Friday 08/05/20

1. In MARKETS & MACRO NEWS, the NASDAQ makes up all its coronavirus losses, China exports pick up, Lagarde bats away the German problem, Denmark and Norway talk lockdown lifting and the Bank of England predicts a baaaaad recession
2. In RETAIL NEWS, Neiman Marcus files for bankruptcy, Next aims to create beauty halls and Superdry makes ground in Europe
3. In INDIVIDUAL COMPANY NEWS, Virgin and O2 get together, Uber juices Lime and Nintendo benefits from lockdown game sales
4. AND FINALLY, I bring you Banksy’s latest creation…

So the NASDAQ recovers, China exports rise, the ECB brushes off the German threat, Denmark and Norway look to relax and the Bank of England predicts the worst recession for 300 years…

Rather incredibly, Nasdaq index recovers all of 2020’s losses triggered by Covid-19 (The Guardian, Julia Kollewe) shows that the tech-skewed index has benefited from the continued strong performance of Amazon, Microsoft and Netflix, among others. Basically, the “FAANGM” stocks (it’s funny how the FAANG acronym has grown to recognise Microsoft, although it’s now getting a bit unwieldy 😂) have all benefited from the current crisis requiring technical solutions. Whether it’s staying in touch with people via Facebook, shopping for essentials on Amazon, watching and consuming Apple content on its sleek devices, discovering Tiger King on Netflix, surfing the ‘net on Google (and watching the ads) or using Microsoft’s Teams while you’re working from home, it seems that tech has you covered. * SO WHAT? * The sector is now a bit of a crowded trade, so you do wonder whether traders and investors will seek better returns from other bombed out sectors as lockdown starts to lift.

Surprise increase in China exports gives world markets a lift (The Times, Ben Martin) shows that Chinese exports are starting to recover as the country reported a 3.5% increase in shipments last month versus the previous year. Cynics will say that this is just a result of order backlogs and therefore more of a one-off than a signal of things to come. On the subject of China exports, FDA pulls approval for dozens of mask makers in China (Wall Street Journal, Austen Hufford and Mark Maremont) shows that some exporters are going to get a nasty surprise as America’s FDA has reduced the number of manufacturers approved to export N95-style masks from around 80 to just 14. N95 masks filter out 95% of particles, hence the name and these manufacturers made masks that filtered out way less than that.

Meanwhile, in Europe, Christine Lagarde says ECB is ‘undeterred’ by German court challenge (Financial Times, Martin Arnold) shows that the president of the ECB is saying “what-evs” to Germany’s highest court that ruled earlier this week that the ECB should come up with a proper strategy for its massive bond purchasing programme within three months otherwise it will stop the Bundesbank from taking part. She effectively flipped the Germans the bird, saying that the ECB was answerable to the European Parliament and that it would do “whatever is needed, whatever is necessary” to help Europe through the current crisis, adding that central banks need to think outside the box given the current exceptional circumstances. It seems to me that the ECB are downplaying this at the moment, but I think it could become a serious problem. Surely Angela Merkel is going to have to step in to solve this.

Denmark and Norway announce further loosening of lockdown (Financial Times, Richard Milne) shows that the two countries are planning on making major steps back to normality in the next few weeks. Norway looks like it will be on of the first countries in Europe to open its entire school system and Denmark will allow shop openings from Monday with restaurants, cafes and school classes for sixth to 10th grade to follow a week after. Both countries locked down quite early, on March 12th.

BoE warns UK set to enter worst recession for 300 years (Financial Times, Chris Giles) highlights the rather gloomy outlook from our own Bank of England as it published its latest monetary policy report. The report forecasts output falling by 30% in the first half of the year and a whole load of other depressing numbers. The main message, though, from all this is that banks need to keep lending in order to get the economy back on track. Also, just a word of caution – forecasts made at times of dramatic economic upheaval tend to be wildly inaccurate and subject to almost constant change. Things are obviously going to be bad, but no-one really knows by just how much at this stage.

