Friday 01/05/20

  1. In MACRO, MARKETS & OIL NEWS, demand for Chinese goods falls, the Eurozone heads for recession, markets falter and Shell cuts its dividend
  2. In TECH NEWS, Apple gains, Twitter suffers and Zoom makes another gaffe
  3. In RETAIL NEWS, Macy’s reopens, J Crew files for bankruptcy, Amazon’s profits come at a cost and Sainsbury’s is downbeat
  4. In INDIVIDUAL COMPANY NEWS, Disney adapts, Quibi hangs on and Lloyds Bank makes loan loss provisions
  5. AND FINALLY, I bring you some brain teasers…



So demand for Chinese goods falls, the Eurozone faces recession, markets wobble and Shell has a gloomy outlook…

Global lockdown drains demand for Chinese goods (The Times, Philip Aldrick) cites the Caixin/Markit purchasing managers’ index (PMI) as showing contraction last month, reflecting sluggish manufacturing activity. The Caixin survey covers small and export-focused businesses so weak global demand was clearly the culprit – a trend that was confirmed by official government figures that were also released yesterday. Export orders shrank at their fastest pace since the 2008 global financial crisis, leaving China vulnerable to a potential recession if things don’t improve over the next quarter.

European Union heads for recession after record slump (Daily Telegraph, Tim Wallace and Tom Rees) cites ECB president Christine Lagarde as saying that eurozone GDP fell by 3.8% in the first quarter and warned that it could actually fall by up to 12% by the end of the year. Other figures show that France and Italy are already in recession and things are likely to get worse because the current data does not include the full force of the lockdown as there is still some “normality” mixed in. The ECB has increased measures to help the economy and will now lend to banks at an interest rate of -1% if they commit to increasing lending to households and businesses across the eurozone. No-one knows the full extent of the coronavirus impact yet and trying to guess it is, as they say, like catching a falling knife.

Meanwhile, Global stocks slip as coronavirus hits corporate earnings (Financial Times, Hudson Lockett) shows that markets around the world faltered after a rash of disappointing US corporate earnings releases hit investor confidence. * SO WHAT? * Some will say that this could be a turning point for the market after US stocks had their biggest monthly rally since 1987, but I just think this is volatility caused by investors grabbing at straws and trading on sentiment. Let’s face it, stocks were powered up by flimsy hopes on some drug that Gilead has made that

hasn’t been fully tested. It has ramped up production massively and will feel stupid in doing so if studies subsequently find that these hopes have been misplaced. As I keep saying, drugs normally take AGES to go through the approval process and although governments and the pharmaceutical industry are co-operating on a scale I’ve never seen before, they can still fail. You will hear LOADS of noise on treatments from now on because we are all desperate to see concrete progress, but it’s anyone’s guess as to which ones will actually work. If I were an investor, I would try to block out the noise and think about which stocks will do well in the aftermath of all this and then buy when market volatility takes them lower. In terms of areas I find interesting (and I do not trade stocks myself), anything related to working from home is obviously worth looking at (although it’s a crowded trade – mind you Zoom keeps shooting itself in the foot, so may be more volatile than other companies in this area), Ocado could also benefit longer term because the attractiveness of its online capabilities could suddenly become even more alluring for retailers who have found their own capabilities lacking under the lockdown (and so they may sign Ocado up as their online partner as per M&S etc.) and outsourcing companies might see increasing demand (cleaning companies, for instance, could surely do well from increased need for companies to provide a hygienic working environment), among other areas. I would hasten to add, by the way, that what I say in Watson’s Daily does NOT constitute investment advice! I am merely voicing my opinions!

