Friday 6/11/20

1. In MACROECONOMIC NEWS, uncertainty continues over the US election while Sunak and the Bank of England give support
2. In FINANCIALS NEWS, Ant Group looks at a long delay, SocGen profits on trading and RSA announces a takeover bid
3. In CORONATRENDS NEWS, AstraZeneca nears an announcement and Nintendo hikes up its profit targets while a Chinese escooter-maker, Peloton and pizza trend up and fast food breakfasts crash
4. In INDIVIDUAL COMPANY NEWS, Uber and Lyft could set the example, Sainsbury’s cuts down on Argos and storm clouds gather over Ocado
5. AND FINALLY, I bring you Santa’s Yumnut and some tips on how to win Monopoly under lockdown…

So uncertainty in the US continues while Sunak and the Bank of England join forces…

Did you know that today is Watson’s Daily’s SIXTH birthday?? I started writing what was then known as Watson’s WIFI in my cramped (I can’t stand up in it – and I’m a short-@rse 😁) basement. I had to wear three layers of clothes and take an electric heater down there in order to be able to write it and it took me so long that I could only send it out at lunchtime! Things have changed since then as I moved my boys into a room they share with a bunkbed and I moved “operations” into the small box room where there is, crucially, some heating! Please help Watson’s Daily help more people by subscribing and recommending it to others! In the meantime, 🎂 🍾🎈 woo hoo!

Things just drag on and on in the wake of the presidential election and US cities brace for protests with election result still unclear (Financial Times, Katrina Manson, Hannah Murphy and Claire Bushey) reflects widespread disquiet across America as Trump continued to stir things up by calling a halt to vote counting in some swing states while US stocks build on rally as election shakes up market calculus (Financial Times, Richard Henderson, Eric Platt, Colby Smith, Naomi Rovnick and Tommy

Stubbington) shows that the Nasdaq and S&P500 were on track for their best week since April as a tech driven rally broadened to include industrials and banks. * SO WHAT? * With the prospect of a president winning by a slender margin and a divided Congress, investors were manoeuvring out of positions reflecting a clear Biden victory (big stimulus, investment in green infrastructure etc.) into positions that reflect expectations of lower growth and less rocking of the boat regarding business regulation and taxation because whoever wins will be unlikely to have the clout to push anything radical through on the legislation front.

Meanwhile, in the UK, BoE and Sunak join forces to support UK’s Covid economy (Financial Times, Chris Giles) shows that the Bank of England announced a £150bn stimulus package while chancellor Rishi Sunak also announced an extension to the government’s furlough scheme paying up to 80% of wages until the end of March next year. * SO WHAT? * Both of these measures should ease the potential economic pain and be a source of relief for many in the run-up to Christmas. In effect, this just kicks the can down the road – so in the meantime, let’s hope for a vaccine. Extreme disaster has been averted for the moment although critics will argue that this is a sticking plaster measure to a gaping economic wound and is just delaying the inevitable job losses and company failures.

Ant Group faces a long delay, SocGen is the latest to profit from trading and RSA announces a takeover bid…

Ant Group IPO faces at least 6-month delay after Beijing intervention (Financial Times, Hudson Lockett and Primrose Riordan) shows that Ant’s IPO could be delayed for quite some time – with a reduced valuation – after Chinese authorities intervened earlier this week to stop an IPO that would have gone ahead yesterday. The company will have to submit a new prospectus in Hong Kong, which could take at least six months. * SO WHAT? * Ant Group will be forced to adhere to the new regulations regarding lending, which makes up 40% of the company’s sales. The rules require internet platforms to finance at least 30% of their loans themselves – a big increase from the current 2%. Ant says that it is possible that there could be changes to these requirements on funding, but this is unclear at the moment. As things stand currently, Ant Group 0 – Chinese authorities 1.

SocGen swings back to profit as equity trading rebounds (Financial Times, David Keohane and Owen Walker) shows that the French bank bounced back into the black in Q3 thanks to a rebound in performance from its equity derivatives business and equity trading. * SO WHAT? * It seems that banks with trading capabilities are all benefiting – as per BNP earlier this week and then Goldman Sachs and Morgan Stanley a couple of weeks back. Trading revenues can be volatile and they rebounded from lower levels in the initial stages of the outbreak, but they are riding high for the moment! 

Then in Insurer RSA reveals £7bn takeover bid (The Times, Ben Martin) we see that Britain’s oldest insurer could be broken up after receiving a joint takeover approach from Canada’s Intact Financial Corporation and Denmark’s Tryg. RSA’s share price shot up by almost 46% on the news yesterday. * SO WHAT? * If this deal went ahead, Intact would take control of the UK operations and Tryg would take on RSA’s Swedish and Norwegian business in addition to co-owning with Intact RSA’s Denmark business. A share price hike of 46% is particularly impressive and makes me wonder whether the market is expecting another potential bidder to come out of the woodwork and throw their hat in the ring. Zurich almost bought RSA in 2015 but had to pull out due to incurring big losses in an industrial accident in China, so who knows?!

