Thursday 12/03/20

  1. In MACRO, CORONAVIRUS & OIL NEWS, Rishi Sunak unveils a massive Budget, Wall Street’s bull-run ends and we look at more coronavirus effects while Saudi Arabia turns the screws
  2. In CONSUMER GOODS NEWS, PepsiCo buys energy drink maker Rockstar while Puma and Adidas suffer
  3. In INDIVIDUAL COMPANY NEWS, Morrisons cuts prices to boost sales
  4. In OTHER NEWS, I look at why everyone’s buying toilet paper and the UK’s most popular book…



So Sunak unleashes spending, the bull market ends, fallout from the coronavirus continues and Saudi Arabia turns up the heat on oil…

Sunak Budget aims squarely at tackling coronavirus (Financial Times, Chris Giles and George Parker) is the lead story in the FT today heralding an important first Budget for the new government and new Chancellor smack bang in the middle of a global pandemic! As Greg Wallace from Masterchef might say, “It doesn’t get tougher than this” (BTW, you’ll hear Greg’s superb song if you click on that link, so if you’re at work you might want to keep the sound down 😜). If you want to see the full transcript of his speech yesterday, get yourself a bucket of coffee and settle down for Budget 2020: the chancellor’s speech in full (Financial Times). I joke, but it really is quite something. For brevity’s sake, though, I thought I’d highlight a few areas. For the consumer: household energy bills could rise slightly on the introduction of a new “boiler tax” (a surcharge on energy suppliers using natural gas – it’s designed to encourage them to go greener and the rise will probably be passed on to consumers in the form of an extra £5 a year); pension income rises could slow down as the measure of inflation will shift from the Retail Price Index (RPI) to the Consumer Price Index (CPI), which always tends to be lower; VAT on e-books and online newspapers will be axed; the threshold for paying National Insurance will rise from the current £8,632 to £9,500. For businesses: the rumoured corporate tax rate cut is NOT happening (in order to fund the spending spree); £640bn will be spent on infrastructure – the biggest spend in 65 years – in order to “level up” Britain’s regions and increase productivity; business rates will be cut for smaller companies but will remain unchanged for the bigger ones, with the prospect of a “fundamental” review to come and changes to be announced in autumn; there will be a new £200 plastic tax to come into force in April 2022 that will affect all packaging with less than 30% recycled content; spending on R&D will double from £11.4bn this year to £22bn in 2024 or 2025 and was described as the “largest increase in R&D spend ever”. For government: over 20,000 civil servants will move from Whitehall to the regions to “make sure economic decision-making reflects the economic geography of the country” and there will be a government “campus” in the North of England; regional mayors will get new powers to run their bus and train networks. In conclusion, Biggest splurge since Lamont (Daily Telegraph, Tim Wallace and Russell Lynch) highlights that this is the biggest spending spree since the former Chancellor’s pre-election giveaway budget of 1992, according to the Office for Budget Responsibility. We will have to wait and see how effective this will be!

Wall Street ends 11-year ‘bull market’ as coronavirus fears spread (The Guardian, Dominic Rushe) heralds the end of the good times as the Dow Jones Industrial Average has now fallen by 20% from its recent highs (this is the definition of a bear market) and the S&P500 has fallen 19%. Economists believe it could fall further.

In terms of other coronavirus repercussions, US to ban travel from Europe for 30 days due to coronavirus (Wall Street Journal, Andrew Restuccia, Alex Leary and Kate Davidson) highlights a travel suspension announced by Donnie T in a national address that will  come into force this Friday at 11.59pm. Travellers from the UK, however, will be excluded from this. Following the address, the State Department advised US citizens against all travel abroad! Meanwhile, UK to move to next coronavirus phase as WHO declares pandemic (Financial Times, Laura Hughes and Sarah Neville) suggests that a change in status from “contain” to “delay” will be announced by BoJo today meaning that schools and colleges could be closed temporarily and public gatherings could be banned.

