Monday 06/04/20

1. In MACRO & OIL NEWS, Europe moves to ease lockdown, BoJo goes to hospital, various industries appeal for financial help and I give you an update on the oil drama
2. In RETAIL/HIGH STREET NEWS, famous names fall, fashion retailers experience pile-up, Hix calls in the administrators but an independent bookshop sees a huge rise in business
3. In CORONAVIRUS “WINNERS” & LOSERS, households get paid for electricity usage, but superyachts face an uncertain future
4. In OTHER NEWS, I bring you some spooky photos…

So Europe looks like relaxing, BoJo goes to hospital, industries call for handouts and oil uncertainty continues…

Europe prepares to ease coronavirus lockdown (Financial Times, Ben Hall and Guy Chazan) shows that France, Spain, Belgium and Finland are among those looking at easing up home lockdown measures in a way that will avoid a second wave. Interestingly, Spain’s shutdown has been extended until April 26th but the ban on non-essential work – which includes manufacturing and construction – will be lifted after Easter. Italy suggested that it may be easing measures next month, France has hinted at targeted loosening and Denmark – which was one of the first European countries to impose activity and border restrictions – sounds like it might review in a fortnight’s time. * SO WHAT? * I do wonder whether governments are saying this sort of stuff to try to give people hope and something more concrete to aim for. However, on a practical basis, I would have thought that the key to ANY kind of relaxation will be a massive uptick in testing AND contact tracing. Even then, one of the countries that has garnered a lot of praise for testing – Germany – has seen a rise in cases and deaths in recent days, so it is not a given. Still, it is important to have a plan to phase in normality.

Boris Johnson taken to hospital over coronavirus symptoms (Financial Times, Jim Pickard and Sebastian Payne) shows that the British PM was admitted to hospital yesterday for precautionary tests as his coronavirus symptoms had not gone away. He is still in charge of the government but Dominic Raab will be filling in for him at meetings for now.

Meanwhile, Steel sector lobbies for lifeline as it faces collapse (Daily Telegraph, Alan Tovey) highlights problems in a sector that can’t be shut down easily but that is also excluded from government bailouts because its revenues are above the £500m threshold, Biotechs call for funding amid Woodford fallout (Daily Telegraph, Hannah Uttley) shows that our biotech sector is crying out for money now that Neil Woodford is out of the picture (25% of his Equity Income Fund was invested in biotech start-ups) and UK house sales will collapse in 2020 as market goes into deep freeze, says study (The Guardian, Patrick Collinson) cites analysis from Knight Frank which predicts that house sales will collapse this year and not pick up in 2021, although prices will only drop by 3% this year and rise by

5% next year. * SO WHAT? * It’s not surprising that various industries are asking for government help – and time will be of the essence in terms of saving them. As for the housing market – I have said previously that estate agents were talking their own book following BoJo’s victory in the general election at the end of last year and were not taking into account the uncertainty that Brexit would be bringing towards the end of the year. No doubt some will be talking their own book yet again by saying that the housing market will ratchet up again next year, but I just don’t see it. Savings for many will be absolutely decimated and building up deposits will take a lot of time. To my mind, the only way that housing market activity could pick up in a big way again in the near-ish term is if the government waived stamp duty and made concrete incentives to encourage mortgage lending. Will they do that, though? I would have thought they have more pressing concerns.

Meanwhile, US and Canada discuss putting tariffs on Saudi and Russian oil (Financial Times, David Sheppard and Derek Brower) is a story from the weekend which shows that the US and Canada are threatening tariffs if the price war persists and Trouble in the pipeline as Aramco shares take a bath (Daily Telegraph, Ed Clowes) highlights problems for the Saudi side as loads of ordinary citizens who bought into a “sure thing” when the state-controlled oil company floated on the stock market last year are facing financial difficulties because many of them borrowed heavily to buy shares which continue to fall in price – something they thought would not happen. Trump plays oil price poker but Russia control the deck (Daily Telegraph, Garry White) is a really good article that makes the point that although Trump is talking a good game, it is in fact the Russians who actually have more power in this particular game of chicken. * SO WHAT? * Trump tried last week to talk up the price by implying that the Saudis and Russians would have a “virtual” meeting to end the price war, but this is not a done deal. Permanently low oil prices will kill US ambitions of becoming energy independent as its shale producers go out of business, so it is very much in Trump’s interest to talk up the oil price. Theoretically, whoever can produce oil at the cheapest price will win as everyone else goes bust – and the cheapest producer has traditionally been Saudi Arabia. However, some argue that Russia is better equipped to last the course because it is less reliant on oil revenues, has other commodities to sell and the price of production in local currency terms is falling. Having said that, Putin is going to have to finance his recently-announced economic stimulus package somehow and oil revenues will play a major role in this – so holding out will not be pain-free for Russia either.

