Friday 24/04/20

1. In MACRO & LOCKDOWN NEWS, the French ban state aid for some, Merkel cautions on lockdown relaxation while carmakers and builders plan a return
2. In RETAIL/CONSUMER NEWS, Amazon stiffs its own sellers, shopping habits change and the US is facing a meat shortage
3. In DRUGS NEWS, Gilead’s hope falls flat, Chinese companies are accused of price gouging and drugmakers prepare to ramp up production
4. In TECH NEWS, Apple looks at when to launch its 5G phone and Intel benefits from WFH
5. AND FINALLY, I bring news of a new song…

So the French government gets its own back and Merkel urges caution while carmakers and builders plan a return to work…

France bans firms based in tax havens from state aid (Daily Telegraph, Henry Samuel) shows that France is getting its own back on companies based in tax havens by stopping them from getting any government aid during the outbreak. The country has also said that companies who do share buybacks or pay dividends over this time will also be banned from receiving state aid. * SO WHAT? * You would have thought that this measure would be an instant crowd-pleaser in that it is the state getting back at companies who thought they were being clever by basing themselves in places that “optimised” their tax payments. That’s as maybe, but if they collapse, jobs will be lost all the same. 

Merkel warns against lifting Germany’s lockdown too quickly (Financial Times, Guy Chazan) shows Germany’s chancellor urging her fellow citizens to exercise endurance and discipline as the country prepares to relax social distancing rules. Shops with retail space of up to 800m² will be allowed to reopen from Monday and some kids will go back to school from May 4th. Germany has the fifth largest number of Covid-19 infections worldwide behind the US, Spain, Italy and France – but it has a much lower

death-to-confirmed-cases ratio, mainly due to the success of testing and contact-tracing. The world will be watching closely.

Meanwhile, in the UK, Carmakers and builders start the road to recovery (Daily Telegraph, Alan Tovey and Tim Wallace) shows that carmakers such as Aston Martin and Jaguar Land Rover (JLR) are making preparations to open their factories early next month and Taylor Wimpey is also working towards resuming work. B&Q also opened yesterday as did some Five Guys outlets for collection orders (I noticed the Five Guys thing last night when I took my dog for a walk! The familiar smell of chips caught me by surprise!). Apparently, road traffic is now rising after falling to levels not seen since the 1950s and we are now at 40% of normal levels as 49% of adults are now working from home, according to the Office for National Statistics. Aston Martin is planning on opening its St Athan plant on May 5th, VW-owned Bentley is planning on starting up production on May 11 (and ramping up thereafter) and JLR is starting production in Solihull and Wolverhampton on May 18th while Nissan will start work at its Sunderland plant with only 1% of its normal staff levels. Builder Taylor Wimpey is talking about a phased return from May 4th. * SO WHAT? * I expect there to be a steady trickle of companies returning to work as management will be keen to get back to normality as soon as possible whilst still ensuring the safety of their staff. Clearly, a balance has to be struck between safety and getting the economy started so that people can earn again.

Amazon plays dirty, shopping habits are changing and the US is potentially facing a meat shortage…

Amazon scooped up data from its own sellers to launch competing products (Wall Street Journal, Dana Mattioli) shows that Amazon have seemingly been going against stated policies and ripping the face off independent sellers on their site. They seem to have done this by using data on their platform to develop competing products. Amazon obviously denies this. * SO WHAT? * This information has helped Amazon to price products, which features prove to be more popular and which categories have the most earnings potential – according to a Wall Street Journal investigation that involved over 20 former employees of the company’s private-label business. Grocery chains and drugstores all indulge in a bit of “own-brand” shenanigans with products similar to established names but at a lower price, but if what this investigation says is true, it is very serious given the detailed nature of the information that Amazon has access to. Although Amazon has been able to portray itself as a “national resource” to deliver essential goods where they are needed, the fact is that until this crisis unfolded the company was under investigation by the EU for potentially abusing its role as a marketplace AND a seller in its own right while in the US, it was being investigated along with other big tech companies by the Justice Department, Federal Trade Commission and Congress on antitrust issues. Because 39% of US online shopping occurs on Amazon, the outcome of any investigation on their potential abuse of power will be watched very closely.

Shift in shopping habits here to stay, says Unilever (The Guardian, Zoe Wood) cites Unilever as saying that the current crisis will accelerate the growth of online food shopping and that there will be a sustained uptick in demand for soap and other cleaning products. The company has seen demand for its ice-cream (with brands

