Thursday 14/05/20

  1. In MACRO NEWS, THAT German judge digs his heels in
  2. In SECTOR-BY-SECTOR NEWS, we take a look at the latest developments in banking, shipping, UK real estate, retail and meat/less
  3. In INDIVIDUAL COMPANY NEWS, VW shuts down production again, Tui faces challenges and Travelodge eyes a CVA
  4. AND FINALLY, I bring you news of a ridiculously hard puzzle…



So that pesky German judge isn’t going away…

German judge warns EU over ‘very difficult to resolve’ legal crisis (Financial Times, Guy Chazan, Sam Fleming and Martin Arnold) shows that Peter M Huber, the judge at the centre of the EU kerfuffle I’ve been talking about recently, said in  Frankfurter Allgemeine Zeitung (aka “FAZ”, a German centre-right newspaper) that the EU’s infringement proceedings over his controversial ruling on the ECB “would trigger a significant escalation, potentially tipping Germany and other member states into a constitutional conflict that would be very difficult to resolve”. Although chancellor Angela Merkel said she would respect the decision of the court’s judges, she also implied support for the ECB. * SO WHAT? * Just in case this has escaped you, the fuss is all about Germany’s constitutional court ordering the government and parliament to give it a proper

assessment of its bond-buying – which it’s currently doing as part of the ECB stimulus programme – and whether it fits in with other policy objectives. It said that if it does not get a satisfactory answer within three months, it will stop the Bundesbank (Germany’s central bank) buying bonds. The judge said that most national courts had been unhappy with the ECJ’s primacy over national law over the last 50 years and that this latest development is just bringing things to a head. Europe has so far tried to brush this under carpet, but if this issue continues to grow it really could split the eurozone apart at a very crucial time. FWIW, I think if Europe can survive in its current form through coronavirus it will be able to withstand pretty much anything – but nationalist governments in Europe will no doubt use current weakness either as an excuse to leave the union or to hammer out better agreements (good luck with that, though!). If things get that bad, I do wonder whether Brexit negotiations will take a turn as Europe’s bargaining position gets weaker (although Britain’s negotiation position doesn’t exactly look brilliant either at the moment!).



We take a look at what’s going on in banking, shipping, UK real estate, retail and meat/less…

In the world of banking, Deutsche restarts job cuts after six-week pandemic hiatus (Financial Times, Stephen Morris and Olaf Storbeck) shows that the Germans are sharpening their axes once more after suspending redundancies for six weeks. 18,000 cuts are expected, with 50% of them in Germany – but they are not alone as Commerzbank yesterday announced 2,300 job cuts of their own at their first quarter results presentation. When you consider things like European banks’ share of trading revenues sink to lowest in five years (Financial Times, Laura Noona), which shows that the banks’ share of global trading revenues has fallen to five year lows, you can see that bosses have a great excuse to whack employees with. BNP Paribas, Barclays, HSBC, Société Générale, Deutsche Bank, UBS and Credit Suisse combined took just 34% of global banks’ trading revenues, according to research from industry monitor Coalition. * SO WHAT? * OK so the jobs cuts were expected but I do wonder whether this sort of thing, combined with the fallout from coronavirus and sliding trading revenues, will hasten cross-border consolidation within the European banking industry.

Meanwhile, Maersk warns of 25% drop in shipping as virus snarls trade (Financial Times, Richard Milne and Naomi Rovnick) highlights the depressing prospects for global trade as the chief exec of the world’s biggest container shipping line warned of rough seas ahead. He also suggested that protectionism could potentially be on the rise following the coronavirus outbreak as countries try to defend key companies and industries, meaning potentially less container traffic. * SO WHAT? * Given its size, Maersk is often seen to be a decent bellwether for the health of global trade as it transports almost 20% of the world’s containers, so a negative outlook will  not inspire confidence.

