Friday 31/07/20

  1. In MACRO, MARKETS & COMMODITIES NEWS, US GDP crashes and Trump moots an election delay while the German economy shrivels and markets tumble. Shell reports a massive loss and Anglo American suffers with coal and diamonds
  2. In BANKS NEWS, Credit Suisse restructures while Lloyds and Monzo reports losses
  3. In CORONAVIRUS “WINNERS” & LOSERS, we see the triumph of Big Tech, UPS and Rentokil while car-makers Tui and Sky suffer
  4. In INDIVIDUAL COMPANY NEWS, AstraZeneca tops forecasts and John Lewis does a big overhaul
  5. AND FINALLY, I bring you a make-your-own KitKat shop and a very cheap house…



So US GDP crashes, Trump floats the idea of an election delay, Germany contracts and markets fall. Meanwhile, Shell announces losses and Anglo American suffers in diamonds and coal…

US suffers worst quarter since the second world war as GDP shrinks by 32.9% (The Guardian, Dominic Rushe) cites the latest government figures which highlight a dire performance for the US economy, which is presumably a big reason why Trump floats prospect of delay in US election (Financial Times, Courtney Weaver), although he claims it’s because the vote could be easily sabotaged in the event of more mail-in ballots due to the coronavirus. The key thing to remember here is that he doesn’t have the power to delay the election – any change would have to be approved by a vote in both the Senate and House of Representatives. Meanwhile, German economy shrank 10.1% at height of virus crisis (Financial Times, Delphine Strauss, Federica Cocco and Chelsea Bruce-Lockhart) shows that things aren’t that much better in Europe’s biggest economy as the figure was worse than analysts had been expecting. All of this dented investor sentiment and Global markets in retreat as US falls into recession (The Times, Callum Jones, Gurpreet Narwan and David Crossland) was the result as markets worldwide weakened. Much of the gloom has centred around the collapse in consumer spending, but given that shops and other businesses have only started to open once more fairly recently you would have thought this state of affairs will start to improve.

Shell reports $18bn loss as global oil and gas prices collapse (The Guardian, Jillian Ambrose) highlights a massive financial loss for the oil major due to it having to writedown the value of its oil and gas assets due to the collapse of oil prices earlier this year. It wasn’t alone in its grim assessment as French oil company Total also announced big asset writedowns as well. * SO WHAT? * I must say that I wonder whether this is an exercise in “kitchen-sinking” in that oil companies are using low oil prices at the beginning of the year to cut costs down to the bone so that they can benefit massively in the future when the oil price comes back. To be honest, it’s been hovering around the $40 a barrel mark for a while now so there’s only going to be so much time that it can use the “low oil prices” excuse. OK, so $40 a barel isn’t great, but I don’t think it’s a disaster either. I think that global trade needs to see more of an uptick before we see better oil volumes, but it seems to me that oil companies are getting all the dirty stuff done now while they can.

Anglo American’s double blow from diamonds and coal (The Times, Emily Gosden) shows that the mining giant Anglo American unveiled a massive dive in its first half profits as production took a huge dip due to coronavirus-related disruption. In addition, there was a safety shutdown at a South African platinum processing plant and two accidents at coking coal mines in Australia to contend with. Anglo’s diamonds business, De Beers, also suffered on much slower jewellery sales and production problems. On the plus side, operations are largely back to normal and China sales reached levels in May and June that were appreciably higher in May and June than in the same months of 2019.



Credit Suisse rings in the changes but Lloyds and Monzo highlights losses…

Credit Suisse launches restructuring after trading profit boost (Financial Times, Owen Walker) shows that the bank announced big changes as it benefited from a significant upswing in trading in the second quarter. The revamp reversed some of the changes brought in by previous chief exec Tidjane Thiam as “new” guy Thomas Gottstein set about putting his stamp on the business. The group announced a new streamlined investment banking division as well as a slimmer risk and compliance division. * SO WHAT? * New guy comes in, cuts costs, streamlines divisions, blah blah same old. Having said that, you’ve got to feel for Gottstein because he only started in February – just before coronavirus hit – and since then has had to contend with scandals at Wirecard (dodgy accounting) and Luckin Coffee (also dodgy accounting/dodgy number generally) – the bank had worked on deals for both. Surely he has got to do monumentally badly not to make things improve given where the company was when he started!

Meanwhile, in the UK, Lloyds reports loss after setting aside £2.4bn (The Guardian, Kalyeena Makortoff) highlights the bank’s gloomy assessment of the covid

impact as being “much larger than expected” as it set aside a large slug of money to prepare for a rising number of defaults over the coming months. It also set out a gloomy outlook (but then again, most companies are). * SO WHAT? * Given that Lloyds Bank is the UK’s biggest mortgage lender and one of the most domestically-focused banks, it is seen to be a bellwether for the wider UK economy, so its pessimistic assessment isn’t great. However, its assessment is hardly earth-shattering 😂!