Neiman Marcus files for bankruptcy, Next aims for something new and Superdry benefits from Europe…

Neiman Marcus, the retailer to the rich, files for bankruptcy (Wall Street Journal, Suzanne Kapner and Soma Biswas) highlights the downfall of another US retailer as the luxury department store filed for chapter 11 bankruptcy yesterday. Canadian shoe retailer ALDO did likewise on the same day as more retailers go down the same path as J.Crew. It sounds like Neiman Marcus was felled by massive interest payments on huge debts, which proved to be terminal once Covid-19 came along, stopping all trading.  The company operates 43 Neiman Marcus stores, two Bergdorf Goodman stores and 22 Last Call discount stores and the company is going through chapter 11 to cut $4bn off its $5.1bn total debts. * SO WHAT? * Another one bites the dust (sort of). Saks Fifth Avenue’s parent Hudson’s Bay could be interested in buying the department store but while the vultures circle, chains like JC Penney (which has missed two interest payments totalling $29m over the last two months) continue to suffer. Retail is undergoing a brutal shake-out at the moment.

In the UK, Next to create new chain of upmarket beauty halls (The Guardian, Zoe Wood) highlights some “out of the box” thinking from the high street apparel retailer as it

confirmed plans to become a “new force in beauty retailing” by taking on the beauty hall floors of five “dead” Debenhams stores owned by property firm Hammerson. It will use the space to launch a new brand called The Beauty Hall from Next, with a view to launching as soon as possible after the coronavirus lockdown lifts. Next already sells brands including Estée Lauder, Clinique and Emporio Armani via its website, but also has access to premium brands like Bobby Brown, Lancôme and Nars via Fabled.com, which it bought from Ocado last year. * SO WHAT? * Sounds like a nice idea, but you wonder whether this is the right time to do something like this. OK, so you would get the space cheaply but is this what consumers are going to be flocking to buy at a time like this? I guess you could argue that this is “affordable” luxury stuff and people might like the idea of a new face on the high street but I’m not a raging fan of this yet. It’ll be interesting to see whether Next tries something funky or whether it’ll just look like yet another beauty floor of a department store with all the orange people hanging around, waiting to spray/paint you with their wares.

Superdry back in fashion as Europe opens its doors (The Times, Ashley Armstrong) shows that the fashion retailer had something to cheer about as it reported that shops in Germany, Sweden, Austria and Denmark were performing above expectations and continuing to improve. The company said that fourth quarter sales fell by 37% but online sales had almost doubled. A bit of rare good news for UK high street fashion!

Virgin and O2 get together, Uber buys a piece of Lime and Nintendo benefits from lockdown sales…

Virgin and O2 deal looks set to put BT in the shade (Daily Telegraph, Chris Johnston) shows that BT will have a bigger rival to compete against after Liberty Global (owner of Virgin Media) and Telefonica (owner of O2) decided to merge their UK TV, broadband and mobile interests in a £31bn deal. The deal is expected to close by mid-2021. * SO WHAT? * Further consolidation in the industry was bound to happen at some stage after BT bought EE in 2016, although the timing of such a deal in the midst of a pandemic will have raised some eyebrows. It’s unclear at this stage whether the Competition and Markets Authority (CMA) will be taking a close look. Surely, given current circumstances, it will wave this through – but you never know!

Uber banks on two-wheeled future with $170m stake in Lime scooter rental firm (The Guardian, Dominic Rushe) highlights Uber’s purchase of $170m worth of Lime, the electric bike and scooter rental company. Uber will transfer its own existing electric bike and scooter division (called Jump) to Lime and their apps will be integrated. * SO WHAT? * This sounds decent enough strategically and I

like the fact that Uber is folding its existing business into Lime’s, which will hopefully make both stronger. The only caveat I have with this is the fact that not all cities like e-scooters. Mind you, the companies might do OK for the time being as commuters may prefer to avoid public transport (although there is the question of how Lime is going to protect users from cross-contamination) and there is a chance that this may linger – because let’s face it, whizzing around on an electric scooter looks like a lot of fun!

Nintendo collects lockdown power-up as sales shift online (Financial Times, Leo Lewis) shows that the Japanese company has been doing very well from online sales of its games over the first quarter. A record 48.5% of its software sales were made online, bringing it into line with rival Sony – and it saw 21m units of the Nintendo Switch console sold globally during that time. * SO WHAT? * This is great for Nintendo so far, but if the lockdown continues for the longer term, it is likely to adversely affect new game developments. Also, console revenues tend fall every four years as gamers look to a new generation of console, and Switch was launched over three years ago. I think that the coronavirus will have helped to prolong the usual cycle by several months, but I think Nintendo may prove to be vulnerable especially when Sony and Microsoft launch their new consoles later in the year.

And finally, in other news…

I must say that I missed this the other day, but thought I’d bring it to your attention in case you missed it as well: A British nurse is the chosen superhero in new Banksy artwork (MSN, Paul Sandle https://tinyurl.com/yadhfqc3). Superb 👍👍👍