Monday 02/03/20

  1. In CORONAVIRUS NEWS, Italy unveils a stimulus, businesses head for a credit crunch and drugmakers warn about impact
  2. In CONSUMER/RETAIL NEWS, food prices look set to rise and Waitrose employees to get their lowest bonus in 67 years
  3. In INDIVIDUAL COMPANY NEWS, VW unveils electric dreams and Elliott Management pressures Twitter
  4. In OTHER NEWS, I bring you a mini mountain climber…



So Italy unveils a stimulus while businesses brace themselves for impact…

Cash injection to combat virus in Italy (The Times, Philip Aldrick) highlights Italy’s latest reaction to the spread of the coronavirus as it announced that it would make a €3.6bn injection into the economy in addition to a €900m fund for the hardest-hit regions. This package would be the equivalent of 0.2% of GDP and includes the introduction of tax credits for companies that report a 25% fall in revenues as well extra money for the healthcare system. Northern Italy, the country’s main growth driver, has been worst hit in the outbreak and recession in the already struggling country looks inevitable. The government also plans to apply to Brussels for permission to increase the budget deficit this year for extra cover.

Coronavirus threatens corporate credit crunch (Daily Telegraph, Ambrose Evans-Pritchard) cites a warning by ratings agency Standard & Poor’s that a growing number of companies with high debt levels will face restrictions in access to credit. Healthcare and car manufacturers are looking particularly vulnerable, but certain individual companies that look at risk include Samsonite, Vale, Western Digital, BlackRock TCP Capital, Alcelor Mittal and Marks & Spencer. China is still feeling the pinch as Hainan

Airlines was pretty much taken over by the government over the weekend with $75bn of debt, independent oil refiner Tianhong Chemical went bankrupt last week and the country’s manufacturing PMI survey hit a new record low in February. Despite state orders to reopen factories, output is half normal levels as two-thirds of China’s 300m migrant workers still haven’t been able to return to work. * SO WHAT? * At the moment, it seems that the Federal Reserve and the ECB aren’t yet thinking of putting emergency measures into place but they are facing the increasingly uncomfortable prospect that even if they do, they could run out of ammo and then the markets crater even further.

Big drugmakers warn about coronavirus impact on business (The Wall Street Journal, Jared S.Hopkins) shows that the likes of AstraZeneca, Merck and Pfizer are among those who are starting to warn that supplies for certain drugs could run out – something that their Indian counterparts are well aware of. In anticipation of this, they have been looking at alternative sources for ingredients and supplies. * SO WHAT? * The reality is that supply chains are so complicated these days that it is very difficult to ascertain exactly the proportion of ingredients that originate in China, but pharmaceuticals companies are staying understandably cagey in terms of their exposure and stock levels. It sounds to me like they are softening us up for shortages but are at pains not to cause any mass panic at this stage.



Food prices look set to rise and Waitrose staff get a record low bonus…

Food price rise fear after rain washes out UK crops (Daily Telegraph, Alan Tovey) highlights the consequences of the recent storms in the UK as prolonged downpours have washed out entire crops. The Agriculture and Horticulture Development Board (AHDB) says that time is running out for farmers to save the harvest with spring planting and if the weather doesn’t improve, they will have to import more grain which will push food prices higher. Supermarkets, for their part, say they are relaxed about it as they have access to different suppliers and are ready to absorb higher costs

in order to minimise the impact on the customer. * SO WHAT? * It’s all getting pretty dramatic isn’t it! Higher food prices because of flooding, bottlenecks for car manufacturers, drug makers and tech companies and the increasing prospect of “enforced” working from home etc. could all hit consumer spending (especially if people aren’t getting paid for quarantining themselves following a business trip/holiday). At least petrol prices are going down!

Waitrose staff to get lowest bonus in 67 years as profits fall (The Guardian, Sarah Butler) heralds the prospect of the staff getting their lowest bonus for decades – if they even get one at all – as the John Lewis Partnership is expected to unveil a fall in annual profits for the third year in a row. New chairwoman Sharon White has already warned staff to expect “difficult decisions about stores and about jobs”. Tough times ahead – but they are not alone!



VW outlines plans for electric dreams and Twitter comes under pressure…

VW chief defies sceptics with ambitious electric car plan (Financial Times, Joe Miller and Peter Campbell) highlights VW’s plans to spend €33bn – yes, that’s €33bn – on producing 26m emission-free vehicles over the next nine years to leave Tesla as a shrinking dot in its rear-view mirror. What is even more eye-catching, though, is the company’s plan to ensure that the cars are profitable from the off – and its launch of a small SUV next year is to be the first car of this new generation based on VW’s purpose-built modular electric skateboard. * SO WHAT? * This is a very punchy forecast and puts rivals such as Toyota and GM in the shade. Given that McKinsey estimates a mid-sized EV costs about $12,000 more to make than a petrol or diesel equivalent, the forecasts look very aggressive.

However, this massive shift to EVs may well nudge investors towards giving the company a valuation more akin to Tesla than a boring old car manufacturer – but I think this will take time (if they can ever achieve it).

Elliott pushes for big changes at Twitter after taking $1bn stake (Financial Times, Sujeet Indap, Ortenca Aliaj and Hannah Murphy) heralds the latest moves by activist hedge fund Elliott Management to try and pressure the company to remove chief exec Jack Dorsey as its stake in Twitter has risen to over $1bn. They don’t like the fact that he is a CEO at both Twitter and Square as they think he is too distracted to concentrate on Twitter. * SO WHAT? * Given that the company saw its share price fall by 20% in October and that it is continuing to lose momentum in converting users into advertising revenue, you would think that a new chief exec could invigorate things. I’d say that the first thing they should do to boost the share price is to lift its self-imposed ban on political advertising. Admirable sentiment, but they are losing out big time…



And finally, in other news…

It’s sometimes a good thing to get kids starting on things early. This kid sounds pretty energetic: ‘That was easy peasy!’: Six-year-old adventurer’s reaction after she becomes the youngest Briton ever to reach the 17,500ft Everest Base Camp (Daily Mail, Max Aitchison 😱. My kids whinge before a dog walk 😂 but I find that a subtle combination of threats (no iPad) and incentives (cake at the shop halfway through the walk) gets them through…

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Some of today’s market, commodity & currency moves (as at 0725hrs 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 **
6,581 (-3.18%)25,409 (-1.39%)2,954 (-0.82%)8,56611,890 (-3.86%)5,310 (-3.38%)21,344 (+0.95%)2,972 (+3.18%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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