Monday 01/06/20

1. In MACRO, MARKETS & CONSUMER NEWS, Sunak talks about another stimulus package, Chinese companies may leave US markets for London and we look at the state of mind of consumers
2. In RETAIL/HIGH STREET/MAIN STREET NEWS, Pret wants lower rents, restaurants look shaky, Aldo collapses and US shops suffer yet again – this time from the riots
3. In INDIVIDUAL COMPANY NEWS, Plexiglass becomes the hot commodity, we look at the latest in meat/non-meat burgers and see that gaming continues to benefit from lockdown
4. AND FINALLY, I bring you two life hacks…

So Sunak talks stimulus, Chinese companies may list on the LSE and we look into the minds of consumers…

Rishi Sunak set for July stimulus package to stave off recession (Financial Times, Jim Pickard) shows that ministers are making plans to unveil an economic stimulus package in July in order to take the sting out of what is expected to be one of the – if not the – biggest recessions ever. He is expected to put money into training schemes and infrastructure projects and tech. Economists are all predicting all sorts of deficits etc. but, let’s face it, they haven’t got a clue – you may as well use a dart board 😂. The picture will only become clearer as we advance through.

In markets, Chinese firms poised to lose US listing (The Times, James Dean) shows a new bill, called the Holding Foreign Companies Accountable Act – and which cleared the Senate and House of Representatives on May 20th – is highly likely to result in a mass exodus of potentially 200 Chinese companies from the New York Stock Exchange and the NASDAQ. The combined value is around $1.4tn and includes the likes of Alibaba and JD.com. Basically, the new regulations will tighten accounting disclosures and impose much more onerous oversight of target companies. The new law will also affect French and Belgian companies to the extent that lawyers at K&L Gates, an American firm, believe it could be “a game changer” for the London Stock Exchange. * SO WHAT? * This was all sparked off by the accounting scandal at Chinese firm Luckin Coffee, which used dodgy figures in its accounting. The New York-listed Chinese coffee chain has lost 96% of its value since January as a result and complaints of lax oversight of Chinese companies have been growing. London is hungry for work turned down by New York (The Times, James Dean) shows that London and Hong Kong exchanges are likely to want to bend the rules in order to attract lucrative Chinese business – just as the American exchanges did in the aftermath of the financial crisis and it seems that, in recent weeks, as the China-US tensions have increased, Beijing has approved London secondary listings of at least two companies. The legislation is not a done deal yet, but it is widely expected that Trump will want to wave this through as part of his current crackdown on anything to do with China.

Given current circumstances, it’s always a good idea to get a handle on the mood of the consumer to give us a steer

on current and future developments. UK’s richest 20% reduce spending by £23bn during lockdown (The Guardian, Phillip Inman) cites research from the New Policy Institute which shows that 20% of the UK’s most doshed-up will have reduced their spending by about £23bn by the middle of June whereas the bottom 20% will have reduced their spending by £3.5bn. Dan Corry, co-author of the report and chief exec of the New Philanthropy Capital thinktank (sounds a bit w@nky, doesn’t it 😂) points out that the amount richer people have saved equates to 4.5% of GDP and 48% of what the government receives in an entire quarter from all basic, higher and additional rate income tax payers combined! Separately, Household confidence is stabilising at low level (The Times, Gurpreet Narwan) cites a different survey by YouGov and the Centre for Economics and Business Research which shows that households are getting slightly more confident about their finances now that lockdown is slowly lifting – although overall sentiment is still negative. Economists generally think that weak demand will continue and current social distancing measures will make a return to “business-as-normal” much more difficult. Genius 😜. They will no doubt go on to tell us that bears do, in fact, sh!t in the woods.

UK banks warn 40%-50% of ‘bounce back’ borrowers will default (Financial Times, Stephen Morris, George Parker and Daniel Thomas) shows that UK banks are getting twitchy about businesses who took out “bounce back” loans. Three senior bankers think that 40-50% of recipients of the Bounce Back Loan Scheme (BBLS), which loans out up to £50,000 for up to six years, will default on their debt. Although the government backs the scheme, meaning that banks won’t have credit risk, they are not keen on dragging thousands of small businesses through the courts as they are the ones who will have to pursue delinquent borrowers. * SO WHAT? * I would imagine that the bankers are painting as pessimistic a picture as they can to put pressure on the government. The Office for Budget Responsibility believes that only 10% of Covid-19 support loans will go bad – so maybe the truth will be somewhere in between. But as I keep saying, no-one really knows.

BTW, I just re-read this section and you may think I am anti-economist! Actually, I’m not – it’s just that their job is tricky enough under “normal” circumstances but it’s nigh on impossible right now where there are so many moving parts. Still, it’s their job to come up with best guesses and they do what they can with the data available. All I’m saying is that they change their minds and estimates all the time so you shouldn’t take what they say as Gospel. Especially when we’re still in the teeth of a pandemic on an unprecedented scale!

