Thursday 04/06/20

1. In MACRO NEWS, Trump divides on troops, Germany unveils a stimulus, Australia flirts with recession and British banks back China’s security law
2. In NEWS ON PLANES AND CARS, the US threatens a ban on Chinese airlines, Lufthansa takes the bailout, Wizz Air cranks out the flights, China car sales turn up and one major UK car dealer announces strong sales
3. In INDIVIDUAL COMPANY NEWS, Warner Music’s IPO does nicely and we look at Zoom and Quibi’s weak spots while Frankie & Benny’s eyes permanent closures
4. AND FINALLY, I bring you a culinary monstrosity…

So Trump divides opinion on the use of troops, Germany unveils a stimulus, Australia faces recession and British banks in Hong Kong cave…

Pentagon chief breaks with Trump over using troops for protests (Financial Times, Katrina Manson, Demetri Sevastopulo) shows that the US defence secretary, Mark Esper, does not agree with Trump sending the army in to quell the George Floyd protests. He thinks that the National Guard, which is made up of 450,000 part-time citizen-soldiers, is better suited to the role rather than using active duty forces. Ex-chiefs have been lining up to criticise Trump on this and although Esper still has a job, you do wonder whether what he says has been a “CLM” (Career Limiting Move 😂) as Trump doesn’t take kindly to this kind of thing. The whole debacle rolls on…

German coalition agrees €130bn stimulus (Financial Times, Guy Chazan) highlights Germany’s latest fiscal stimulus, announced yesterday by Angela Merkel, that will be powered by a reduction of standard-rate VAT from 19% to 16% and for lower-band VAT from 7% to 5% as well as a €300 one-off “children’s bonus” payment for every child. This move is intended to boost consumer demand as Germany moves out of lockdown. There will also be more financial help for municipalities and incentives for buying electric cars. The car industry will be disappointed that incentives will only be for electric vehicles. * SO WHAT? * This is, as they say, an impressive package when you consider it in conjunction with previous measures. Only time will tell whether its size and timing will be enough to jolt Germany back from its coronavirus-induced coma.

Australia’s boom is finally halted (The Times, Bernard Lagan) heralds the likely end of Australia’s long winning

streak as official figures show GDP contraction of 0.3% in the first quarter as it battled with bushfires. Given that the second quarter is when coronavirus came along, the likelihood is that GDP will contract again, meaning that Australia will officially be in recession (the definition of “recession” is when you get two consecutive quarters of GDP contraction). * SO WHAT? * This is a big deal when you consider that Australia overtook the Netherlands in mid-2017 in having the longest uninterrupted streak of GDP expansion in the developed world. Its record of 29 years is about to come to an end as household consumption dragged heavily while net exports helped to mitigate some of the damage.

Further to China imposing a new national security law in Hong Kong, UK banks back Beijing’s Hong Kong security law (The Times, Patrick Hosking) shows that HSBC and Standard Chartered have decided to officially back China’s imposition of a new national security law on Hong Kong. HSBC said that it “respects and supports all laws that stabilise Hong Kong’s social order” and Standard Chartered said that the new law could help to “maintain the long-term stability of Hong Kong”. * SO WHAT? * Given the banks’ exposure to Hong Kong and Asia, it is hardly surprising that they have decided to just fall in line – if they didn’t I’m pretty sure that China would have done its best to restrict their business (or “encourage” the use of alternative banks somehow). I would imagine that many other businesses with decent exposure to the territory will also fall in line – or just quietly abandon it. Nomura reviews scale of operations in Hong Kong (Financial Times, Leo Lewis) says that the Japanese investment bank is considering its presence there, but who’s to say that it wasn’t going to reduce its exposure there anyway and that this latest development gives it a brilliant excuse?! If businesses there were having a bit of a wobble and/or wanted to cut costs, now would be as good a time as any to do it given the current climate.

The US threatens China, Lufthansa takes the money, Wizz Air makes plans and car sales in China and the UK show positive signs…

US to ban airlines from China flying to its airports (Daily Telegraph, Olivia Rudgard) highlights a fit of retaliation from the US as it has decided to ban passenger planes flying in from China because China has not lifted an order banning US airlines from flying to its airports. The order is expected to come into force on June 16th and will affect seven Chinese airlines but will presumably be lifted if China plays ball.

