Friday 06/03/20

  1. In MACRO & OIL NEWS, BoJo outlines a response while Opec considers production cuts
  2. In RETAIL/LEISURE NEWS, Costco benefits from panic buying, Gap gets a new CEO and cinemas suffer
  3. In INDIVIDUAL COMPANY NEWS, we see a Flybe post mortem, Continental’s warning and ITV’s ad revenue prospects
  4. In OTHER NEWS, I bring you an invention you never knew you needed and an unusual book…



So BoJo outlines his plans and Opec considers cuts…

Boris Johnson plans UK economic response to coronavirus (Financial Times, George Parker, Laura Hughes and Chris Giles) highlights BoJo’s latest moves on the coronavirus as he held private talks at Downing Street with Bank of England Governor Mark Carney and his chancellor, Rishi Sunak. No comment was made after the meeting as it seems that the government is continuing with a low-key approach to avert mass panic. As things stand, UK Finance – which represents the financial services sector – said its members would support those who had lost money due to the outbreak via things like increasing overdrafts or repayment relief on loans. The Bank of England added that it was ready to cut interest rates ahead of its next scheduled meeting on March 26th (the current rate stands at 0.75%). * SO WHAT? * Clearly this is a live situation, so things are liable to change. What is interesting,

though, is that this gives BoJo a great excuse to set aside the fiscal rules in his election manifesto regarding day-to-day spending to give himself more financial wiggle room – he wanted to do this anyway, but now he can blame the coronavirus! 

In Opec poised to slash oil output as coronavirus cuts demand (The Guardian, Jillian Ambrose) we see that the cartel is looking to cut oil production by 1.5m barrels a day (equivalent to 3.6% of global oil supplies) from next month in order to arrest the current price slide. These plans will be discussed with the Opec+ group of oil producting countries, led by Russia, in a meeting today as their cooperation will be needed to make sure that the production cuts stick. * SO WHAT? * It does seem to me like they are faffing around somewhat and imposing cuts in a few weeks’ time sounds like they are just tinkering with the edges while the damage is being done right now. Still, if China production continues to ramp up towards something approaching normality then surely there will be a notable surge in demand. Will it be enough though?



Costco benefits from panic, Gap gets a new CEO, cinemas suffer and Domino’s withdraws…

Costco rides coronavirus-fueled panic buying (Wall Street Journal, Sarah Nassauer and Kimberly Chin) highlights strong sales in February (especially in the final week!) as customers stocked up on everyday goods in response to the outbreak. Toilet paper, peanut butter and bottled water were among the products that flew off the shelves and now #CostcoPanicBuying has started trending on Twitter. Things have got so frenetic that the retailer is putting purchase limits on some items, but the number of customers has been increasing daily. * SO WHAT? * Panic is clearly spreading – and this is in a country (the US) with a pretty low incidence of the coronavirus. I don’t know what it’s like where you are, but there are reports around where I live (Guildford) that places like Sainsbury’s are running low on things like toilet roll and certain food items. My wife went out the other day to try and find hand sanitiser for my increasingly paranoid eldest son to take to school and as she found one, everyone around her descended to take all the rest of them! It seems like we will all have to sharpen our elbows a bit more when we go shopping now (especially when we find ourselves in the toilet roll and pasta aisles!)…

Gap chooses insider to take over as CEO (Wall Street Journal, Micah Maidenberg) highlights the latest development for the troubled apparel retailer. Sonia Syngal, the head of its Old Navy brand, is to take up the reins as CEO and a board member was appointed  as chairman. * SO WHAT? * Syngal is inheriting a right old mess, but at least she doesn’t have to deal with splitting the company into two – a plan that was abandoned in January. Gap’s share price has fallen by over 50% in the last year, so clearly she has her work cut out. Mind you, Old Navy flourished under her leadership, so maybe she can breath life back into this tired brand.

