Friday 19/06/20

1. In MACRO NEWS, US jobless figures aren’t great, the Europeans bounce back on the digital tax and the Bank of England powers up
2. In RETAIL NEWS, the US retail recovery catches short-sellers out, Kroger has stronger sales and Chanel gets gloomy while in the UK shoppers return, All Saints goes for a CVA, Superdry gets out of China, Tesco gets out of Poland and Westfield’s House of Fraser changes
3. In INDIVIDUAL COMPANY NEWS, Wirecard has a hole of epic proportions and Nintendo shares jump even higher than Super Mario
4. AND FINALLY, I bring you some muddy (but happy) dogs…

So US jobless numbers fall short, the Europeans vow to continue with the digital tax and the Bank of England fires up stimulus measures…

US unemployment claims edge lower but remain historically high (Wall Street Journal, Eric Morath) shows that the number of applicants and recipients of unemployment benefits has appeared to top out at historically high levels. New applicants for benefits fell, according to Labor Department data released yesterday, but the pace of layoffs doesn’t seem to be getting much better. The new level of weekly jobless claims is comfortably lower than it was at its peak but is still greater than the previous high reached in 1982.

In yesterday’s Watson’s Daily, I brought your attention to the US walking away from talks about the introduction of a digital services tax. Well Europe renews calls for global digital tax as US quits talks (The Guardian, Mark Sweney) shows that Europeans are undeterred by America’s petulence. Almost 140 countries are involved in talks put together by the Organisation for Economic Cooperation and Development (OECD) to reach a global solution to corporate taxation that will drag existing rules forward into the digital era. The original intention had been to hammer out some kind of deal by the end of the year, but given the recent action and timing of the US presidential election I

would be willing to wager a crisp £5 note (wild, I know) that it will not happen. US Treasury Secretary Steven Mnuchin said that no progress had been made and, of course, the Europeans (well, French finance minister Bruno Le Maire) disputed this saying that “we were centimetres away from a deal”. Yeah, right. * SO WHAT? * This could prove to become a very expensive game of chicken if individual countries like the UK, France, Italy and Spain follow through on the rhetoric and impose their own digital taxes anyway. The UK’s proposed digital services tax is aimed at online companies that make over £500m per annum globally at 2% whereas France wants to impose a 3% levy on online companies earning over €25m in France €750m globally. Digital taxes: transatlantic dust-up (Financial Times, Lex) says that there is still hope for the OECD’s initiative to work but that it will have to wait until after the US presidential election. It is in everybody’s interest right now NOT to have a digital tax-inspired trade war…

£100bn bid by Bank to avoid jobs bloodbath (The Times, Philip Aldrick) highlights the Bank of England’s intention to inject a further £100bn into the economy to get it going in order to avoid the much-feared-yet-expected prospect of mass-unemployment when the furlough scheme comes to an end. On the plus side, the Bank of England’s chief economist, Andy Haldane, reckons that the recession won’t be as bad as previously believed and that the recovery “was occurring sooner and materially faster than expected”. The Bank of England remains open-minded as to the measures it could implement to stimulate the economy – including the introduction of negative interest rates.

The US retail recovery catches some off-guard, Kroger does well and Chanel gets concerned while UK shoppers return and All Saints, Superdry Tesco and Westfield overcome various issues…

I said earlier this week that US sales turned up unexpectedly. Well, US retail recovery delivers $28bn blow to short sellers (Financial Times, Alistair Gray) cites data from S3 partners which shows that investors who shorted retail stocks in the belief that they would suffer in the downturn have lost a rather large amount of money. There have been massive shorts on Wayfair (online retailer), RH (furnishings), Bed Bath & Beyond (homewares), Williams-Sonoma (posh kitchenware), Home Dept and Lowe’s (both DIY stores), but their strength has confounded the doubters. Despite that, short positions in US retailers this week were about 50% above the levels they were at at the end of March, so investors are still pessimistic about the prospects.

