Friday 13/03/20

1. In MARKETS NEWS, the US fails to calm markets and Lagarde’s attempts fail to inspire confidence either
2. In CORONAVIRUS NEWS, increasing numbers of Europeans face lock-down, indebted companies look shaky and Starbucks’ frontline staff want more support
3. In SECTOR NEWS, travel firms suffer and tech firms get a mixed impact
4. In OTHER NEWS, I show you what Domino’s Japan is doing during the outbreak…

So market carnage ensues despite America’s and Europe’s efforts…

Fed fails to calm market fever (The Times, James Dean) shows that the US Federal Reserve’s $1.5tn cash injection failed to avert a massive sell-off of global markets and Lagarde disappoints despite €120billion growth package (The Times, David Crossland) shows that the European Central Bank’s promise to provide €120bn-worth of stimulus didn’t do much to help either – especially because

it left interest rates unchanged (everyone was hoping for a cut). Stocks plunge 10% in Dow’s worst day since 1987 (Wall Street Journal, Caitlin McCabe and Caitlin Ostroff) shows just how bad everything got on the markets with the Dow, S&P and Nasdaq all falling by around 10% as fears of a global slowdown increased and Global selloff extends in Asia (Wall Street Journal, Joanne Chiu) shows that the fear spread in markets such Hong Kong, Japan, South Korea and Australia to the extent that market circuit-breakers were triggered in Indonesia, the Philippines and South Korea to avert an unstoppable sell-off. Many markets in the region hit new lows.

Europeans face shut-down, debt-fuelled companies look vulnerable and Starbucks staff seek more support…

More than 190m Europeans face life under coronavirus controls (Financial Times, Sam Fleming, Jim Brunsden, Victor Mallet, Guy Chazan, Daniel Dombey, Richard Milne, James Shotter and Valerie Hopkins) shows that over 40% of European residents are now facing coronavirus controls of some kind as new restrictions were announced in Ireland, Spain, Poland and the Czech Republic yesterday. The closure of schools, universities and government buildings – as well as the banning of various sizes of public gatherings – is bringing everyone closer to the situation in Italy, which is under complete shutdown at the moment. * SO WHAT? * The increasing restriction of movement is making severe recession much more likely and the varied approaches by every government would imply that there is not much co-ordination of effort going on between countries. So far, the UK government’s approach is looking fairly relaxed verses countries on the Continent, but obviously this can change.

Will the coronavirus trigger a corporate debt crisis? (Financial Times, Andrew Edgecliffe-Johnson, Peggy Hollinger, Joe Rennison and Robert Smith) takes a look at companies with a load of debt that may become increasingly vulnerable if the coronavirus effects get progressively worse. Companies that have taken advantage of cheap credit since banks lowered interest rates to encourage lending following the 2008 financial crisis may soon be finding themselves in difficulty. Companies that are in the most imminent danger include the airline, hotels and cruise industries – for instance, Carnival and Royal Caribbean are among those on ratings agency S&P’s “watch negative” list. Car manufacturers, electronics makers and chemicals companies are also

looking vulnerable because of the supply chain disruptions that they’ve had to face. At the other end of the size scale, a regional managing partner of restructuring specialist Begbies Traynor estimated that 490,000 UK companies were in trouble before the coronavirus hit and if even 5% of those fail, the rate of corporate involvencies would double. There is a really good chart in this article that gives you a lot more detail on which sectors are most and least exposed to debt. * SO WHAT? * It’s easy to be pessimistic at times like this, but these circumstances can often present opportunities as well – especially for banks that are well-capitalised and have long term plans and companies that have stronger balance sheets. As I have said before, there may be a raft of otherwise good companies out there that just can’t weather the buffeting of the coronavirus and bigger companies may be able to buy quality on the cheap when things die down.

Bringing things down to a company level, I thought that Starbucks baristas confront coronavirus pandemic (Wall Street Journal, Heather Haddon) was worth mentioning as the 200,000 workers at its cafés are getting increasingly concerned with their exposure to potentially infected customers. One employee in Orlando pointed out that “We take cash from customers. They are sneezing and coughing and not covering their mouths” – a concern that will no doubt be felt by many workers not only at Starbucks, but at other retailers, bars, hotels and restaurants. The company said on Wednesday that it would pay US workers in a 14-day quarantine after being exposed to the coronavirus, but not all outlets are owned directly by Starbucks – there are many franchisees. McDonald’s, Darden Restaurants and Olive Garden are just some of the restaurants who are trying to protect workers and make sure their working environments are safe. * SO WHAT? * It’s too early to quantify how much all these extra measures are going to cost such chains, but I would have thought that when things get easier there will be a LOT of pent-up demand as people who have been under restrictions decide to get out there and enjoy themselves. In the meantime, though, times will obviously be tough.

Travel firms suffer and tech presents a mixed bag…

Travel firms lead fallers as bleak warnings are issued (The Guardian, Joanna Partridge) takes a look at the effect that the coronavirus is having on companies involved with travel. WH Smith’s cash-cow business of its train station and airport outlets is suffering from lower traveller numbers, Cineworld is suffering from being an activity that involves lots of people in confined spaces (and postponed blockbusters), while companies like Go-Ahead Group (operator of Britain’s biggest commuter rail franchise, Govia Thameslink etc.) and the owner of Travelex, Finablr, are also in turmoil. I touched on this earlier, but shares in Carnival, the world’s biggest cruise company, were down 18% in trading yesterday on the news that it was stopping voyages for all ships in its Princess Cruises line for two months. Other firms that are related to travel also suffered, as per Airbnb bookings plunge amid coronavirus pandemic (Wall Street Journal, Preetika Rana) and Disney to close US and Paris resorts temporarily as coronavirus spurs cancellations (Wall Street Journal, R.T Watson).

On the tech side of things, Slack, Broadcom among tech companies seeing mixed coronavirus impact (Wall Street Journal, Aaron Tilley and Asa Fitch) shows that it’s not a

complete disaster for everyone as Slack is saying that they are seeing a surge in interest for their workplace collaboration software, but then it added that it may be harder to close big deals because of current travel restrictions. Zoom Video Communications said that it has seen a rise in user numbers for its videoconferencing systems, but it is unclear how many of the new users will convert from the free service to the paid version. On the other hand, Broadcom (a giant in infrastructure software and chip-making) cancelled its revenue guidance announcement yesterday saying that its was unable to predict this year’s sales due to lack of visibility. Apple and Microsoft have already warned investors to brace themselves for big dents in their earnings due to the coronavirus. On the hardware side of things, ‘Surge in home working may trigger laptop shortage’ (Daily Telegraph, Hannah Boland) highlights an immediate more practical problem as demand for laptops rises at a time when supply from China, which makes most of them, is not at full tilt just yet. It sounds like that will be changing soon, though. * SO WHAT? * OK, so it’s a bit of a mixed bag, but I think that the whole “working from home” thing is a very interesting subject. I wonder whether a prolonged coronavirus outbreak that forces more people to work from home more or less permanently until further notice will actually break the mindset of presenteeism in the office and make companies get a much better picture of what really is and isn’t possible to do from home. The conversion rate from free to paid services will be interesting to see.

And finally, in other news…

I did actually mention this briefly above, but given that there might be a lot more food deliveries if increasing numbers of people are holed up in their homes due to the coronavirus, it’s interesting to see what other countries are doing as per Domino’s, Pizza Hut introduce “Zero Contact” delivery service in Japan amidst coronavirus fears (SoraNews24, Oona McGee https://tinyurl.com/r25cl4n). 😱