Monday 16/03/20

  1. In MACRO, MARKETS & OIL NEWS, US interest rates get another drastic cut (but Asian markets still fall), Spain and France go on lockdown and BoJo comes under pressure to do more while Saudi Aramco cuts spending and UK oil stocks weaken
  2. In SECTOR-BY-SECTOR NEWS, Airlines cry for help, airports face uncertainty and manufacturers ask for government support
  3. In RETAIL & CONSUMER-RELATED NEWS, Amazon tries to tempt rivals, US retailers close while stocks of a key sanitiser ingredient run low
  4. In OTHER NEWS, I bring you a heart-warming event put together by kids in Minecraft…



So the US cuts rates again, Spain and France shut down, BoJo faces more flak, Saudi Aramco cuts spending and UK oil companies face difficulties…

Federal Reserve cuts interest rates to near zero in attempt to prop up US economy (The Guardian, Dominic Rushe) highlights drastic actions by America’s central bank as it cut its benchmark interest rate by another 0.5% to the 0-0.25% range – less than two weeks after its previous 0.5% cut – and said that it would buy back $700bn in Treasury and mortgage-backed securities to avert a major economic slowdown. It added that it was working with the Bank of England and the ECB, among others, to co-ordinate the response and would keep the current ultra-low rates “until it is confident that the economy has weathered recent events and is on track” to stabilise prices and employment. Asian stocks fall despite Fed cutting rates to zero (Financial Times, Hudson Lockett, Katie Martin, Robin Wrigglesworth and Colby Smith) shows that markets remained unconvinced as investor fears continue to mount regarding an uncertain future.

Meanwhile, Millions confined to homes after Spain and France impose coronavirus lockdowns (Financial Times, Daniel Dombey, Victor Mallet and Ben Hall) shows that

more Europeans are readying themselves for home confinement as the outbreak continues to spread. Spain used emergency powers to bring in the shutdown on Saturday night as the epidemic is now spreading there at a faster rate than anywhere else in the world. France closed all cafés, restaurants, non-essential shops and entertainment venues and schools are now only open to children of health workers. Maybe this is a taste of things to come as Johnson set to ramp up UK response to coronavirus (Financial Times, George Parker and Laura Hughes) shows that we may be in for more drastic measures very soon.

Aramco cuts spending as the oil price war rages on (The Times, Emily Gosden) highlights the state-controlled oil giant’s decision to make a $10bn cut to its spending plans as it digs in amid prospects of a “lower for longer” oil price. The company said that this move took into account current market conditions and commodity price volatility. It’s amazing to think that the oil price has halved since the beginning of the year! Although Saudi Aramco has the resources to weather an oil price war, UK-listed oil groups hit hard as investors dump shares (Financial Times, Donato Paolo Mancini) shows that the likes of Premier Oil, EnQuest and Tullow Oil have seen their value decimated from a combined £17bn at their peak eight years ago to £500m now. Their share prices have dropped by 85%, 76% and 63% respectively over the past month although they had a bit of a rally on Friday. The problem here is, clearly, how long the low oil price continues. As things stand, Tullow Oil looks the most vulnerable.



Airlines, airports and manufacturers all face uncertainty…

In Airlines appeal for government bailout (The Times, Emily Gosden) we see that Airlines UK, the industry body, called for the UK government to step in while Unite, the trade union, wants it to contribute towards workers’ pay and potentially take stakes in the airlines to help them survive. The airlines themselves are now preparing to lay off thousands of staff this week due to a massive fall in passenger numbers and the increasing number of travel bans. Coronavirus: Future looks bleak for global airports (Financial Times, Joe Miller, Tanya Powley and Alexander Vladkov) shows that it’s no better for airports either. * SO WHAT? * Travel restrictions and the increasing inability of people to get outside of their homes, let alone get to the airport in order to fly abroad, is hitting the travel industry hard and will continue to do so until flights and people movements start to normalise. It will take some time for the industry to recover even if oil prices stay low so you can’t blame the industry for trying to put itself at the head

of the queue to get some kind of government funding. I think that pretty much EVERY industry is going to try to get money out of the government at some point in the next few months and, given that there isn’t an endless supply, it will pay to be the among the first in line to get handouts because they are surely going to run out.