Then in Monzo fears for future as crisis pushes losses to £113m (Daily Telegraph, James Cook and Matthew Field) we see that losses more than doubled, according to its latest annual report, as disruption from the coronavirus threatened its ability to do business. It expects growth to slow down in 2020 and will delay some of its new project launches because of the outbreak. * SO WHAT? * This does not sound good at all IMO. It doesn’t have the same exposure to loans as its more traditional brethren and admitting that it has doubts about how it can operate is hardly going to engender confidence among existing and potential customers. Surely this bank has to grow a pair and do all it can to grow. I think that the bank has to put more efforts into getting customers to use it as their “main” bank account and offer loan products in order to grow, but statements like this aren’t going to help. 



Big Tech, UPS and Rentokil triumph while car makers, Tui and Sky splutter…

And in the “winners” corner today, Amazon, Apple, Facebook show dominant results, grip on society (Wall Street Journal, Sebastian Herrera) highlights hugely impressive results for the Big Baaaaad Tech companies who has profited from the pandemic and Facebook continues to weather the storm of bad PR. Interestingly, Google’s parent Alphabet actually reported a fall in quarterly revenues versus the previous year for the first time ever – but it still beat analyst expectations on sales!

As consumer behaviour changed during the coronavirus outbreak, Online shopping boom drives UPS quarterly sales higher (Financial Times, Mamta Badkar) shows that UPS reported a major leap in revenues (+13.4%) that exceeded market expectations as demand for their services increased during lockdown and Sanitiser gives Rentokil helping hand (The Times, Alex Ralph) shows that the FTSE100 hygiene and pest control group benefited from increased demand for hygiene products – and will continue to do so as workplaces and other establishments

reopen. Fun fact: Rentokil generates about 90% of its revenues outside the UK as it operates in 81 countries!

On the other hand, Auto giants swing to loss during coronavirus-driven downturn (Wall Street Journal, Mike Colias and Ruth Bender) highlights the ongoing travails of the likes of Ford (a $1.9bn quarterly operating loss that was actually better than it had previously predicted) and Volkswagen (which fell into a net loss for the second quarter). Interestingly, GM didn’t do as badly, but that was because of its exposure to China, which has started to recover earlier. Renault also posted a major net loss for the first half (€7.29bn!) as it had to contend not only with the pandemic, but also the mess from its alliance with Nissan. Staying on the subject of cars, UK car dealership Pendragon to cut 1,800 jobs (The Guardian, Jasper Jolly) shows that the owner of Evans Halshaw and Stratstone announced plans to cut 1,800 jobs with 15 showroom closures as demand continues to be weak.

Elsewhere, A third of Tui stores to shut (Daily Telegraph, Oliver Gill) shows the latest loss on the high street as the world’s biggest travel firm grits its teeth in the face of a tricky summer season and Sky sees £575m fall in revenue as sport is hit by Covid-19 lockdown (The Guardian, Mark Sweney) shows that the Comcast-owned broadcaster suffered a huge hit from pretty much zero sport going on through lockdown. This also hit TV ad revenues, which fell by 43%. Not great, but hardly surprising…



AstraZeneca tops forecasts and John Lewis announces an overhaul…

In other news doing the rounds today, AstraZeneca tops forecasts as patients stockpile cancer and diabetes medicines (Daily Telegraph, Simon Foy) shows that the pharma giant beat forecast for the second quarter due to strong demand for its cancer and diabetes treatments. Now if it can make a success of that covid vaccine with Oxford University, it would cap a strong 2020!

John Lewis plan to turn empty shops into homes (The Times, Ashley Armstrong) highlights new ideas from the new boss, Dame Sharon White, about how to turn the group around. Plans include turning its closed outlets into homes, launching a new gardening business and agreeing new product distribution channels are among the ideas being considered in order to get the embattled group out of its current rut. She said that new initiatives would deliver “green shoots” in the next 9-12 months as part of a wider three-to-five year timetable. * SO WHAT? * This sounds like a tall order and Dame Sharon White is new to the retailer game – but I guess drastic measures are needed and someone from a completely different background was needed in order to make radical change happen. I hope it works! The ideas sound reasonable enough, but success will all be in the execution and whether it can do it quickly enough.



…in other news…

I thought I’d leave you today with more evidence of Japan’s incredible obsession with KitKats in World’s first make-your-own KitKat shop is opening in Tokyo (SoraNews24, Casey Baseel). WHAT?!? Then there seems to be an incredible opportunity to get onto the property ladder in Five-bedroom house with games room, wine cellar and gym could be yours for £2 (The Mirror, Paige Holland). Wow!

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Some of today’s market, commodity & currency moves (as at 0748hrs 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 **
5,990 (-2.31%)26,314 (-0.85%)3,246 (-0.38%)10,588 (+0.43%)12,380 (-3.45%)4,853 (-2.13%)21,711 (-2.93%)3,310 (+0.71%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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