Oil woes continue in Shell cuts dividend for first time since 1945 amid oil price collapse (The Guardian, Jillian Ambrose) as Royal Dutch Shell (its full company name!) has cut its shareholder dividend for the first time since WW2, warning that it is experiencing a “crisis of uncertainty”. The dividend is being cut by 66%. The company is the biggest dividend payer in the FTSE100 and so yesterday’s 11% share price fall following the dividend news means that its market value has now dropped by 44% so far this year. * SO WHAT? * This is just more evidence of the carnage being felt at the moment in the oil industry as prices per barrel continue to be weak. The company is preparing itself for a “weaker for longer” oil price. 



Apple gains, Twitter suffers from ads and Zoom makes another mis-step…

Apple sales rise slightly, showing resilience in pandemic (Wall Street Journal, Tripp Mickle) shows that Apple managed to report higher revenues for the latest quarter despite all the factory shutdowns and evaporation of sales as the lockdown hit. Results came in above expectation and Apple’s move towards services and wearables proved to be key in its success. Apple did not, however, announce forecasts for the current quarter – for the first time since it started doing so in 2003 – which will mean that it won’t have anything to revise as the magnitude of the coronavirus becomes clearer. * SO WHAT? * Apple has the enviable position of just having tons and tons of cash, so it is able to weather the current storm AND still announce share buy backs and dividend payment increases. It’s also good to see that the services side of its business continues to look robust.

Boom in traffic but slump in adverts clips Twitter’s wings (The Times, James Dean) shows that the company’s monetisable user base (i.e. the number of people who are shown ads) grew by 14 million over the first quarter to 166

million but ad sales fell by over 25% in the last three weeks of March. * SO WHAT? * Twitter warned that ad sales could continue to be weak, which stands in contrast to what Facebook and Google have said this week – that ad sales are now stabilising. It also announced its first Q1 loss for two years, but the good news is that it was less than analysts had been expecting – and its revenues were ahead.

Zoom rewinds on claim it now has 300m daily users (Daily Telegraph, Margi Murphy) shows yet another gaffe by Zoom as it turns out that its boast last week of having 300 million daily users is bogus. It said on April 23rd that it had reached this level after having “only” 10m in December. There is a difference between users and participants – participants are counted each time they join a meeting throughout the day (which means that they can be counted more than once) whereas users are just counted once. For comparison, Microsoft’s Teams has 75m daily users and 200m daily participants. * SO WHAT? * OK, I don’t think this is a biggie, but after recent problems with security and Zoom-bombing I think it goes to show the problems this relative newcomer is having with making a sudden switch to being a major player. It’s clearly not a smooth road for the videoconferencing specialist, so let’s hope it doesn’t keep shooting itself in the foot otherwise it might as well shut up shop and hand victory to Microsoft!



Macy’s returns, J Crew files for bankruptcy, Amazon weighs up the cost of its success and Sainsbury’s downplays…

In a quick look at retail developments in the US and UK, Macy’s to begin reopening stores on Monday (Wall Street Journal, Suzanne Kapner) shows that the ailing department store is aiming to reopen 68 of its store on Monday and all of its 775 stores within six weeks as lockdown restrictions are gradually lifted. There will be all sorts of restrictions in place (“no-touch” consultations and demonstrations, increased use of hand sanitiser and fewer available fitting rooms etc.) but no-one knows how consumers are going to react.

J.Crew prepares to file for bankruptcy (Wall Street Journal, Suzanne Kapner and Soma Biswas) highlights the latest retailer preparing to file for bankruptcy. It was taken private in a leveraged buyout in 2010 but has struggled over the years as customers moved towards “fast-fashion” while the company’s debt problems continued to get worse. * SO WHAT? * Clearly, J.Crew was in a weakened state already, but the coronavirus may be the last straw. There will be other clothing retailers out there without J.Crew’s problems and investors will be fighting over the ones that look like they could survive.

