Friday 17/04/20

1. In MARKETS & MACRO NEWS, markets rise on Gilead’s news and we look at macro developments in the US, Asia and Europe
2. In “WINNERS” & STRUGGLERS NEWS, Verizon buys BlueJeans, Chinese splurge on release, Netflix and warehousing wins while investors pick at Carluccio’s and gyms hunker down
3. In INDIVIDUAL COMPANY NEWS, Libra plans are scaled back, EasyJet ponders future flying and Morgan Stanley beats its peers
4. AND FINALLY, I bring you some uniquely British events and a dog wearing its owners’ false teeth…

So Gilead’s news perks up markets and we look at macro developments around the world…

Gilead drug shows positive signs in early coronavirus testing (Financial Times, Hannah Kuchler) cites a report in the New England Journal of Medicine which said that Gilead Sciences’ remdesivir drug was showing early signs that it could be used to treat the coronavirus. The antiviral drug had originally been developed to stop Ebola, but never got final approval. However, the positive news was embraced by markets as Stock futures surge after coronavirus drug report (Financial Times, Hannah Kuchler). 🤞

Meanwhile, Donald Trump tempers push for quick reopening in new guidelines (Financial Times, Demetri Sevastopulo) shows that Trump had to rein in a previous rant about having “total” authority over post-outbreak planning and conceded that it was in fact up to the governors of individual states to decide when to lift social distancing restrictions. As things stand currently, US states have to show that there has been a downward trend in confirmed coronavirus cases over a 14-day period or downward trajectory in positive tests versus total tests over the same period in order to move to phase one of “reopening”. The White House plan also states that there should be a “robust testing programme” in place for health workers who are at risk, which also includes antibody testing that shows if subjects have previously had the virus. Separately, Coronavirus claims 22m US jobs in just 4 weeks (The Times, James Dean) highlights the current employment situation in the US – it’s not good. Shutdowns, social distancing and stay-at-home orders have all led to the 21.7m jobs created since the low point of the financial crisis in June 2009 being wiped out. * SO WHAT? * Clearly this is problematic for Trump who is seeking re-election later on this year on the back of economic success and job creation. He’s obviously got the best ever excuse now for not being able to meet previous expectations and I think the election is his to lose at this stage. He will have to do something catastrophically bad to muck things up from here as I would have thought that even voters who hate him would rather have the incumbent continue that get someone new in at such a crucial time.

In Asia, China’s first-quarter GDP plunges on coronavirus (Wall Street Journal, Jonathan Cheng) shows that the country’s economy contracted (surprise, surprise!) by 6.8% in the first quarter of 2020 versus the previous year. It’s the first time that China’s economy has shrunk since Beijing began reporting GDP on a quarterly basis since 1992. No doubt everyone will be seeing this as a portent of things to come in their own countries. Japan to give every citizen one-off sum of ¥100,000 (Financial Times, Robin Harding) signals a step-up in response to the coronavirus in Japan, which has been pretty relaxed about things so far. The PM announced a new state of emergency that initially applied

to seven prefectures (which obviously included Tokyo) but is now rolling it out to the whole country. This is not, however, a full lockdown – the state of emergency just gives prefectural governors the right to enforce business shutdowns and requisition medical facilities.

In Europe, Macron warns of EU unravelling unless it embraces financial solidarity (Financial Times, Victor Mallet and Roula Khalaf) highlights ongoing turbulence in Europe as French President Macron has called for more support for struggling economies such as Italy. France is currently urging the creation of a joint fund or EU allocation of about €400bn on top of emergency assistance from the ECB and other EU institutions – which Italy, Spain and other countries are behind. However, Germany, the Netherlands and some other more prosperous European neighbours are very much against a pooling of debt like this saying that they don’t want their taxpayers to be footing the bill. The debate rumbles on…talking of which, UK will refuse any EU offer to extend Brexit transition (Financial Times, Sebastian Payne and Jim Brunsden) highlights a firm stance by the British government not to go for another extension, even if it is offered by the EU. The official line is that going for an extension would just make negotiations drag on even longer, mean even more business uncertainty and delay border controls.