Manufacturers ask government to step in to limit damage (The Guardian, Rupert Jones) highlights manufacturers’ efforts to get the government to mitigate some of the coronavirus impact as a recent survey conducted by the industry body Make UK (which used to be called EEF) and business advisors BDO showed that exports have fallen to their lowest level for three years. The survey was actually carried out before coronavirus hit, so clearly things may get worse. * SO WHAT? * Things have been looking tricky for the manufacturing sector for some time now, but the coronavirus will hit hard. In a way, the outbreak may turn out to be a “good” thing for manufacturing because it could increase its chances of getting government support. HOWEVER, IMO the longer this situation continues, the more likely it will be that the government decides to prioritise handouts. Given that services make up about 80% of the UK’s GDP, it may well be that manufacturing gets less of the freebies as the government puts services ahead of it.



Amazon tries to appeal to rivals, US retailers shut and there are developments in hand sanitiser…

Following on from recent news of Amazon selling its cashierless tech to others, Amazon courts Walmart, Target to join cashierless tech group (Wall Street Journal, Aaron Tilley and Sarah Nassauer) shows that the e-tailing giant is trying to get America’s biggest retailers to buy the technology that powers its “Go” stores, but that Walmart and Target are, so far, not going for it. * SO WHAT? * Amazon is, seemingly, trying to make its tech offering more “open source” but rivals are understandably wary about helping Amazon develop the technology, given the latter’s huge power. Amazon will no doubt argue that an “open source” approach will accelerate developments, but for the moment it seems that other retailers are electing to remain on the sidelines.

Elsewhere, Coronavirus prompts Abercrombie, Nike, others to close shops (Wall Street Journal, Suzanne Kapner and Sarah Nassauer) highlights further closures among retailers such as Lululemon, Under Armour, Urban Outfitters, Abercrombie & Fitch, Nike and Apple as people continue to get to grips with the outbreak. Walmart and Target are proceeding relatively normally, although they are

starting to impose quantity limits on certain items that have seen unusually huge demand. * SO WHAT? * If a shutdown goes on longer than a few weeks, it is much more likely that retailers will start to suffer very badly. Mall traffic is already down and many consumers are cutting down on non-essential purchases. Given that the retail sector was already looking pretty shaky, this has all come at a particularly bad time.

Then in Stocks of hand sanitiser ingredient run low in Europe (Financial Times, Michael Pooler and Judith Evans) we see that stocks of isopropyl alcohol (aka IPA) are running low, meaning that hand sanitiser prices are likely to rise and scarceness will increase. Data from market information service ICIS says that IPA prices doubled to €2,250 per tonne in a fortnight! The UK does not manufacture any IPA. As everyone scrambles to catch up with demand, Perfume factories to make sanitiser for French authorities (Daily Telegraph, Hannah Uttley) shows that luxury goods giant LVMH is going to repurpose some of its facilities to make hand sanitiser for health authorities, prioritising hospitals in Paris. It will be making “substantial” quantities of alcohol hand gel from today. * SO WHAT? * I would expect a lot of manufacturing facilities to be repurposed like this over the coming months in order to meet unusually high demand for certain products. No doubt manufacturers will be keen to help, not only because they actually want to, but also that it might mean they could be more likely to get help further down the line from the government.



And finally, in other news…

Given all the stuff that’s going on currently, I thought it would be good to have a nice story for a change like Japanese students hold graduation ceremony in Minecraft amid school cancellation (SoraNews24, Scott Wilson How great is this??

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Some of today’s market, commodity & currency moves (as at 0719hrs 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 **
5,366 (+2.46%)21,798 (-5.98%)2,555 (-5.76%)9,232 (+0.77%)4,099 (+0.26%)17,002 (-2.46%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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