I referred to this yesterday, but Virus safeguards to eat Amazon profits (The Times, James Dean) gives us more detail on Amazon’s situation as chief exec Jeff Bezos warned that its second-quarter profit could be wiped out by higher costs involved in providing enhanced protection measures and higher wages for its workers. First quarter sales were up by 26% versus the same period a year ago but profits were lower than expected and forecasts for the second quarter weren’t stellar. Sales at its cloud computing division, Amazon Web Services, broke through the $10bn barrier for the first time. * SO WHAT? * OK so its not that pretty, but I think Amazon has come out of this pandemic pretty well and has probably learned a lot of lessons in a short space of time that will be very useful for its long term development. Things may not be brilliant now, but I think that Amazon is going to get through this stronger than it was going into it.

Queues are here to stay, warns Sainsbury’s boss (Daily Telegraph, Laura Onita) sounds a rather downbeat tone as retiring boss Mike Coupe says that long queues will continue to be the norm for the foreseeable future. After getting through the panic buying stage at the beginning of this crisis where shoppers spent more than they did at Christmas for five days in a row, things have slowed down. The outgoing chief exec said that strength in groceries was dragged down by lower sales in general merchandise and banking as well as higher staff costs. Uncertainty is likely to continue for the foreseeable future.



Disney adapts, Quibi plugs away and Lloyds ramps up loan provisions…

Disney+ in programming crunch due to coronavirus shutdown (Wall Street Journal, Erich Schwartzel) shows that Hollywood’s effective closure during the pandemic is having knock-on effects on the Disney+ content pipeline. Although the streaming service part of its business is doing really well from people being stuck at home, many releases that were meant to go to its platform have not been finished because of the lockdown. In order to keep the party going, it is going to move some major theatrical releases to the streaming service ahead of schedule, like The Rise of Skywalker, for instance. It is also trying to encourage viewers to re-watch/discover classics. * SO WHAT? * I think that this isn’t just a Disney problem – all the streamers (and satellite/cable TV companies, for that matter) will be panicking over the shrinking amount of content that they will be able to offer. Mind you, if major Hollywood studios start to offer their content and bypass cinemas (which is what I wrote about yesterday), it might help a bit.

Staying on the subject of content, Quibi, Jeffrey Katzenberg’s on-the-go streaming bet, adjusts to life on the couch (Wall Street Journal, Benjamin Mullin and Sahil Patel) looks at what’s going on at Quibi – the short-form

video platform designed for busy people that launched just as everyone was sent home from work! Some say that Quibi’s launch at the beginning of April was brave – I’d say it was monumentally stupid/arrogant. But then again, when you’ve got so much riding on it, I guess there’s not much else it could have done. So far, the app has been downloaded over 3.1million times – but it is currently free. The real test will be who is really going to bother paying at least $4.99 a month for it after the trial is over. * SO WHAT? * I downloaded this thing to see what all the fuss was about. TBH, there is a lot of rubbish on there and a few gems – but it is incredibly frustrating to watch because it’s so fragmented. I’d say that the main problems with it are that a) you can only see it on a mobile phone, b) that the “alternative camera angle” thing is gimicky and, frankly, useless and c) that new shows are incredibly annoying to watch because they are not all released at once – they are drip fed to you on a daily basis. At the moment I think this looks like an expensive dud vanity project. Let’s hope it improves.

Given that this week has been a week for banking results, I thought I’d mention Lloyds reeling as profits plummet 95% due to virus (Daily Telegraph, Lucy Burton), but it’s pretty much the same as all the others – profits have plummeted (in this case by 95%) as it took a hefty charge to cover potential loan defaults. The real test is going to be the bank’s performance over the current quarter.



And finally, in other news…

I thought I’d leave you today with something to test you a bit in Tricky brain teaser challenges leave people baffled – see if you can solve them (The Mirror, Paige Holland If you really want to test yourself, though, you need to have a go at the Watson’s Daily quizzes 😜! This week’s edition will be coming out later…

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Some of today’s market, commodity & currency moves (as at 0658hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
5,901 (-3.50%)8,89010,862 (-2.22%)4,559 (-2.48%)19,619 (-2.84%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)