Staying in the US, Kroger posts stronger sales, profit amid coronavirus pandemic (Wall Street Journal, Jaewon Kang) shows that America’s biggest supermarket is expecting sales to calm down as customers stockpile less although they are still spending a decent amount. The company also observed that customers were starting to make impulse purchases again. The supermarket said that sales were up by 30% in March and by over 20% in April and May. At the beginning of the pandemic they bought paper, cleaning and “long life” groceries (tins, dried food etc.) whereas now they are buying more produce, protein and own-brand products. * SO WHAT? * Sales are clearly still strong, but the retailer did not confirm its year-end guidance as it said there were still many unknowns. In Europe, Chanel forecasts ‘difficult’ two years for luxury amid Covid-19 (Financial Times, Leila Abboud) shows that the luxury goods company believes that the next two years are going to be tough but will plough on with its strategy of avoiding discounts and selling online. The private company published annual results yesterday that showed strong growth last year

– its first one for years without Karl Lagerfeld. * SO WHAT? * Some observers expect the luxury goods sector to be hit hard as travel restrictions cut off a major source of their custom – rich Chinese consumers who travel the world. It remains to be seen as to whether Chanel’s unwavering conviction to remain virtually entirely offline and not discount will prove to work.

Meanwhile, closer to home, English shoppers’ return points to gradual retail recovery (Financial Times, Valentina Romei and John Burn-Murdoch) cites FT analysis of unofficial data covering the first three days of this week when the “non-essential” shops were allowed to open. Spending and footfall are down and the pent-up demand predicted/prayed for has not materialised. * SO WHAT? * I know I keep banging on about the retail sector, but the fact is that it accounts for about 5% of UK output and 9% of jobs – so we NEED it to turn around. OK, so it’s still early days yet but everyone will be watching very closely to see any signs of a return of consumer confidence.

Retailers continue to ditch non-core areas as per Superdry absorbs £6m hit in China (The Times, Ashley Armstrong), which has decided to walk away from its Chinese joint venture with the fabulously-named Trendy International and Tesco rings up £181m with sale of Polish stores (The Times, Ashley Armstrong) as it continues its retreat from overseas interests (remember it sold its Thai and Malaysian business for an impressive £8bn in March this year) to concentrate on its domestic business. I would imagine that the cash will come in very handy!

Plans to turn House of Fraser in Westfield into co-working space (The Guardian, Sarah Butler) shows that there are plans afoot to turn Westfield’s House of Fraser into a WeWork-style office space and either getting someone in to operate it or just running it itself. * SO WHAT? * Councils and landlords up and down the land are wondering how to fill the gaping holes left by the likes of House of Fraser and Debenhams and they are having to get creative given that there may not be enough retailers to fill them. I have always thought that department stores need to be repurposed given the space they occupy and the locations they are in and think that potentially a mix of office space and residential would be a potentially viable direction. 

Wirecard has a ‘mare and Nintendo strengthens…

Wirecard says €1.9bn of cash is missing (Financial Times, Dan McCrum and Olaf Storbeck) highlights the massive over-60% share price crash in German payments-processor Wirecard which announced that €1.9bn was missing from its accounts. The company processes tens of billions of Euros each year but has faced scrutiny over its accounting practices over the last 18 months. The company had a market cap of €24bn when it debuted on the Dax two years ago, but it is now worth €5bn after yesterday’s debacle. Shareholders such as DWS and Deka Investment look like they are – or are about to – lawyer up. This is going to get VERY nasty. * SO WHAT? * A €1.9bn hole?!? Amazing. This hole is equivalent to ALL the profits the group has declared since 2012 😱😱😱

Nintendo shares surge in anticipation of continued Covid-19 gaming boom (Financial Times, Leo Lewis) highlights Nintendo’s share price strength as expectations increase for the number of Switch Console sales – and game sales – going into the end of the year. * SO WHAT? * The company’s share price has earned a “pandemic premium” and I guess the danger here is that that could cool as lockdown is lifted. What is notable, though, is that it is the first time the firm’s share price has breached ¥50,000 since 2008 – when it launched the Wii console. For now, though, demand continues to be strong.

…in other news…

Many regular readers of Watson’s Daily will know that I am a dog person. I like cats, but I am a dog owner! Which is why I unashamedly thought I’d leave you with the brilliant photos in Dog owners share hilarious photos of unrecognisable pets after they find mud (The Mirror, Luke Matthews https://tinyurl.com/y8xwnrv7). Superb! Just what we need on a lockdown Friday!