Monday 30/03/20

  1. In MACRO NEWS, the US extends social distancing, China’s masks get rejected, Venezuela faces catastrophe and South Africa employs extreme measures
  2. In CORONAVIRUS “WINNERS” AND LOSERS, we see who is doing well and which companies and industries are vulnerable
  3. In MISCELLANEOUS NEWS, VW maintains that the ID.3 launch is on track and businesses accelerate automation plans
  4. In OTHER NEWS, I show you how to get your Greggs fix at home and introduce you to balcony bingo…



So the US gets more cautious and China peddles inferior product while Venezuela and South Africa faces major problems…

White House extends social-distancing guidelines until end of April (Wall Street Journal, Rebecca Baullhaus, Andrew Restuccia and Jennifer Calfas) shows that Trump’s recent assessment of how soon the US could start a return to normality has been pushed out somewhat as the guidelines now say that Americans should be social distancing until at least the end of April.

Meanwhile, although China appears to be making gradual progress towards normality, Countries reject China pandemic product batches (Financial Times, Michael Peel, Mehreen Khan, Daniel Dombey and Laura Pitel) sounds a very worrying note in that the Netherlands, Spain and Turkey have all rejected Chinese-made coronavirus testing kits and protective equipment as substandard. The faults included masks failing to fit the mouth properly and poor filters – and were unfortunately found AFTER they had been distributed to hospitals. * SO WHAT? * This is a terrible state of affairs. Given the shortage of equipment everywhere, it must be heartbreaking to have to send this stuff back. I must say that I have been quite positive about China returning back to normality but this is a very worrying development. We are all in the midst of this crisis and I think that governments and healthcare providers are going to have to have a major rethink on the massive reliance they have on certain suppliers. There will have to be much more emphasis on having a proper balance between quality and price and an appreciation of the wider picture. Of course, there will be some who say that this product rejection is politically motivated and an unfounded attack on China’s generosity – but really?? People are dying and healthcare workers are desperate for this equipment. They have no agenda apart from saving people – and so the quality of the gear supplied must be REALLY bad for them to reject it, no? Let’s hope that this is just an exception – but it needs to get sorted out quickly as many countries face peak coronavirus shortly…

Elsewhere, Venezuela faces threat of coronavirus catastrophe (Financial Times, Gideon Long) heralds an alarming state of affairs as health workers in the country faces a massive shortage of masks. When you consider that many earn $5-$6 per month and the cheapest mask you can buy is $1 (which lasts for one day) or a “proper” one for $7-$8, you can see how desperate thing are getting. Venezuela is already suffering from US sanctions and the weak oil price (pretty much its only legal source of revenue) and its healthcare system is just being overwhelmed. There is a severe lack of clean water, gloves, soap, surgical masks and gowns. President Nicolás Maduro begged the IMF last week for a $5bn loan but it turned him down because it said it was unclear as to who was running the country (Juan Guaidó is recognised by many as being the true leader, but he is not officially in power). Chances of a military coup and/or civil unrest is rising. * SO WHAT? * There is a potentially catastrophic situation in progress here because you have a healthcare system in a state of collapse, a global epidemic, weak oil prices and political upheaval (the US is actually increasing pressure to get rid of Maduro, despite calls to relent for the sake of the Venezuelan people). The thing is, everyone is just trying to do their best to save their own citizens, so I think there’s just a smaller amount of goodwill around to be extended elsewhere – and unfortunately, it’s the people who will suffer.

Then in South Africa uses water cannon and rubber bullets to enforce lockdown (Financial Times, Joseph Cotterill) we see that police officers have been using force against some of the country’s poorest people who have been struggling to live under social distancing rules in the 21-day lockdown ordered last week by president Ramaphosa. This lockdown has begun with very tight restrictions from the off, with a ban on booze and cigarette sales and exercise outside the home. However, police have been launching water cannon and firing rubber bullets at people queuing outside food shops to enforce distancing, even though shopping is a permitted activity. A South African police spokesperson said that “The regulations are not there to punish people but to protect our people against the deadly Covid-19 virus”. It sounds like the police minister, Bheki Cele, is implying that this is only the start when he said “Wait until you see more force”.



We take a look at more “winners” and losers this week…

Home sales of beer reach ‘Christmas levels of turnover’ as pubs close (Daily Telegraph, Hannah Uttley) shows that independent beer subscription and delivery firms have been experiencing an “unprecedented” ramping up of demand following the recent closure of pubs and restaurants. One such service, BeerBods, saw new subscribers surge by 350% over the last week versus the same time period last year. They also offer online tasting sessions, participation in which has also shot up tenfold! Beerbods’ parent firm, Beer Hawk, has seen sales triple and demand for its PerfectDraft machines which enable beer fans to enjoy pub-quality beer have also shot up. Jen Ferguson, co-owner of an independent beer and wine retailer in south-east London said that “We’re calling this month s*** Christmas, because we’ve seen Christmas levels of turnover but for all the wrong reasons”. * SO WHAT? * Although no-one will really be rejoicing at the outbreak of this pandemic, it’s good to see that even independents are managing to get through the crisis along with the likes of Majestic and Oddbins etc.