AstraZeneca hints at an announcement, and we look at more coronavirus winners…

There’s some potentially heartening news in Astra vaccine results ‘within weeks’, says drug maker (Daily Telegraph, Simon Foy) as the pharmaceutical giant said that it expects to announce results of late-stage trials for its Covid vaccine by the end of the year. It posted strong results for Q3 but all eyes were on its Covid announcement because if things go well, it could start mass-injections in early 2021. Wouldn’t that be great! Its pre-tax profits more than doubled in Q3 and product sales came in above expectations. The outlook is also pretty good as two of its main drugs, cancer treatment Lynparza and diabetes drug Forxiga, have won approval for wider use in Europe.

In terms of interesting consumer trends, Nintendo raises profit target by 50% (Financial Times, Leo Lewis and Kana Inagaki) shows confidence by the Japanese games and console-maker, which is known for being overly conservative about its forecasts. * SO WHAT? * Although the Switch is three years old, it will no doubt see another boost under lockdown despite Sony and Microsoft’s respective consoles’ imminent launch.

China’s escooter maker’s stock accelerates 400% on Covid boom (Financial Times, Christian Shepherd) highlights the incredible success of Niu Technologies, a Chinese maker of electric scooters, as it outlined plans to broaden its presence in Europe and the US due to increased demand for socially distanced methods of transport under Covid. The company is the the fastest growing escooter brand in

China and its escooter sales were up by a whopping 68% year on year in Q3. Its share price has shot up by over 400% since March! * SO WHAT? * Doesn’t this sound interesting?? If regulations ease, I wonder whether e-scooters will replace bikes as a popular mode of commuter transport in major cities? Given that there is an impetus to give people alternative ways of getting to work, I would have thought that any regulatory developments will be faster than they would otherwise have been.

Peloton, pizza and videogames grow in stay-at-home world (Wall Street Journal, Kimberly China and Sarah E. Needleman) shows how some companies are set to benefit further under new lockdown restrictions as Peloton said that its revenues more than tripled over the September quarter, Papa John’s saw 17% sales growth and Take-Two Interactive (which publishes Grand Theft Auto) saw higher net bookings and better profits on new game releases.

On the other hand, it is interesting to see Fast food’s bet on breakfast goes bust during Covid-19 pandemic (Wall Street Journal, Julie Wernau) because working from home has decimated the demand for breakfast as people make their own at home. McDonald’s and Burger King say that sales of breakfast items are weak and breakfast-specialists such as IHOP and Dunkin’ are closing hundreds of restaurants as a result of less foot traffic. Conversely, those who make breakfast items that people will eat at home are doing rather well – Kraft Heinz makes Oscar Mayer bacon, Maxwell House coffee and Philadelphia cream cheese, for instance. * SO WHAT? * It’s interesting to see this happening and although there will inevitably be a bounce back once commuters return, if more people are working from home and getting used to having their own breakfasts again you do wonder whether there demand levels for breakfast items will be depressed for some time.

The Uber/Lyft thing could have longer term implications, Sainsbury’s ditches Argos stores and Ocado faces what could be a major headwind…

In a quick scoot around other news stories this morning, Uber and Lyft in driving seat to remake US labour laws (Financial Times, Dave Lee) shows that the vote to classify gig workers at these companies as contractors and not employees could have broader implications on other gig economy companies given that up to 17 states are currently debating how to regulate the industry. * SO WHAT? * If anything, this looks like a brief reprieve because the rapid growth of the gig economy in the last few years has increased the need for a proper framework regarding the proper definitions of an employee and a contractor. It will not go away and it is possible that some legislation, such as the Fair Labor Standards Act could actually take precedence over state law. This is most definitely not the end, but I am sure that companies dependent on gig workers will want to spend less time in court in future and so proper clarification is necessary.

In the UK, Sainsbury’s to cut 420 Argos stores and 3,500 jobs (Daily Telegraph, Laura Onita) sounds another ominous note for jobs as Sainsbury’s, Argos’s owner, announced that it will not be reopening the 120 Argos

outlets that have been closed since March and will instead be increasing efforts to shift the brand into Sainsbury’s stores. The 420 closures of stand-alone Argos stores are to happen over the next three-and-a-half years. J Sainsbury/Argos: super saver shares (Financial Times, Lex) points out that in a world that is increasingly dominated by Amazon, something needs to be done about Argos which is often criticised for running out of stock. Offering click-and-collect at every Sainsbury’s supermarket and building 30 new fulfilment centres should go some way to addressing this in a more efficient way.

Amid all the e-tailer high-fiving we are seeing at the moment, Ocado says robot patent case ‘could harm public health’ (Financial Times, Jonathan Eley) highlights something that could be a real problem for Ocado as the case being brought against it for alleged patent infringements from Norwegian warehouse automation company AutoStore could end up stopping the rollout of Ocado’s platform rollout at Kroger in the US, Ocado’s biggest customer. * SO WHAT? * Ocado is in the midst of fitting out 20 automated distribution centres across America so an enforced stoppage could be a complete nightmare not only for its deal with Kroger, but it could also make other potential customers think twice. Ocado seems to be downplaying this at the moment, but it looks to me like this could develop into something pretty major if it doesn’t get something sorted with AutoStore. Great timing by AutoStore to create maximum pressure on Ocado, though!

…in other news…

I thought I’d leave you this week with a new controversial food item in Marks & Spencer accused of “ruining Christmas” with suggestive festive doughnut (The Mirror, Rosaleen Fenton) and something to enhance important skills under lockdown in 6 tricks to always win Monopoly – which properties to buy and staying in jail (The Mirror, Zoe Forsey). Nice 👍