-related lockdowns. It stated that full year like-for-like revenue will be “within the range of analyst expectations” in 2020. This was defined by WPP as a decline between 8.5% and 10.7%. Third quarter revenue excluding pass-through costs declined 12% to 2.4 billion pounds from a year earlier. Chief Executive Officer Mark Read said “Given the tightening of Covid restrictions around the world and uncertainty in the global economic outlook, we remain cautious about the pace of recovery. It is important that we maintain our strong financial position”.

Nokia Corporation
The Finnish multinational telecommunications, information technology, and consumer electronics company has released its Interim Report for Q3 and January-September 2020.  It reported that the impact of COVID-19 on Nokia’s financial performance and financial position was primarily related to factory closures, resulting in a net sales impact of approximately EUR 200 million in the first nine months of 2020. It stated however, that COVID-19 had affected its operational costs, and that it expected a temporary benefit of approximately EUR 250 million due to lower travel and personnel expenses related to COVID-19 in full year 2020.

 

IN THE NEWS

Scientists hope for coronavirus vaccine by Christmas – THE TIMES

Scientists warn of new coronavirus variant spreading across Europe – FINANCIAL TIMES

Britain’s death toll ‘could hit 85,000 in second Covid wave’ – THE TELEGRAPH




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