Monday 11/05/20

  1. In MARKETS & MACRO NEWS, financial markets get a bit excited, Eastern Europe sees an opportunity with the German ruling and Johnson outlines a slight easing of lockdown
  2. In CARS ‘N PLANES NEWS, car rental companies’ nightmares continue, pickup sales pickup in the US, Musk gets feisty and airlines continue to beg for money
  3. In UK RETAIL NEWS, hedge funds short supermarkets and Burger King plans a gradual opening while Superdry and Primark benefit from European sales
  4. AND FINALLY, I bring you an excited dog and a brainteaser…



So markets get excited, Eastern Europe looks at Germany’s decision with interest and BoJo outlines the next phase of lockdown lifting…

Strategists query sudden ‘sprint’ in US stocks (Financial Times, Philip Georgiadis) shows that some Wall Street analysts are saying that the US stock markets have risen too far too fast since recent lows but optimists are saying that the recent bear market rally is different to others because of unprecedented involvement of central banks. Asia stocks rise as China central bank hints at more support (Financial Times, Hudson Lockett) highlights more optimism in the Asian markets as China’s central bank, the People’s Bank of China, announced over the weekend that it was going to cut real lending rates and “place support for [the] recovery of the real economy in a position of greater priority”. * SO WHAT? * As I keep saying – and without trying to sound like some kind of mad conspiracy theorist – no-one’s got a clue about what’s going on right now because it’s never happened before. Stats are very difficult to rely on because the make-up and usual methods of collecting comparable data are all up in the air and so I believe that we are going to continue to see more volatile markets for the foreseeable future because they will just go up and down on coronavirus death rates and lockdown easing measures. I know that sounds harsh, but investors are grabbing onto any data at this point and trading on the back of it.

Eastern European states sense opportunity in German court ruling (Financial Times, Sam Fleming, James Shotter and Valerie Hopkins) follows on from what I was saying last week about the decision in the highest German court

that ruffled the ECB on current stimulus measures. Poland and Hungary are already having legal niggles with Brussels and they (and others) may see this latest decision as a useful precedent to follow. * SO WHAT? * This really is creating a right old kerfuffle and the ECB and Germany’s government are trying to formulate a co-ordinated response. As things stand at the moment, the court’s decision is putting the supremacy of EU law in question – something that has not happened before. This is the glue that keeps Europe together and if it starts to lose its teeth the ‘zone is going to look highly vulnerable.

I won’t spend too much time on Johnson unveils plan to get UK back to work (Financial Times, George Parker) because you probably know all this stuff already as the news is absolutely everywhere, but BoJo last night set out a three-stage plan to get Britain back on a “normal” footing. The first bit of the original message “stay at home” has been abandoned in favour of the rather fluffier “stay alert”, people who can work from home should continue to do so while those that can’t will be allowed to go back (if they can maintain social distancing) and restrictions on the amount of exercise you can take will be eased. The second phase, which could be June 1st at the earliest, will be a limited opening of shops and primary schools. * SO WHAT? * You will find that many people will be coming out of the woodwork saying that they know better than the government, but as I said last week I don’t think there is ANY workable perfect solution (the perfect one would be complete lockdown until a vaccine was found – and that DEFINITELY couldn’t happen). The government will continue to have to make a terrible choice between getting people back to work on the one hand and weighing up the risk of death on the other. Everything else is noise IMO.



Rental car company woes continue, pickup sales are strong and Musk rebels while airlines fight for money…

Running out of road: rental car groups fight for survival (Financial Times, Peter Campbell) follows on from another theme I mentioned last week – rental car companies suffering because of their huge exposure to the airline industry. Hertz just managed to survive bankruptcy by delaying debt payments due this month until May 22nd but then rival Avis announced a massive loss for the first quarter and an 80% fall in sales in April while Germany’s Sixt got a loan from the state development bank and Paris-based Europcar got a bank loan that was 90% backed by the French government. Enterprise, which is not a listed company, said it faced “significant and unprecedented challenges”. * SO WHAT? * If it wasn’t bad enough that its core business has been snatched away by anti-coronavirus travel restrictions hitting airlines, the other major problem here is that the companies have, over the years, had a tendency to own more of their respective fleets – which is all well and good when secondhand car prices are going up, but a nightmare when prices of used are falling. There is one slightly positive bit of good news, though – aversion to public transport and increasing numbers of people going back to work may well boost demand for people hiring cars. However, I would have thought this would be a drop in the ocean in terms of what the demand would have been. Still, better than nothing I suppose…