In the UK, following recent lockdown lifting, Homebuyers rush to estate agents as the market opens (The Times, Louisa Clarence-Smith) highlights an upswing in inquiries following the housing secretary, Robert Jenrick, saying on Tuesday night that estate agents’ offices and show homes could open once more and that viewings were now allowed (with social distancing measures in place). The housing market has been suspended for the last seven weeks so inquiries came flooding in yesterday. However, Properties ‘may lose 13% of their value’ (The Guardian, Patrick Collinson) cites research from the Centre for Economics and Business Research which forecasts that 2020 prices will fall by 13% due to fewer transactions, economic uncertainty and falling incomes. Funnily enough, estate agent Savills (so no vested interest here then 😂) points to its own research which says that the market would fall by

around 5% and a third of all valuation surveyors think it could be more like 4%.* SO WHAT? * The number of properties on the market may be boosted by more people wanting to downsize or move if they’ve lost jobs or if you’re being optimistic, they might be moving to bigger properties in suburban areas as working from home becomes more normalised. The only thing is, I do wonder whether selling prices will go down over time as homeowners try to hang on to their properties for as long as possible and then are forced into taking much lower prices when they sell because they HAVE to move. Early days. Mind you, if you DO have a job and some money set aside, you will be in a VERY strong negotiating position.

Stores’ PPE safety measures will be multibillion burden (Daily Telegraph) highlights a very real problem now facing retailers who decide to open to the public once more as making them compliant with new safety measures is going to cost a great deal of money that many don’t have. * SO WHAT? * Measures like the installation of screens at checkouts, supplying staff with masks and gloves, widening spaces between desks etc. will not come cheap and will be a massive cost burden on the companies who have no choice but to comply with safety guidelines. And it all comes at a time when money is VERY tight. The BRC observe that this will be a particular problem for businesses that have high footfall but low margins. The thing is, there is no alternative. They will have to take the hit and/or pass it on as higher prices to customers – which will be difficult if the customers are feeling the pinch themselves.

In food, Tyson reduces some beef prices as coronavirus pushes grocery store costs higher (Wall Street Journal, Jacob Bunge) shows that the US meat processing giant has started to cut prices that it charges supermarkets and restaurants for beef after factory closures have increased meat costs. Tyson processes about 20% of America’s beef and is looking to cut prices by a chunky 20-30% to its customers to keep its product affordable. Meat difficulties are music to the ears of meat-substitute rivals as Coronavirus meat shortages have plant-based food makers’ mouths watering (Wall Street Journal, Jacob Bunge and Heather Haddon) show that the likes of Beyond Meat, Impossible Foods and Tofurky are stepping in to satisfy customers’ meat cravings. * SO WHAT? * This is amazing for the plant-based protein companies as they have a captive customer, meat rivals having problems and people potentially willing to try their wares for the first time. Tyson must be desperate if it is willing to cut its prices so deeply. I have said before that there’s a lot of scope for plant-based foods companies to cut their prices both now and in the longer term as economies of scale start to kick in. If people like what they eat now (and I think they will – it really is very good these days) I think they are likely to buy again in the future – probably not every day, but they will certainly see it as more of an option than they may have done otherwise.



VW shuts production again, Tui has issues and Travelodge considers an IVA…

In a quick look at other big news stories today, VW to pause production of key models as hopes of quick recovery dashed (Financial Times, Joe Miller and Richard Milne) shows that VW is going to suspend production of four key models only weeks after restarting production in Germany because demand for new cars in Europe has been decimated. It will temporarily halt production of the Golf 7 and 8, the Tiguan and the Seat Tarraco as they can’t carry on cranking out vehicles that no-one’s going to buy. This will be taken as an ominous sign for rivals.

Then Tui warns of 8,000 job losses as travel firm faces ‘greatest crisis’ (The Guardian, Jasper Jolly) shows us the

drastic measures that Europe’s biggest travel group will have to take as it faces crisis in the tourism industry. Tui: when travel unravels (Financial Times, Lex) does give some reason for hope, though – bookings are starting to come in as customers in lockdown dream of freedom, inquiries are increasing, deposits are being taken and there’s always the prospect that it could bring in some cash from the sale of assets such as hotels and cruise vessels (albeit for cheaper prices than they could have attracted pre-coronavirus). Still, it’s not going to be plain-sailing.

Talking of hotels, Travelodge eyes CVA in battle with landlords over rents (Financial Times, Alice Hancock and George Hammond) shows that the budget hotel operator is ratcheting up its battle with landlords by threatening to launch bankruptcy proceedings if they don’t cut their rent demands. Landlords have been holding out, but this latest development could make them acquiesce. Tough times ahead…



And finally, in other news…

I thought I’d leave you today with news of a ridiculously difficult puzzle in Heinz creates ‘slowest puzzle on earth’ with all 570 pieces the same red colour (The Mirror, Paige Holland What a nightmare!

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Some of today’s market, commodity & currency moves (as at hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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