Monday 18/05/20

1. In MACRO NEWS, Jay Powell warns of a slow recovery, Japan’s economy falls into recession and the Saudi sovereign wealth fund has a shopping spree
2. In SECTOR-BY-SECTOR NEWS, carmakers call for subsidies, travel opens up but the prospects are dim and meat-substitutes continue to gain popularity
3. In INDIVIDUAL COMPANY NEWS, Uber drops robotic scooters and gets rebuffed by Grubhub, Jio attracts another investor and we look at the latest in coronavirus vaccines
4. AND FINALLY, I bring you a gift idea for someone that really likes toast…

So Jay gets gloomy, Japan slumps and the PIF makes hay…

Jay Powell warns US recovery could take until end of 2021 (Financial Times, Lauren Fedor and James Politi) shows that the chair of the Federal Reserve does what most central bankers do – and states the bleedin’ obvious! He said that, for the economy to recover fully, there will have to be a vaccine. What. A. Genius. He did go on to say, however, that he expects the economy to start on the path to recovery over the second half of this year and that there would probably be a “couple more months” of net job losses with unemployment climbing to 20-25% (it is 14.7% at the moment). Donald Trump reckons that a vaccine will be ready by the end of 2020 (I bet he’s hoping that comes about a week before the election and then he can claim all the credit 😂), but many of the scientists are more cautious. He has also called for potentially negative interest rates, but Jay Powell is currently against going down that road. Not listening to Trump has actually worked quite well for Powell so far – remember, Trump was going on and on at him to cut interest rates – and he didn’t – which eventually meant that when he needed to cut them he actually had the bandwidth to do so. However, that doesn’t mean he’s always going to be right!

Japan’s economy fell into recession in first quarter of 2020 (Wall Street Journal, Megumi Fujikawa) is one of a

couple of stories that were actually out over the weekend but that I thought were worth mentioning in today’s Watson’s Daily. Anyway, Japan’s economy fell into recession during the first quarter of 2020 (i.e. it has had two consecutive quarters of GDP contraction) and it looks like the current quarter isn’t going to be great either. Economy Minister Yasutoshi Nishimura said that the government was due to put together a spending package by May 27th, which would include additional support for corporate financing and aid for students.

The other weekend story is Saudi wealth fund snaps up $7.7bn of blue-chip stocks (Financial Times, Andrew England, Anjli Raval and Arash Massoudi) which highlights that the Public Investment Fund, chaired by Crown Prince Mohammed bin Salman, has taken some chunky stakes in the likes of BP, Boeing, Carnival and Live Nation in addition to Facebook, Bank of America, Citigroup, Walt Disney, Marriott, Pfizer and Starbucks. * SO WHAT? * This is quite interesting when you think that, at the end of last year, its only disclosable holdings were Uber and the remainder of its stake in Tesla (which it sold in the first quarter). The Fund is still on the hunt for strategic opportunities “that have a strong potential to generate significant long-term returns while further benefiting the people of Saudi Arabia”. Other Gulf state sovereign wealth funds are on the look-out for investment opportunities, but Saudi Arabia’s has been the most active thus far. No doubt the others will follow – but I suspect that assets will continue to be cheap for a while yet.

Carmakers call for help, travel opening is double-edged and meat substitutes gain popularity…

Carmakers press for EU and UK subsidies after slump in demand (The Guardian, Jasper Jolly) shows that the leaders of BMW, Daimler, Fiat Chrysler and Jaguar Land Rover (among others) met last week with Frans Timmermans of the European commission, calling for subsidies that would help to spark demand as orders for new cars continue to fall. Carmakers want all new cars to get subsidies, but environmental campaign groups believe this is a unique opportunity to push carmakers into producing more all-electric cars with zero emissions by only applying subsidies to electric, small and light vehicles. * SO WHAT? * I would doubt that governments will just give subsidies to electric cars because most countries continue to have poor charging networks. Improving them quickly in order to cope with more EVs on the road is going to cost even more money, so I would have thought that subsidies on new EFFICIENT cars would be a reasonable compromise. Mind you, even with subsidies, it is debatable as to how many people will feel comfortable splashing out on a car right now. Still, they will make things easier – and if they come in the form of scrappage allowances, this would certainly be a step in the right direction.