Pret targets rent, restaurants look vulnerable, Aldo collapses and US shops get another kick in the teeth…

Pret plans rent talks with landlords (The Times, Dominic Walsh) shows that the sandwich shop chain Pret a Manger has hired consultants Alvarez & Marsal and CWM to help reduce its rent bill in order to eek out what cash they do have for as long as possible. The chain has continued to operate 100 shops for takeaway and delivery and another 200 are due to open today. Unfortunately, sales are 20% of pre-lockdown levels at best and they Pret is worried that working from home will live on after this coronavirus dies down which would adversely affect their sales longer-term. * SO WHAT? * Pret, like other retailers, is asking landlords whether they can move towards a system of turnover-based rents that will take into account business levels rather than charging a flat rate blindly. On the flipside, Landlords obviously like the certainty of a (high) flat rate because it helps them plan. Surely some kind of compromise will have to be reached in order to stop retailers going down the plughole.

Insolvency to be on menu for many restaurants (Daily Telegraph, Hannah Boland) talks about the potential for a massive wave of restaurants to go bust later on this year as Covid-19-related costs just keep rising. The casual

dining sector had already been in trouble before the virus hit but when you factor in social distancing measures and many customers feeling the financial pinch, the outlook doesn’t look great. It is likely that restaurants will have to cut branches, menus and staff in order to survive. * SO WHAT? * Although I think that people would really be up for going out more and spending in restaurants etc. because they just want to enjoy themselves after enforced imprisonment it remains to be seen whether they will splash out that much if their household finances have been dented. I think that the future of the leisure industry as a whole will be largely dependent on the easing of social distancing measures as I don’t believe that the current ones are sustainable.

Shoe chain Aldo collapses amid retail woe (Daily Telegraph, Laura Onita) highlights yet another retailer in trouble on the UK high street (btw, for shoe fans, apparently you can still buy shoes and accessories on its UK website) but Businesses and restaurants hit in protests, adding to coronavirus damage (Wall Street Journal, Sarah Nassauer and Heather Haddon) shows that some businesses, who were just starting to come to terms with the coronavirus, have been dealt a severe blow with riots and looting in the wake of the George Floyd outcry. Target, Walmart and Nike – as well as many much smaller operators – have had to close their doors or are recovering from the looting that took place in the aftermath of the protests. Adidas has closed all of its US stores and Amazon has altered delivery routes to protect employees. Tough times indeed.

Plexiglass demand shoots up, we see some interesting burger developments and gaming continues to thrive…

Rather unsurprisingly, Plexiglass is the new hot commodity as businesses try to reopen (Wall Street Journal, Sharon Terlep and Austen Hufford) highlights the popularity of plexiglass sheeting as offices, schools and the high street prepare to open their doors by installing dividers. Waiting times for plexiglass sheeting are now stretching from weeks into months as demand has just shot up. * SO WHAT? * This is just a complete nightmare for all concerned as businesses are desperate to get going, but in order to do so they have to adhere to strict social distancing guidelines which cost them time and money to implement. If they can’t get hold of the right stuff now they will be in a terrible state and won’t be able to get ANY of the reduced business that will be around as lockdown eases.

Elsewhere, Meat plants reopen, but burgers stay pricey (Wall Street Journal, Jacob Bunge and Jaewon Kang) shows that although American meatpacking plants are starting to reopen meat production itself is much lower than normal. If you couple this with restaurants reopening as lockdown restrictions lift, supply will continue to be tight. Retail beef prices were up by 21.7%, pork by 17.7% and chicken by 10.5% year-on-year for the week ended May 23rd. On the meatless side of things, Nestlé’s burgers are

Sensational and Awesome, but not Incredible (Financial Times, Emiko Terazono) highlights a victory for Impossible Foods’ over Nestlé as the latter is now not allowed to describe its meatless products as “Incredible”. It has four weeks to remove its products from retail shelves or face €25,000 per day in fines. The fight is intensifying as higher meat prices and relative meat scarcity is resulting in a massive demand spike for the meat alternatives that the likes of Impossible Foods, Beyond Meat, Moving Mountains, Meatless Farm and This provide.

Then in Games industry booms amid lockdown (The Times, Simon Duke) we just get further confirmation that the games industry is really benefiting from lockdown. Smaller developers such as Frontier Developments (Elite Dangerous, Jurassic World Evolution) and Team17 (Worms) have seen their share prices spike by over 50% since the start of the year and the bigger players such as Nintendo and Activision Blizzard have also seen an uptick. The key question is, will this demand continue when lockdown lifts? I, for one, think it will continue for a while yet as people continue to be more cautious about going out than they were before. * SO WHAT? * It seems to me that the console makers have benefited from lockdown because hardware and software sales for ageing consoles tend to tail off in the run-up to newer models being introduced. However, they have got an unexpected boost during lockdown and I suspect that a renewed interest in gaming will not only spark future software sales – it will inspire more hardware sales when we eventually see the new consoles from Microsoft and Sony.

…in other news…

As you know, Watson’s Daily is all about improving your life. Today, I thought I’d leave you with two important life hacks as we head into the summer: Mum’s hack keeps wasps away from your drink in the summer – and it’s free (The Mirror, Luke Matthews https://tinyurl.com/yabhvur2) – simple, yet effective – and Domino’s shares trick to reheat pizza in the microwave without it going soggy (The Mirror, Luke Matthews https://tinyurl.com/yadou4d2). That one’s for those of you out there who are fans of food deliveries!