2019 was always going to be a tough year to beat for cinemas given the sheer number of successful blockbusters – but Cinema stocks tumble after news of Bond delay batters operators (Daily Telegraph, Ed Clowes) shows that share prices of cinema operators took a pasting on the news that the latest Bond film, No Time to Die, would be delayed by a number of months. Cineworld saw its share price drop by as much as 24% at one point while Everyman saw its price close 15% down. The fear is that a number of films could follow suit putting further pressure on the cinema chains. * SO WHAT? * Cinemas are clearly in a tricky spot here, but the doom also spread to companies such as The Restaurant Group, which owns restaurant brands such as Chiquito, Frankie & Benny’s and Garfunkels, that are often close by. TRG’s share price fell by 11% and, across The Pond, AMC Entertainment, Imax and Cinemark Holdings were all weaker. FWIW, I really think that footfall has the propensity to bounce back here – but only once the coronavirus outbreak calms down.



We look at Flybe’s wreckage, Continental’s warning and ITV’s woes…

A catalogue of problems that led to the grounding of Flybe (Daily Telegraph, Oliver Gill) is a really good article that goes into detail about the downfall of Flybe which was, until yesterday, Europe’s biggest regional carrier. Basically, the carrier had been in all sorts of problems for a while and the coronavirus just made things a thousand times worse in a very short time frame. Flybe/state aid: UK sets good precedent as coronavirus bites (Financial Times, Lex) describes Flybe as “a subscale company with a weak business plan”. I would add that, although BoJo is coming in for criticism for potentially reneging on his promise to level-up the regions by not bailing out Flybe, I wonder whether he actually got a “get-out-of-jail-free” card here in that the company was always going to be risky and, long term, maybe flying isn’t the way forward for regional travel in a broader bid to be environmentally-friendly.

Continental warns of miserable year for car industry (Financial Times, Joe Miller) highlights the car part giant’s warning of a nightmare year for the global auto industry. It was always going to be bad, but the coronavirus is just making it much worse. In its forecasts, it said that total sales in the passenger car market would fall by up to 5% in 2020, the third year of contraction in a row and its longest

losing streak since the financial crisis. 20,000 jobs are at risk worldwide at the company and things are looking particularly bleak given that the company has major exposure to China. * SO WHAT? * We’re getting used to hearing this sort of thing from the auto manufacturers, so it is hardly surprising to hear that one of the world’s biggest car parts suppliers is predicting a terrible year. I expect more of this sort of newsflow to follow. On another note, it’d be interesting to hear how things are progressing for Tesla in China in the wake of the coronavirus. It will surely be bad – I just wonder HOW bad…

ITV shares hit by travel firms’ ad spending cut (The Times, Simon Duke) highlights yet another casualty of the coronavirus as the broadcaster’s share price fell to eight-year lows after it said that ad budgets were being slashed by airlines and travel companies. Mind you, apart from that, ITV actually announced stronger-than-expected annual results – although they weren’t enough to stop the coronavirus-powered tide of investor pessimism. Interestingly, its Britbox online streaming service partnership with the BBC seems to be doing pretty well since it launched in November. Britbox US now has over 1 million subscribers and is scheduled to be rolled out in Australia this year. * SO WHAT? * Ad budgets are usually one of the first things to get cut in the event of an economic downturn as they are seen to be an unnecessary luxury. However, I think that this is more of a one-off event and ad revenues will come back strongly when the outbreak subsides. There will probably be more pain in the meantime, however.



And finally, in other news…

In times like these, it’s good to know that people are continuing to invent pointless things. Take Japan’s drinkable potato chip system is here, and it made us feel like a fish (SoraNews24, Casey Baseel, for instance. I say, open the crisp bag very slightly, crunch up the contents carefully and then pour them into your mouth. Simples. And it doesn’t involve any extra plastics…and then there’s the quite frankly hilarious Mum brands kids’ book explaining reproduction ‘child-friendly kama sutra’ (The Mirror, Luke Matthews Superb illustrations!

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Some of today’s market, commodity & currency moves (as at 0856hrs 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 **
6,705 (-1.62%)8,73911,945 (-1.51%)5,372 (-1.54%)20,750 (-2.72%)3,035 (-1.21%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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