Then The coronavirus X-factor for restaurants: drive-through (Wall Street Journal, Heather Haddon) shows that drive-throughs could help some fast-food outlets limp through the outbreak. McDonald’s, Burger King (owned by Restaurant Brands International) and KFC (owned by Yum Brands) make up 70% of drive-through sales and some companies are re-jigging their operations to take into account what is probably one of the safest options to get fast food right now. Wendy’s drive-through business now accounts for about 90% of its US sales, versus around two-thirds pre-coronavirus. * SO WHAT? * This sounds great for the ones who already have the capability, but is obviously not an option for others.

Who is listening to your video conference call (Daily Telegraph, James Cook) shows that although Zoom has experienced unprecedented demand as more and more people start to work from home, some experts are now saying that there could be security risks. In fact, the risks are so severe that Ministry of Defence staff have been told

to cease use of Zoom pending an investigation. Until now, hacks have been restricted to “Zoombombing” where strangers have joined chats and/or broadcast pornography to all participants. However, it is worth being wary of using such software – especially if it is free.

In terms of negative impact, though, Lockdown set to kill off thousands of pubs, restaurants and shops (The Guardian, Joanna Partridge and Rob Davies) suggests that the Carluccio’s and Chiquito shutdowns are a portent of things to come as other restaurants and shops look increasingly fragile. Monsoon Accessorize said yesterday it was looking at options and Small pharmacies facing closure as drug prices rise (The Times, Callum Jones) shows that many smaller chemists face the prospect of going under if they don’t get government support.

Elsewhere in the economy, Building industry risks going to the wall as cranes fall idle (Daily Telegraph, Tom Rees) highlights a growing problem as over 1,000 construction projects, together worth around £25bn, have already been delayed by the virus, with London firms being particularly badly affected. * SO WHAT? * Construction is a sector that survives on extremely thin margins and relies on a plethora of SMEs and self-employed workers to keep going. The risk is that failure at larger firms could have catastrophic implications for those lower down the chain. Kier and Costain are of particular concern at the moment and will no doubt be the latest to join the queue of industries asking for a government handout.

Car loan sector fears prospect of loan defaults (The Times, Robert Lea) highlights the precariousness of the £110bn motor finance sector as increasing reliance over the years on the likes of personal contract purchases (PCP) looks like it’s about to come home to roost. Companies are rushing to offer payment holidays or contract extensions, but the real problem will be if there is a marked increase in people returning their cars, which will basically kill off resale values. * SO WHAT? * Car finance is the second biggest lending market after mortgages and over 90% of all new cars sold in the UK are on some kind of financing. PCP has been seeing a huge upswing in take-up over the last few years (around 80% of finance is via this method where you typically pay around 10% of the value of the car up front, then payments over around three years followed by a “balloon payment” or handing-back-of-the-keys at the end) and a plunging secondhand market could prove to be very painful for all concerned.



VW keeps its ID.3 target intact and automation plans accelerate…

VW still aiming for ID.3 electric car rollout by August (Financial Times, Joe Miller) says that Volkswagen is still aiming to deliver its mass-market electric car, the ID.3, in August despite all the coronavirus-related factory shutdowns. * SO WHAT? * VW is the world’s biggest car manufacturer and will, under current regulations, face massive fines if it doesn’t sell enough battery-powered vehicles in 2020 – and clearly time is running out. The company is facing production delays that could be made worse by suppliers going bust and customers postponing car purchases but the good news is that all but two of its 33 Chinese factories are now back online. Still, it will be very tight.

Bosses speed up automation as virus keeps workers home (The Guardian) cites a survey by accountancy firm EY which shows that 41% of respondents to a survey are accelerating their plans to automate their businesses once the current crisis is over. Amazon’s roll out of its cashierless tech to other retailers and the switch-over to self-ordering kiosks at many fast food restaurants are just two examples of the advancement of automation, even before this virus started to hit. * SO WHAT? * Whether companies will have the money to invest in this kind of thing straight away is a moot point. However, you would have thought that automation will have gone up the list of priorities for companies trying to future-proof themselves. Surely the likes of Amazon and Ocado, who already have advanced automation systems that they can provide to third parties, will benefit the most in future as barriers to entry will be extremely high.



And finally, in other news…

With our high streets pretty much shut down, some people are yearning for the good old days of a few weeks ago. Woman’s recipe for Greggs-inspired bakes you can make at home for just 37p (The Mirror, Paige Holland gives you ideas for comfort food, but People around the world are playing bingo with neighbors from their balconies (Insider, Monica Humphries shows how people are trying to entertain themselves away from their screens! This is actually pretty brilliant.

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Some of today’s market, commodity & currency moves (as at 0729hrs 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 **
5,510 (-5.25%)7,5009,633 (-3.68%)4,328 (-3.91%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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