Europe reopens but travel operators fear tourists will stay away (Financial Times, Alice Hancock) shows that although travel is preparing to open up again, social distancing restrictions and traveller reticence is likely kill the buzz for some time to come. The European Commission is talking about time slots at the pool, Covid-19 warning signs and no self-service buffets. Tui is the world’s largest tour operator and plans to restart

holidays in July but it expects to run to cover costs and not make any profit. Interestingly, Tui and On The Beach have said that they have witnessed a bottoming out of summer bookings and Trivago has reported a 24% rise in the number of browsers on its website in April versus March. In terms of actually getting to the destinations themselves, Wizz Air restarted some routes from Luton Airport at the start of this month, while IAG and Ryanair are talking about resuming operations from July. * SO WHAT? * Social distancing for flights will make things extremely difficult for travellers and if you also factor in 14-day quarantines in some countries, it is likely to be enough to put people off leaving their country in the first place. I would argue that, if anything, companies such as Airbnb will benefit as lockdowns lift because you will have fewer movement and activity restrictions when you get to your destination. Why go to a hotel where you have to book your 20 minutes at the pool when you could hire a villa with its own swimming pool?

Then Fake steaks are real thing during virus (The Times, James Hurley) cites the latest data from Kantar which shows that companies who make plant-based meat substitutes saw sales shoot up by 25% in the first quarter of this year versus the same time period last year. A separate survey from the Vegan Society shows that 20% of people had cut down on dairy and eggs during lockdown and the same proportion of people said they would continue to buy meat alternatives once the lockdown ends. We hear a lot about the likes of Beyond Meat and Impossible Foods, but the UK’s Meatless Farm is also doing well at the moment, with sales up by 210% over the last year. * SO WHAT? * I believe that the more people try the meat alternatives, the more they will be willing to buy them again in future because they really are quite good (and this is coming from a meat-eater!). If these companies can bring prices down to similar levels or lower than meat, then I think growth could be even more rapid.

Uber abandons robotic scooters and gets rebuffed by Grubhub, Jio gets more interest and we see the latest situation in coronavirus vaccines…

Uber drops robotic scooters (Daily Telegraph, Olivia Rudgard) sounds like a faintly ridiculous headline, but the company has abandoned its robotic bike and scooter project following the recent meshing together of its Jump scooter division into Lime. The idea of this division had been to make autonomous versions of these modes of transport. Then in Grubhub refuses Uber’s latest offer as merger talks continue (Wall Street Journal, Cara Lombardo) we see that Uber’s advances have been rebuffed thus far as talks turn to price. There is no guarantee that the two will reach an agreement, but talks are ongoing. Obviously, Grubhub is holding out for a higher offer.

Reliance Jio bags fourth big investor with General Atlantic stake (Financial Times, Benjamin Parkin, Arash Massoudi and Anjli Raval) highlights more interest in the Indian digital company as New York-based private equity firm General Atlantic has purchased a 1.3% stake for $870m, following investments from fellow private equity firms

Vista Equity Partners ($1.5bn) and Silverlake ($750m) in addition to Facebook ($5.8bn). Reliance, owned by India’s richest man Mukesh Ambani, has oil refining and petrochemicals as its core business but the telecoms arm, Jio, was launched in 2016 and has grown exponentially. It has plans to list within five years and now appears to be giving foreign investors a chance to invest in India’s growth. * SO WHAT? * It has cost Reliance a lot of money to bankroll Jio’s growth over the years, and if you combine the debt it has accumulated as a result and current low oil prices, you can see why it has welcomed an injection of foreign capital.

Although most of this kind of stuff is noise at the moment, I thought it was worth mentioning Coronavirus vaccine front-runners emerge, rollouts weighed (Wall Street Journal, Peter Loftus) to give you a quick update on what the current situation is. Out of over 100 vaccines in development around the world at the moment, at least eight have made it to the human testing stage. Moderna and Pfizer have two of those and others, such as Johnson & Johnson, AstraZeneca and Sanofi are now boosting capacity in order to make hundreds of millions of doses of their own or partners’ vaccines. Anyway, it’s still very early days and any positive news on efficacy and production capacity at this stage is largely academic. Still, at least it sounds like we are going in the right direction!

…in other news…

I thought I’d leave you today with an interesting, yet rather pricey, gift idea in Would you pay £348 for ‘ultimate’ slice of toast – pricey device divides opinion (The Mirror, Courtney Pochin https://tinyurl.com/y9339pkr). Apparently, this thing does nice toast 😂