Moving back to coronavirus chat again, Softly, softly…how other countries across the world are loosening the lockdown (Daily Telegraph, Simon Foy) looks at how some countries are making tentative moves toward normality just as the UK announced a three-week extension to the current lockdown. This is an excellent article and you should definitely read it to get more detail! However, as a quick run-through, Austria started to ease lockdown on Tuesday as small stores of under 400m² sales space were allowed to open along with hardware and gardening stores (but there will be distancing measures in place), with the opening of schools restaurants and hotels to follow next month. Italy allowed bookshops, stationary stores and apparel retailers for young kids to open from Tuesday this week, although the nation is still in lockdown until at least May 4th. Germany said it would let shops of up to 800m² area to open next week in addition to car dealers, bicycle shops and bookstores – again, with strict distancing rules in place. Schools would open from May 4th and hairdressers would also being given the green light to operate. Switzerland said it would start to relax current restrictions from April 27th when doctors’ surgeries, hairdressers, massage and cosmetic parlours will be allowed to open. Some schools, shops and markets could follow from May 11th with other rollouts to follow. Spain allowed factory and construction workers back this week but most shops and services are still closed and the US is set to open some regions before the end of the month. * SO WHAT? * These developments are encouraging insofar as they suggest progress. However, until we have unfettered access to accurate testing and a vaccine, life will not return to what it was before. In the meantime, let’s hope these measures work and that the dreaded “second wave” doesn’t occur.

Verizon buys into videoconferencing, Chinese shoppers splash out, Netflix surges, warehousing benefits and Zoom beefs up security while Carluccio’s and gyms try to make headway…

And in the “WINNERS” corner today, Verizon buys video conferencing company BlueJeans (Financial Times, Nic Fildes) shows that Verizon paid an undisclosed amount (surely meaning that it paid through the nose 😉) to buy BlueJeans Network – which has almost 15,000 business customers – to get a slice of the hot action that is videoconferencing. BlueJeans competes with Cisco’s Webex, Microsoft’s Skype and, of course, Zoom. Verizon apparently opened talks about a year ago, but clearly things accelerated somewhat during the current crisis. Some are saying that Verizon paid about $400m, but that’s just speculation. Separately, Zoom hires security heavyweights to fix flaws (Wall Street Journal, Robert McMillan and Aaron Tilley) shows that the company is taking security criticisms very seriously. * SO WHAT? * No doubt Verizon will be kicking themselves for not moving on BlueJeans earlier, but I guess no-one saw coronavirus coming. Still, it is probably a good move for them strategically as I think that the advent of 5G AND everyone becoming much more accustomed to videoconferencing will mean it will become increasingly prevalent – even in a post-coronavirus world. With regard to Zoom’s beefing up of security – I think it’s a great move on the company’s part and they are to be congratulated on moving so quickly. Hopefully, this will mean that they will be able to hang on to more of their “new” customers as a result…

With coronavirus lockdown lifted, Chinese splurge on big luxury brands (Wall Street Journal, Matthew Dalton) will no doubt get luxury goods companies excited as spending on high-end brands following the relaxation of lockdown in China has shot up! LVMH, which owns brands such as Louis Vuitton and Dior among others, said that April sales growth has been strong – and in some places has been up by over 50%. Overall, though, spending by Chinese shoppers has been lower for the quarter because they tend to do most of their shopping on holidays abroad. L’Oreal, which is the world’s biggest cosmetics company in terms of sales, echoed LVMH’s experience. * SO WHAT? * This is

great news for luxury goods companies and it would imply that when travel restrictions are lifted, sales will get even better once its moneyed clientele are free of travel restrictions! 

