Friday 22/05/20

  1. In MACRO NEWS, China scraps its GDP target, China moves to impose new security law on Hong Kong and the UK’s economic downturn shows signs of relenting
  2. In TECH NEWS, Big Tech gets more powerful, Zuckerberg points to a WFH future, Sony increases its VR efforts, Samsung carries on with chip expansion plans, Nvidia sees higher earnings and Baidu threatens to go off in a huff
  3. In BANKS NEWS, lenders warn of the impact of negative interest rates, RBS tells its staff to stay home and Monzo’s co-founder quits as CEO
  4. In INDIVIDUAL COMPANY NEWS, AstraZeneca prepares to increase production for its potential vaccine
  5. AND FINALLY, I bring you the official answer to chocolate in the fridge/cupboard debate…



So China ditches its GDP target and moves to impose a new security law on Hong Kong while the UK’s downturn appears to be slowing…

Beijing scraps GDP target, a bad sign for world reliant on China growth (Wall Street Journal, Jonathan Cheng) shows that China has, for the first time since 1994, decided not to announce a GDP growth target for the year due to uncertainties surrounding the impact of the coronavirus outbreak. * SO WHAT? * Pessimists are interpreting this as being a sign that Beijing isn’t going to unveil a massive stimulus following its biggest economic contraction for forty years. GDP grew by 6.1% last year, which was lower than expected but still within the officially forecast range of 6-6.5%. It looked like China was losing momentum before the coronavirus hit anyway, so it’s hardly surprising that growth is going to take a real beating – it’s just that this official move took many by surprise.

China plans new national security laws for Hong Kong (Wall Street Journal, Chun Han Wong and Natasha Khan) highlights China’s plans to put a big dent in Hong Kong’s autonomy by imposing new laws that will stamp out pro-democracy protests. Details are yet to emerge, but this new move will take precedence over the territory’s system of self-governance. * SO WHAT? * We don’t know everything yet, but there is likely to be a backlash against this from the

West. However, to be honest, if you were China and wanted to crush resistance you might as well do it when everyone else is still suffering from the fallout of the coronavirus as they will be less well-equipped to impose sanctions etc. China is not Iran and so I would have thought any threats from world democracies will be fairly toothless. Hong Kong has, until now, been living under a “one country, two systems” credo since the UK handed it back to China in 1997, but national security legislation has been a tricky topic ever since and it now looks like Beijing has lost its patience. Asian markets aren’t going to like this but I don’t expect China to back down.

Meanwhile, UK economic downturn shows signs of slowing down (Financial Times, Delphine Strauss) cites the latest IHSMarkit/Cips purchasing managers’ index for the UK which shows that sentiment in manufacturing and services has improved since last month although it is way below normal May levels. IHSMarkit’s chief business economist, Chris Williamson, interpreted this as showing that the UK should be expecting “a frustratingly slow recovery”. * SO WHAT? * I would take this – and ANY other macro announcements these days – with a MASSIVE pinch of salt. This survey only measures sentiment and I would want to see hard output figures and order book statuses before getting too excited. Reliable information is hard to gather at the moment in these unprecedented times and so “best guesses” are likely to be wonkier than they usually are.



Big Tech gets bigger, Zuckerberg expects a WFH future, Sony ups its VR efforts, Samsung ploughs on with chip expansion, Nvidia announces higher earnings and Baidu thinks about its US listing…

Big Tech is emerging from the crisis stronger than ever (Financial Times, Richard Waters) highlights how tech giants are pulling further away from the pack in terms of performance. Microsoft, Apple, Amazon, Alphabet and Facebook combined have added $1.7tn to their market cap since the lows of March – a rise of 43% when the wider US stock market has rebounded by 33% from the lows and are still 12% weaker than they were before the outbreak. Big Tech now makes up 24% of the total value of the S&P500 index – 3% more than before the crisis hit. The demand for improvement in online capability has boosted a number of different stocks. Website builder Wix has seen its share price shoot up by 32%, Shopify (which provides digital platforms to retailers) is up by 46% and PayPal is up by 20% as online payments increase. PayPal was worth about the same as Goldman Sachs a couple of years ago – now it is worth three times as much! * SO WHAT? * Big Tech has been a target for politicians and regulators who have wanted to limit its sheer power going into the beginning of this year. The coronavirus outbreak put all that on hold, but there are signs that efforts to do so will start again soon as the Department of Justice and a number of states are hoping to launch an antitrust case against Google and, in Europe, work has restarted on the Digital Services Act that could herald the beginning of new regulation for the sector. It’ll be interesting to see how all this pans out.

Zuckerberg unveils work from home revolution (Daily Telegraph, James Titcomb and Lucy Burton) is a really interesting article that looks at what work may look like in the future. Facebook’s Mark Zuckerberg said that 50% of his 45,000 employees will work from home within the next ten years and other companies such as Twitter, Shopify and Coinbase have gone further by saying that working from home will be the default forever, with only a minority coming to work. Zuckerberg said that he thought such policies would broaden economic opportunities whilst also improving diversity and economic impact. * SO WHAT? * I am a massive fan of giving employees the opportunity to work from home and believe that it means that employees will be much more able to live the lives they want to. OK, so not everyone can do this, but I think that more people working from home would mean that house prices would get less overheated in certain areas, commuting costs would reduce dramatically and the environment would also benefit as a result. At the very least, more people should be given the option to do this in future IMO. Now that employers have seen how it can work on a semi-permanent basis in practice, they will be able to make better-informed decisions.