Meanwhile, there are a few things to cheer about for car manufacturers in China car sales bounced back a bit in April (Wall Street Journal, Trefor Moss) as the latest figures from the China Association of Automobile Manufacturers show a sales rise in the world’s biggest car market – something that backs up VW’s findings last week

– with commercial vehicle sales being particularly strong. Hardy truck sales bolster car companies during health crisis (Wall Street Journal, Ben Foldy) highlights some success in the US as well due to stronger sales of pickup trucks due to the fact that they are often needed for work and that states where they are particularly popular – Texas and Florida – have less strict lockdown restrictions.

In Elon Musk threatens to move Tesla HQ in row over lockdown (The Guardian) we see that Elon Musk is now suing California authorities because he wants to open his Fremont factory but they aren’t letting him. * SO WHAT? * I think Musk is just pouting. Wedbush analyst Dan Ives reckons that it would take 10 to 18 months to relocate Fremont production so he sounds like he is full of 💩. Still, I can fully understand why he wants Tesla to get back on track asap because the company needs to keep the momentum it’s been building in order not to slide back into its loss-making ways. We’ll just have to see who is going to blink first – Musk or California.

Airlines seek ‘urgent’ support after quarantine plan deepens crisis (Financial Times, Robert Wright, Peggy Hollinger and Tanya Powley) shows UK airlines continuing to push for government support – an appeal that has intensified following BoJo’s plans to introduce a 14-day quarantine for people arriving in the UK by air as part of his new tactics for fighting coronavirus. Airlines UK has appealed to the government to suspend air passenger duty, fees for air traffic control services and Civil Aviation Authority levies and executives are seeking an extension to the job retention scheme until October. * SO WHAT? * This is such a tricky situation, but the government surely has to get involved at some point otherwise there will be no industry left! Measures like quarantining will make things tricky, but Airlines/social distancing (Financial Times, Lex) shows that enforcing empty middle seats will do nothing, but doing it properly will mean that planes will have to fly 20-25% full – way less than the 70-75% number airlines need to be profitable, according to IATA, the industry’s trade body.



UK supermarkets are getting shorted and Burger King plans a gradual rollout while Superdry and Primark benefit from European sales…

In a quick scoot around some of the other news stories today, Funds bet on supermarket decline (The Times, Tom Howard) shows that hedge funds have doubled their short positions on Morrisons and J Sainsbury over the last month – Blackrock, Citadel, GLG Partners and Pelham Capital have taken bets worth over £566m – as they try to make money from “lockdown winners”. The feeling among some investors is that money will start to move out of stocks like supermarkets that have benefited most

markedly from the outbreak and into bombed-out areas that could start to pick up once lockdown restrictions start to ease.

There’s good news for fast-food fans in Burger King cooks up plan to reopen sites (Daily Telegraph, Hannah Uttley) as the burger purveyor is looking at opening high street outlets as soon as this week. The company said it was aiming to reopen one restaurant in every UK city by the end of May and then go from there.

There’s also good news in Primark and Superdry boosted by European store reopenings (Financial Times, Jonathan Eley) which shows that lockdown lifting is giving these apparel retailers a much-needed boost. Whether this momentum continues is another matter, however, as many consumers will have dented household budgets to contend with and buying a new t-shirt will be less of a priority for many.



And finally, in other news…

Most people will get pretty excited if they see themselves on the telly (I know I would be!), so we can all identify with Dog sees himself on the news and has priceless reaction to his TV appearance (The Mirror, Paige Holland And if you have a few minutes today, why not have a go at this: Tricky pencil brainteaser takes 20 seconds to solve – but can you do it quicker (The Mirror, Paige Holland

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Some of today’s market, commodity & currency moves (as at 0734hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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