Content streamers continue to “win” and Netflix now worth more than ExxonMobil as value reaches $187bn (The Guardian, Joanna Partridge) shows that the momentum is carrying on as it now has 160million subscribers globally. Amazon’s Prime Video and Disney+ are also doing well as bored people trapped in their homes seek out entertainment! On perhaps a less glamourous front, Warehouses the big commercial property winners as shopping centres fall silent (Daily Telegraph, Rachel Millard) shows that although the online retailers are getting most of the glory, the warehouses that store their stock are also doing well. Given the way things are going with regard to online shopping, the future also looks pretty bright and companies such as Prologis and Segro, who specialise in this area, are likely to continue to do well.

On the other hand, strugglers include high street restaurant chains as per Carluccio’s administrators receive multiple offers for restaurant sites (Financial Times, Alice Hancock and Daniel Thomas) which shows that it’s a buyers’ market out there as they can cherry-pick the best bits of struggling firms. Tesco, Boparan Holdings (the group behind Giraffe and Ed’s Easy Diner etc.) and Three Hills Capital (which owns Byron) are all interested in different branches but not the whole business. The deadline for bids is Wednesday evening. Then Test of endurance as gyms pushed to their limits to survive the coronavirus crisis (Daily Telegraph, Ben Gartside) shows how many gyms operators are struggling – although it is thought that Gym Group has enough cash to survive for five months. Conversely, Peloton (whose business model I have questioned pre-coronavirus) has seen its share price double over the last month as investors believe that many people will want to avoid working out in close proximity with fellow sweaty gym-goers. * SO WHAT? * It’s no surprise that buyers can cherry-pick what they want now from a struggling high street business. Companies will no doubt want to remain lean in times like this and there is zero incentive now just to grow for the sake of it. As for gyms, many of them have huge initial overheads and depend on new members to pay membership whether they go to the gym or not. Now that everyone is taking a long hard look at their money situation, I would have thought that many of these “zombie” memberships will fall away and it will take some time for gyms to build their memberships up once more.

Facebook scales back Libra, EasyJet mulls new etiquette and Morgan Stanley beats its rivals…

Facebook’s Libra scales back plans for a digital currency (Daily Telegraph, James Titcomb and Matthew Field) highlights a significant pullback from Facebook’s initial ambitions. The Libra Association, said yesterday that it will no longer focus on providing one universal coin pegged to the value of a basket of currencies. Instead, it intends to create an array of different cryptocurrencies tied to the value of specific conventional currencies like the dollar, the pound and the euro. A separate Libra coin will still exist, but will be used mainly for cross-border transactions. * SO WHAT? * This was bound to happen given how much regulators, governments and central bankers hated it. This is not the death of Libra, but its original ambitions have been severely restricted.

There’s been a lot of talk about airlines this week and EasyJet weighs up empty middle seats once coronavirus rules ease (The Guardian, Kalyeena Makortoff and Gwyn Topham) shows that the budget airline is thinking of ways to adapt to the “new normal” of flying in order to comply with social distancing guidelines. Ryanair’s chief exec, Michael O’Leary, thinks this will be unworkable, but they will have to think of something to get things moving again. EasyJet said that winter bookings are well “well ahead” of last year.

This week has seen major US banks reporting results and Profits tumble but Morgan Stanley still beats its rivals (The Times, James Dean) shows that Morgan Stanley has managed to do least badly versus its peers. Like others found, trading revenues over the quarter have shot up. Well done, Morgan Stanley – but I think that the next quarter is going to be even more testing!

And finally, in other news…

We all know how many sporting events are being cancelled on a daily basis at the moment, but what about the lesser-known ones? Those identified in All the wonderfully British things that won’t be happening this May (Metro, Jen Mills https://tinyurl.com/y7yb9mya) definitely need our support when things get back to normal! I thought I’d leave you now with the hilarious video in Dog steals set of false teeth and wears them perfectly leaving owner in stitches (The Mirror, Luke Matthews https://tinyurl.com/yclbclmq). Have an enjoyable weekend whatever you get up to!