like Cornetto and Magnum) fall due to a lack of sales to cafés and restaurants and grooming products such as shampoo and deodorant have also seen poorer volumes as people wander around unshaven and in their pants whilst working from home (not me, I hasten to add. I am always fully dressed 😂 🎩👔👖). More cooking, less shampooing: the coronavirus consumer starts to emerge (Wall Street Journal, Saabira Chaudhuri and Sharon Terlep) adds findings from companies like Proctor & Gamble and L’Oréal into the mix which identify trends such as more frequent clothes washing, higher demand for disposable cleaning products and weaker demand for skincare and beauty products. Following on from what I have been saying about American food processors having difficulties, Grocers hunt meat as coronavirus hobbles beef and pork plants (Wall Street Journal, Jacob Bunge, Sarah Nassauer and Jaewon Kang) shows that the problem is continuing to get worse to the extent that execs at grocery stores such as Walmart and Costco are getting increasingly concerned that supply of products could get very low just as demand is picking up. The stores are currently rushing to find more suppliers in order to head off a shortage. Some say that meat inventories will get much tighter over the next fortnight as recent factory closures hit supply. * SO WHAT? * It’s interesting to see how shopping habits are changing as the coronavirus continues to affect established behaviours. I’m not sure whether I agree with Unilever’s boss saying that the cleaning trend will continue for the long term. Sure, people will clean while they are stuck at home now, but when they start going back to work I suspect that they will slide back into old habits. Presumably demand for handsoap and sanitiser will continue as this has become more of a part of our daily routine but I’m not sure about cleaning products (they also last quite a long time as well). Also, I would expect sales of personal grooming products to bounce back as consumers smarten up with renewed vigour! As for meat in US supermarkets, this is clearly a problem and I presume it will result in panic buying if news of this situation takes hold. Meat processors will need to ensure that the plants that are currently open stay open otherwise the situation will get worse.

Gilead disappoints, Chinese suppliers are accused of price gouging and drugmakers ramp up production capability in anticipation…

Gilead antiviral drug remdesivir flops in first trial (Financial Times, Donato Paolo Mancini and Hannah Kuchler) just illustrates why it is so dangerous to put too much hope in early stage drug development. The fact of the matter is that the process to develop something that works is very long and in our desire to beat Covid-19, we can get too emotionally over-invested. A Chinese trial of Gilead Science’s remdesivir showed that the drug neither improved the patients’ condition nor cut the pathogen’s presence in the bloodstream. There were also significant side effects in some. Maker of drug touted as coronavirus cure accuses China of gouging (Financial Times, Stephanie Findlay and Sun Yu) shows that makers of the drug that was being touted by Donald Trump as a potential coronavirus cure, hydroxychloroquinine, are complaining that Chinese factories are price gouging it on key ingredients. India is the world’s biggest producer of the antimalarial drug (which experts are very circumspect about regarding efficacy against coronavirus), but Sharvil Patel of drugmaker Zydus Cadila said that Chinese suppliers were charging between 10 and 20 times normal

prices. One Chinese supplier said it had been forced to increase prices because of massive demand from Indian buyers as well as Chinese local governments – with the latter getting higher priority than the former.

Despite current disappointment with the drugs being tested, Drugmakers prepare to make coronavirus treatments (Wall Street Journal, Peter Loftus and Joseph Walker) shows that companies like Johnson & Johnson and Pfizer are hiring large numbers of extra staff to work in reconfigured manufacturing plants in anticipation of a huge upswing in activity when they start churning out coronavirus cures. Clearly this won’t be for a while yet, but it’s nice to know they are making preparations! * SO WHAT? * In order to be ready for a major surge, companies have to act now in order to line up their supply chains for key ingredients and install new equipment. Under normal circumstances, pharmaceutical companies tend to wait until a drug is in the advanced stages of testing and looks like succeeding before ramping up production capacity. However, given the unpredictable nature of pandemics, they have decided to act early bearing in mind what happened with Ebola – which faded sharply by the time the drugs designed to treat them were tested fully and allowed to go on sale. At the moment, it looks like Gilead may have jumped the gun as it started ramping up production of remdesivir in January with a view to producing 140,000 treatment courses by the end of May (production as at the end of March has yielded over 30,000 treatment courses so far).

Apple wonders when to release a 5G iPhone and Intel benefits from working from home…

Apple’s tough call: how long can it delay the new iPhone? (Daily Telegraph, James Titcomb) is a really interesting article that takes a look at Apple’s current situation. Funnily enough, Apple’s reliance on China was seen to be a major weakness at the beginning of the year as factories making the iPhone were shut and Trump put pressure on it for not “reshoring” more of its production as part of the China trade war, but now production is starting up once again. Apple’s main manufacturer, Foxconn, started production again two weeks ago and of the 43 Apple stores opened in the entire world, 42 are in China (and one is in South Korea). Given that Apple has traditionally unveiled a new flagship phone in September, expectations have been building for Apple to join the 5G fray by launching its own compatible handset. However, it seems like the company is

thinking about a delayed launch as their usual processes have slowed down and there are presumably worries about whether customers will welcome the launch of a (no doubt) very expensive trinket. If you have 20% unemployment, it doesn’t say much about the financial health of your potential customer base! * SO WHAT? * It seems to me that Apple has form in delayed launches anyway, so this wouldn’t be a shocker. It may even work to Apple’s advantage IMO because supply chains are bound to have suffered. A delay would also give people time to build up their finances again. 

Intel’s earnings rise as it profits from work-at-home computing demand (Wall Street Journal, Asa Fitch) shows that the chip making giant has seen a major rise in its Q1 earnings due to increased demand for its data centre business that is being powered by the WFH trend. On the downside, it was cautious about full-year guidance and sentiment was also hit by You’ve had your chips, Apple to tell Intel (The Times, Tom Knowles), which said that Apple is moving to use its own chips and not Intel’s from next year. It has used Intel processors for 16 years.

And finally, in other news…

I thought I’d leave you with news about a group of old duffers making some new music in Rolling Stones release new song ‘Living in a Ghost Town’ (AFP, https://tinyurl.com/y9svapuo). How DO they keep on going???