Lufthansa chief says €9bn bailout larger than needed for survival (Financial Times, Joe Miller and Peggy Hollinger) shows that the company’s supervisory board decided to accept the EU’s conditions for taking on the bailout money. Lufthansa includes Austrian, Brussels, Swiss and Eurowings airlines and the company has sought bailout money from other governments as well as its own. * SO WHAT? * Interestingly, the CEO admitted that the package was more than they needed, but that it was not just about survival but maintaining its position as a leader in the industry. This annoyed Ryanair boss Michael O’Leary, who says that this will give it an unfair advantage and that he will launch a legal challenge.

Elsewhere in the industry, Wizz Air will have ‘most aircraft flying by October (The Times, Robert Lea) shows that the eastern European low-cost carrier is going on the front foot by saying that it expects to be operating 60% of its services over the summer trading season and then 80% from October to March. Wizz’s chief exec believes that flights could be 70% full. Wizz Air is the top operator in nice easter

European countries including Hungary, Romania, Ukraine and Georgia. He said that the company has been able to weather the coronavirus turbulence because it had cash reserves before the outbreak of €1.5bn, it sacked 20% of its workforce very quickly and because 65% of its passengers are expats – and they will want to see their families after lockdown. Also it says it has a young passenger profile – an average of 36 years old – who it argues are the most likely demographic to go on holiday. There’s confidence for you!

Meanwhile, back on terra firma, China cars sales: shock and roll (Financial Times, Lex) shows that car sales are rising in the world’s biggest car market in a meaningful enough way to suggest this isn’t just a short term post-coronavirus surge. Interestingly, Hong Kong listed shares in China’s largest electric car maker, BYD Motors, have shot up by 42% since the lows of March and it seems that there is pent-up demand for new cars after the lockdown as people are still a bit nervous about public transport. The weak oil price has helped to lower petrol prices, meaning that buyers have been opting for larger vehicles which have better margins for makers. * SO WHAT? * China’s automotive sector is highly fragmented so if some of the bigger makers can sell enough cars in this current “boomlet” it is possible that this could finance some much-needed consolidation.

Back home, UK car retailer reports strong sales in reopened showrooms (Financial Times, Chris Tighe) shows that the UK’s fifth-biggest motor retailer by revenues, Vertu, reported strong sales since lockdown lifted – especially in used cars. Vertu’s chief exec, Robert Forrester, said that he thought carmakers would be making some “spectacular offers” when their factories opened to strengthen new car volumes while wariness of public transport was firing up secondhand sales. A blip or a trend? It’s too early to tell, but let’s hope it’s the latter!

Warner Music’s IPO goes well, Zoom and Quibi show weaknesses and Frankie & Benny’s face tough times…

In a quick scoot around other stories doing the rounds today, Warner Music strikes the right note with successful flotation (The Times, James Dean) highlights a cracking market debut for the music company – shares were up by 20.5% from the offer price – and it raised $1.9bn from the sale of 77million shares. Even in times like these, this goes to show successful IPOs can be done!

Then Zoom’s story: how all at once, it just went boom (Daily Telegraph, Michael Cogley) goes into more detail about what I was saying yesterday about Zoom but Zoom: zump bump (Financial Times, Lex) makes the excellent point that, for all of its recent success, to really be considered a major player it needs to stop using dodgy metrics and publish “daily active user” numbers. At the

moment, it publishes numbers that are inflated by people using its platform more than once per day (a daily active user is counted as one user even if they use the service more than once per day). Given that Microsoft’s Teams boasts 75m daily active users and Google Meets has 100m, you can see why they may be a bit coy.

Meanwhile, Quibi asks senior executives to take 10% pay cut (Wall Street Journal, Benjamin Mullin) highlights hard times at the high profile dud that is Quibi, the short-form (and EXPENSIVE!) video specialist. It is now asking senior execs to take a pay cut – and this follows not long after stories that advertisers want to renegotiate deal terms because of their concerns about low viewership.

There’s more gloom in the UK’s restaurant scene as Frankie & Benny’s owner to permanently close 120 restaurants (The Guardian, Sarah Butler) shows that the owner, The Restaurant Group, is going to close up to 120 restaurants which could involve the loss of almost 3,000 jobs. This is the latest round of closures to be made by the parent company as it has already cut branches and jobs in Chiquito’s and Food and Fuel. Just more evidence of retail carnage.

…in other news…

I think that lockdown has provided an impetus for some people to improve skills that can get left by the wayside in the hurly-burly of daily life. Clearly the man in Man’s carbonara ‘monstrosity’ is so bad Italians are left ‘weeping’ (The Mirror, Paige Holland https://tinyurl.com/y7xqz292) needs serious help. I really hope that he published this as a joke for his sake 😱😱😱