Monday 20/04/20

  1. In CORONAVIRUS DEVELOPMENTS, China and Singapore get second outbreaks
  2. In NEWS ON IMMINENT PROBLEMS, British household finances will be dented but high-end retailers hope their clientele will go on a spending spree, imports are about to hit ports and lawsuits are starting already
  3. In INDIVIDUAL COMPANY NEWS, Walmart keeps going, Uber turns to goods-delivery and Netflix faces a content slowdown
  4. AND FINALLY, I bring you some impressive rooftop tennis…

1

CORONAVIRUS DEVELOPMENTS

So another wave hits China and Singapore…

Harbin outbreak threatens China’s coronavirus recovery (Financial Times, Christian Shepherd) highlights a new batch of coronavirus cases in the north-eastern city of Harbin which has meant authorities have had to impose new lockdowns. The majority of new cases have been reported in the Heilongjiang province (of which Harbin is the capital), which borders onto Russia. Russia is now China’s biggest source of imported cases. * SO WHAT? * I guess this was bound to happen given that patrolling such vast borders must be difficult (especially at the moment) and that the new lifting of travel restrictions has meant that large numbers of people have gone on the move once more to return to jobs and loved-ones. The world will be watching to see what action China takes next.

Singapore sets new daily record for coronavirus cases (Financial Times, Stefania Palma and Kathrin Hille) shows that the city-state has seen an uptick in cases – with 90% of them being among migrants stuck in cramped living conditions, sometimes with 20 people sleeping on bunk beds in one room. This means that infections have shot up

by 160% in the last week, forcing authorities to put the island under almost total lockdown. * SO WHAT? * Singapore has about 300,000 migrant labourers living in these dormitories and they are thought to be at way more risk than the rest of the population. However, it is not the only country in the region to have large numbers of such workers – Taiwan has almost 720,000 of them, many of whom work in the care and manufacturing sectors, but they have yet to have Singapore’s problem despite them living in similar conditions.

*** JUST A QUICKIE – Have you noticed that the WTI oil price is now almost half the price of Brent Crude (see the table below)? I may be imagining things here, but I don’t remember any time since I started in the markets in 1997 that I’ve seen the prices between the two be this different. Usually, they are just a few dollars different. At the moment, market participants are saying that the price drop is due to futures contracts for WTI delivery in May expiring tomorrow, but it does feel like there might be something more behind this. The best explanation I’ve heard so far is that US storage facilities are at full capacity and so companies are offering bigger discounts to get rid of what they produce (but this is a theory I can’t validate). In the light of what’s been going on recently re storage capacity I think this makes more sense than the contract expiry explanation…***

2

NEWS ON IMMINENT PROBLEMS

British household finances will be damaged, unemployment is likely to increase, ports face an influx of goods and the lawsuits have started…

British households face disposable income fall of £515 per month (The Guardian, Joanna Partridge and Graeme Wearden) cites analysis by the Centre for Economics and Business Research (CEBR) which concludes that British households will have a shortfall of £43bn to spend on essentials between April and June. This equates to a 17% hit in disposable income. 11m will be out of work by summer, warns think tank (Daily Telegraph, Matthew Field) piles on the misery as the Resolution Foundation think tank reckons that the new government job retention scheme won’t go far enough to stop businesses for making more job cuts. At the other end of the prosperity scale, Consumer spending: urge to splurge, postponed (Financial Times, Lex) shows that luxury goods companies in particular are hoping that their clientele will indulge in a bit of “revenge spending” after being couped up for so long – as has been the case in China. * SO WHAT? * Although I think it’s worth mentioning the aforementioned forecasts, it is also worth considering that experts (especially those in the business of predicting economic impact) are often wrong. They obviously earn their money trying to predict things, but the fact is that no-one actually knows – this is their best guess based on various assumptions and it is at times such as this that they are MOST wrong. They are definitely worth keeping in mind, but they should NOT be seen as gospel. On the “high end” expenditure front, it is interesting to note that spending on holidays and eating out for richest 20% of UK households equates to about 20% of total household spending, whereas the poorest 20% spend about 12% on the same things. When lockdown restrictions lift, many retailers and purveyors of high-end products will be hoping that consumers spend in a bid to make the most of life. I suspect that spending on essentials will obviously continue and that there will be some relief spending in the immediate aftermath (especially at pubs and restaurants that have managed to stay alive). However, I also believe it

will take a good few years for people to get back onto a decent financial footing once more as they not only try to get back to where they were before – but probably try to save more for if such an event were to happen again in the future. Overall, then, I think that restaurants and pubs that aren’t laden with too much debt will benefit in the short term and luxury goods companies will also see brisk trade. However, I think companies that help people to save money will benefit (possibly Groupon, discount stores, comparison sites etc.) in the longer term as people try to address their finances.