Famous names get into trouble, fashion retailers face inventory pile-up, the nightmare continues for restaurants but an independent bookshop is doing brisk business…

Big names on high street preparing to close down (The Times, Philip Aldrick) highlights Debenhams and Cath Kidston as two big high street names who will be filing for administration (for Debenhams, this will be the second time in a year!). Arcadia, which owns brands such as Miss Selfridge and Dorothy Perkins, is also believed to be thinking about shutting down a number of stores. UK fashion stores brace for shakeup as clothing piles up in warehouses (The Guardian, Sarah Butler) talks about retailers including Primark, Peacocks, Arcadia and Next who have stopped taking deliveries to their warehouses because there’s no more space – implying that when they do start selling again, there will be tons of product being sold at discount. * SO WHAT? * It just keeps getting worse for apparel retailers. I suspect that the discounts are going to have to be very deep indeed to get people to part with cash to buy non-essentials when many have lost their jobs or a proportion of their income. As I have said elsewhere, I believe that there may be initial euphoria when people start trickling back to work – but reality will settle in soon thereafter and spending will be reined-in.

Restaurants in trouble as Hix calls in administrators (Daily Telegraph, Oliver Fill and Jonathan Jones) heralds more problems for the embattled restaurant sector as chef and restauranteur Mark Hix filed for administration for three of his businesses at the end of last week. * SO WHAT? * OK, so his restaurants are on a different planet in terms of quality, but this latest move comes just after Chiquito and Carluccio’s also fell into administration. In this case, Hix

was exposed to a double-whammy of sky-high London rents and the sudden disappearance of its customer base. The hospitality industry is the third biggest contributor to UK GDP and employs almost 10% of the population but it is taking a massive pasting at the moment in the face of the coronavirus. Restaurants are a tough business to be in at the best of times, but given that we are now in the worst of times, survival will be the name of the game. FWIW, I think that if top end restaurants survive this, they may do well as their clientele may have been proportionately less affected by the outbreak and therefore still able to spend. I also think that fastfood chains will do well as people may crave the familiarity they bring and the prospect of a “cheap treat”. Casual dining, however, will surely find things far more difficult and the shake-out in that area is likely to continue.

On the plus side, Independent online bookseller hails promising chapter in lockdown (Financial Times, Anna Nicolaou) highlights the success of Bookshop.org, which is an e-commerce site that allows customers to buy hard-copy books directly from independent shops. It started only two months ago, selling about $4,000 worth of books a day, but since many stores are now closed and Amazon has de-emphasised the sale of non-essential goods, sales have shot up to over $140,000 a day! Bookshop was created to take on the might of Amazon – founder Andy Hunter said that “We’re using Silicon Valley tactics to try to keep things the way they were” – and he acknowledges that the timing of Bookshop’s launch has been accidentally perfect. Around 420 independent bookshops have now signed up to the platform while Amazon’s book shipments have slowed down. * SO WHAT? * Although you could argue that the longer the lockdown goes on, the more people will get used to Bookshop, I would say that it should enjoy its time while it lasts because once Amazon gets back again it is unlikely to be able to compete on price or expediency. Let’s hope it does last, though, as I think the sentiment is admirable!

Good news for household electricity usage, not so for superyachts…

Households to be paid for daytime green electricity use during lockdown (The Guardian, Jillian Ambrose) heralds good news for some as a combination of successful clean energy generation and a fall in energy demand due to the closure of various businesses and factories means that market prices for electricity are now at their lowest levels

for 10 years. This means that households on some newer tariffs were even paid to use electricity yesterday! How amazing is that?

Finally, Superyachts: depreciating quarantine machines (Financial Times, Lex) highlights the fact that although superyachts have been seeing a huge surge in popularity recently as floating isolation destinations for the super-rich, the good times may be limited for the yachting industry. Historically, after the 1929 and 2008 market crashes, prices fell by over 50% and order cancellations made things even worse. Given that yachts are very expensive depreciating assets with big overheads on maintenance and crewing, the future looks somewhat choppy.

And finally, in other news…

I thought I’d leave you today with the spooky photos in Aerial images show streets, beaches and landmarks empty during coronavirus pandemic (USA Today, https://tinyurl.com/r92apvm) I thought I’d also leave you with one of my favourite telly moments – when Stavros Flatley graced the stage of Britain’s Got Talent. This always makes me smile!