On the tech hardware side of things, Sony ramps up VR efforts as demand for virtual events surges (Financial Times, Kana Inagaki and Leo Lewis) shows that the Japanese consumer electronics company is trying to improve its VR headset so that it can cope with future demand for online-only concerts, crowd-free sporting events and games. * SO WHAT? * This initiative comes six months before the planned launch of Sony’s PlayStation 5 and Microsoft’s Series X consoles but its existing VR capability is thought to be one of the characteristics that will put it ahead of its rivals. Coronavirus has led to all sorts of online-only events and concerts and I would have thought that having more VR capability to enhance these events will go quite a way to bringing it into the mainstream.

In Samsung defies pandemic and trade threats with chip expansion (Financial Times, Edward White) we see that Samsung Electronics plans to plough ahead with building a new $8bn computer chip production facility near Seoul in addition to continuing with an  $8bn expansion of its memory chip factory in the Chinese city of Xi’an. The confirmation of these developments comes amid doubts over demand for tech products while the world economy is taking a pasting from Covid-19.

Elsewhere, Coronavirus lifts Nvidia as people stuck at home turn to games, remote work (Wall Street Journal, Asa Fitch) shows that chipmaker Nvidia saw first quarter revenues rise by 39% versus the previous year as it benefited from more people playing console games (Nvidia chips are used in the Switch console, for instance) and the shift towards cloud computing as people worked from home (many of its chips are sold to data centres). Games revenues rose by 27% while data-centre sales shot up by 80% to record levels. * SO WHAT? * This goes to show that there are some areas of tech that are doing better than others in the face of the global pandemic. With new games consoles potentially stirring demand and the new trend of WFH becoming more mainstream, I would have thought that Nvidia would be well-placed to benefit.

Chinese search giant Baidu reconsiders US listing (Financial Times, Ryan McMorrow) highlights that the company may abandon its Nasdaq listing as US lawmakers move to impose stricter rules on Chinese companies trading in New York in the wake of the recent Luckin Coffee accounting scandal where the Chinese competitor to Starbucks announced sales that didn’t exist. * SO WHAT? * Baidu floated on the Nasdaq in 2005 and US listings have been used by Chinese companies over the years to raise capital given restrictions in their home markets. Growing numbers of Chinese tech companies have been embarking on secondary listings in Hong Kong to broaden their investor base, especially in the wake of the US-China trade war where sentiment towards Chinese companies has cooled considerably. Alibaba has already done this and is going down the same road. I would be surprised if Baidu wasn’t considering doing this anyway – so the new regulations are probably just giving these plans a shove.



Lenders warn against negative interest rates, RBS tells its staff to work from home and Monzo’s founder takes a back seat…

In a quick look around some banking stories today, British banks warn BoE of pain of negative rates (Financial Times, Stephen Morris and Attracta Mooney) shows the banks’ reaction to what the Bank of England said earlier this week about taking interest rates below zero – that it would hurt their earnings and ability to react to the likely impending tsunami of coronavirus-related loan losses. This would narrow the banks’ net interest margin (aka “NIM”) – which is the difference between what they charge borrowers and what they pay out on deposits – and make profitability even harder to come by. The banks argue that the double-whammy of loan losses AND a narrowing of the NIM will be too painful. What would negative interest rates mean for mortgages and savings (The Guardian, Hilary

Osborne) does a good job of telling us the impact of negative interest rates on the individual regarding mortgages (none on a fixed-rate, a bit of a reduction if you’re on a standard variable rate), savings (unlikely that banks will charge customers to hold their savings – otherwise everyone would just withdraw their money and stuff it in their mattresses) and loans/credit cards (not much).

Meanwhile, Bank tells 50,000 staff to stay at home until October (The Guardian, Rupert Jones) highlights the lender’s decision to keep over 75% of its staff at home and Monzo co-founder steps down as chief executive (Financial Times, Siddarth Venkataramakrishnan) shows potentially worrying signs for the digital bank as Tom Blomfield takes a different role in the bank to be replaced by its US chief exec TS Anil in the face of significant challenges posed by the coronavirus. This also comes in the same week that the company’s chief credit officer, Tim Trailor, left the company and shortly after Monzo raised money, but at an equivalent valuation of 40% below its most recent fund raising round. Tough times ahead.



AstraZeneca ramps up production facilities…

AstraZeneca books orders for 400m doses of Oxford vaccine (Financial Times, Naomi Rovnick, Clive Cookson and Donato Paolo Mancini) signals some hope as it has secured orders for at least 400m doses of its unproven

coronavirus vaccine being developed with Oxford University. It could begin delivering them in September. This prototype has been just one of the potential solutions, but if it is successful, 300m of the 400m doses will go to the US. AstraZeneca said it was building a supply chain capable of making up to 1bn doses of the vaccine – but its effectiveness is still not a definite. Fingers crossed, eh 🤞



…in other news…

I thought I’d leave you today with the official answer to an important long-running debate: Cadbury confirms whether their chocolate bars should be kept in cupboard or fridge (The Mirror, Courtney Pochin My view is that I like the snap of it being in the fridge, but think you get better flavour from keeping it in the cupboard…

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Some of today’s market, commodity & currency moves (as at 0737hrs 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 **
6,015 (-0.86%)9,28511,066 (-1.41%)4,445 (-1.15%)20,388 (-0.80%)2,814 (-1.89%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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