In terms of effects on companies and industries, Flight bans cripple Australia travel and tourism industry (Financial Times, Jamie Smyth) cites data from Sydney Airport which shows that passenger numbers have fallen further than they did in the wake of the September 11th terrorist attacks in 2001 or after the SARS outbreak in 2002-3. Chinese passenger traffic fell by a whopping 72% in February! Fiat Chrysler warns it may shut Italian factories because of coronavirus (Financial Times, Peter Campbell), although for now it is just going to cut production and Coronavirus poses threat to China’s electric vehicle goals (Financial Times, Christian Shepherd) shows that China’s relentless march towards electric vehicle ubiquity may pause as price-conscious Chinese consumers may be less keen to go electric because of the recent reduction in incentives and the plunging oil price. Some are also speculating that the government may be more inclined to help the bigger domestic manufacturers than the smaller electric start-ups because they employ more people and make a bigger impact on the economy. * SO WHAT? * FWIW, I have never seen anything like this before – and I hope it will never happen again. The magnitude of this disease is astounding and businesses and investors alike are in self-protection mode given the uncertain future. However, I do think that when things start returning to normality, pent-up demand and economic stimulus measures will power an almighty surge in investment and spending overall. However, it all depends on how long the global lock-down goes on for. If things don’t calm down by the summer we could be in for a whole world of hurt IMO.

Then in Saudi Arabia steps up oil price war with big production increase (The Guardian, Jillian Ambrose) we see that the Saudi government has ordered its state-owned Saudi Aramco to raise its production even more to hit record levels of 13m barrels a day. * SO WHAT? * Saudi Arabia is the world’s biggest oil exporter and this latest move appears to be designed to punish the Russians (who rejected appeals to CUT production in order to stabilise the price), get rid of American competition (US shalers are having a nightmare) and grab market share by offering discounted pricing to key buyers. It is able to turn the screws because it has among the lowest production costs in the world, although on the other hand it is more reliant on oil revenues than most. If this low oil price persist around the $30 mark, oilfield services companies could be in trouble as new projects could get cut, according to analysts at Rystad Energy.



PepsiCo buys Rockstar while Puma and Adidas have problems…

Rockstar energy drink gives Pepsico a real boost (The Times, Ashley Armstrong) highlights PepsiCo’s $3.85bn takeover of Rockstar Energy Beverages. This is the company’s first foray into energy drinks, an area that was worth $53bn last year and is projected to be worth $86bn by 2026, according to Allied Market Research. * SO WHAT? * I guess this just confirms a trend of cola companies trying to broaden their product portfolio. For instance, Coca-Cola has a stake in Monster Beverage and recently

launched its own-branded energy drinks in the US. I am going to sound like a miserable old man now, but I think energy drinks are a terrible fad. They are loaded with tons of sugar and caffeine – hardly healthy! Surely people will realise this in time…

Puma and Adidas take a nasty fall (The Times, Ashley Armstrong) shows that both sportswear makers have warned that their sales have taken a dive in China because of the coronavirus and that the impact has already spread to markets in Asia and Europe. Almost a third of Adidas and Puma’s sales are made in China. On the plus side, Puma’s China factories have opened up and container shipping is back to normal – useful because China supplies about 20% of its goods.



Morrisons cuts prices to boost sales…

Morrisons slashes prices on hundreds of items to tackle drop in sales (The Guardian, Zoe Wood) says that Morrisons has cut prices of over 500 daily staples by around 15% in order to boost sales. Hundreds more cuts

are due to be made in the next few weeks. * SO WHAT? *Morrison’s share price has fallen by 17% over the last year, it had a poor Christmas and industry data shows that it was the worst-performing member of the big four UK supermarkets in terms of market share. Clearly it needed to do something drastic to address the situation. This may work if they are the only ones to do this, but if the other supermarkets get involved to protect their own positions we could have a price war on our hands…



And finally, in other news…

Just in case you have been wondering, here is a scientific explanation of a current phenomenon: The Psychological Reason Coronavirus Is Prompting People to Hoard Toilet Paper (mental_floss, Jake Rosen I also thought I’d leave you today with Most popular book in the UK named – and it’s not the Bible or Harry Potter (The Mirror, Paige Holland Can you guess what it is before you read this?

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Some of today’s market, commodity & currency moves (as at 0730hrs 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 **
5,877 (-1.40%)7,95210,439 (-0.35%)4,615 (-0.96%)18,560 (-4.41%)2,924 (-1.50%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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