Wave of imports set to hit UK docks (The Times, Callum Jones) highlights a problem that is soon to hit our shores as containers will start to arrive from Asia containing all sorts of goods that are supposed to be sold in retailers that are currently shut due to the lockdown. It is thought that disused airfields may have to be used to park hundreds of containers while warehouses are prioritised for food and essentials. * SO WHAT? * Chief exec of the British Ports Association, Richard Ballantyne, believes that this will be a relatively short-term issue with “peak storage” expected to occur between April 20th and May 13th. I assume that this will just put more pressure on the government to get things moving again on the economic front.

Lawsuits ‘are looming on the horizon’ (The Times, Katherine Griffiths) shows that companies may have to ready themselves for a flood of lawsuits from shareholders and employees who will allege mishandling of the coronavirus outbreak. Insufficient planning and staff mistreatment are likely to feature highly in such actions and Norwegian Cruise Lines has already had a lawsuit filed against it in America, alleging that it told staff to mislead customers about the severity of the outbreak by playing it down. * SO WHAT? * I think this kind of thing has the potential to snowball quickly and could prove terminal to some companies who were obviously caught off-guard and panicked. It will be interesting to see whether these cases work and how much they can claim in damages. If they go unchecked, they could trigger even more problems IMO as those that are sued try to sue others and it all just gets ridiculous. Clearly, there will be a knock-on effect to directors’ and officers’ insurance – no doubt premiums are bound to go up and conditions tighten! 

3

INDIVIDUAL COMPANY NEWS

Walmart soldiers on, Uber adapts and Netflix faces lineup issues…

Walmart’s coronavirus challenge is just staying open (Wall Street Journal, Sarah Nassauer) highlights the difficulties that Walmart is facing as it tries to manage the health of both its workers and its customers as well as keeping local officials onside. The company has debated whether or not to give masks and gloves to workers (it will do so from this week), when and how to clean stores and how to ensure social distancing is adhered to. Along with all this, worker absences have increased and more vigorous health checks have been put in place. In the meantime, Walmart’s 4,700 US stores have seen sales increase by almost 20% in March. * SO WHAT? * Given that supermarkets are pretty much the only places that large numbers of people can gather – and that frustration and paranoia continues to build – you can understand the pressures that supermarket operators are facing. This won’t just be in the US either. With increased sales come increased costs.

Elsewhere, Uber to revive goods-delivery service in hunt for new revenue sources (Financial Times, Tim Bradshaw and Dave Lee) shows that Uber is now trying to revive its

previous attempt to offer goods delivery as it scrabbles around for new sources of revenue. It abandoned the concept two years ago but it is thought that the current attempt will only be temporary unless they can make it profitable. Two initiatives called Uber Direct and Connect will be the portals via which retailers and drivers can interact. * SO WHAT? * This sounds like a decent-enough idea, but you do wonder how profitable something like this can be in such a short space of time. Mind you, at least it is trying to make something out of a bad situation.

On the one hand, Netflix roars ahead thanks to captive audience (Financial Times, Anna Nicolaou and Eric Platt) shows that Netflix is currently benefiting from a captive lockdown audience, but Shortage of new Netflix shows as studios shut down (Daily Telegraph, James Titcomb) highlights the fact that content provision is going to slow down in a big way because no new shows are being made. * SO WHAT? * I don’t think this is just a Netflix thing – it is going to affect ALL the streamers. I would have thought that this makes subscriber switching far more likely as people work their way through content on one platform and then move onto something else when they max out. I think this will make forecasting for the companies more difficult because it will make their “stickiness” harder to judge.

4

OTHER NEWS

And finally, in other news…

I thought I’d leave you today with a brilliant bit of lockdown sport in Incredible video shows 2 people playing tennis from their apartment rooftops during Italy’s strict coronavirus lockdown (Insider, Kieran Corcoran https://tinyurl.com/y7x22hp8). This is excellent!

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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 **
5,787 (+2.82%)8,64610,626 (+3.15%)4,499 (+3.42%)19,669 (-1.15%)2,853 (+0.50%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$14.8700$27.4600$1,682.951.246121.08516107.851.148267,160.16

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