Thursday 26/03/20

  1. In MACRO & OIL NEWS, Trump, Vlad, BoJo and Rishi react while shale producers take a beating and oil (possibly) heads for $10 a barrel
  2. In RETAILER & HIGH STREET NEWS, Target sees higher sales, UK supermarkets are still overwhelmed, high street chains refuse to pay rent, ‘spoons does a U-turn on staff pay and off-licences get “essential” status
  3. In MISCELLANEOUS NEWS, we look at how the pasta supply chain works, Dyson and Airbus look set to make ventilators and a 5G iPhone launch is likely to be delayed
  4. In OTHER NEWS, I bring you more ideas to tide you through lockdown…



So Trump stimulates, Putin concedes, BoJo faces pressure and Sunak prepares while US shalers wobble and oil heads down…

Senate passes massive stimulus package as coronavirus takes toll (Wall Street Journal, Joshua Jamerson, Andrew Duehren and Natalie Andrews) highlights a massive economic stimulus package designed to give American families and businesses some protection against the coronavirus. The bill is now going to the House of Representatives for a vote tomorrow. If this goes through, the new law will dole out money far and wide either as direct payments or loans to individuals and businesses. The legislation will provide one-off cheques of $1,200 to individuals who earn up to $75,000 and $150,000 to married couples with an additional $500 per child and are scaled down for those who earn more. This is all in addition to the recent expansion in unemployment benefits. * SO WHAT? * This sounds good but may already be priced in by the markets as they seemed to pause for breath. Will the old adage “buy the mystery, sell the history” apply here as the anticipation of a stimulus package (so far) proves to have more effect than the actual package itself?

Vladimir Putin postpones vote on extending his rule (Financial Times, Henry Foy) heralds a rare climbdown by the Russian president who has decided to postpone a nationwide vote that would have enabled him to extend his rule by 12 years! After much pressure to postpone the April 22nd vote following his previously defiant stance that the coronavirus was “under control” he made a nationwide address yesterday to state his U-turn. This came just hours after news that the number of cases in Russia shot up by a third. * SO WHAT? * In essence, Putin has made a load of constitutional changes recently as part of a massive shake-up to revitalise the economy. One of the key (from his point of view) parts of the changes was legislation that would reset his terms in office to zero, thus enabling him to get around term limits under the current constitution. He stopped short of imposing a full lockdown, instead asking for a “long weekend” from this Saturday 28th March to Sunday 5th April which essentially asked people not to go to work next week. He has announced measures to boost the country’s economy which has suffered particularly badly from falling oil prices that will be funded by increased taxes on the rich and shadow economy.

Meanwhile, in the UK, Boris Johnson under pressure to accelerate coronavirus testing (Financial Times, Clive

Cookson and Laura Hughes) highlights the increased calls for more testing in order to facilitate efforts to contain the outbreak. At the moment, the government is aiming to get to 25,000 tests per day (but this won’t be reached until late April), eventually going to 250,000 a day. The government has ordered 3.5m antibody tests and is in the process of ordering “millions more”. These tests would be available to the public via Amazon, Boots and other pharmacies and will look like a pregnancy test. Testers will need to prick their finger to get a drop of blood that will be analysed to look for two types of immune response to the virus. On the money front, Rishi Sunak set to unveil coronavirus support for self-employed (Financial Times, George Parker and Jim Pickard) highlights the chancellor’s imminent pronouncement on what the self-employed can expect in terms of support from the government that is expected later today. It sounds like it will be complicated and will take time to implement but will be aimed at the more vulnerable end of the scale rather than at the multimillionaires.

In oil, US shale bust wrecks wrecks hopes for energy independence (Financial Times, Derek Brower) shows that the US shale revolution has been brought to a juddering halt, putting American self-sufficiency out of reach (at least for the time being). US oil output currently stands at a 13m barrel a day high, but this is likely to fall considerably in the second half of the year as oil prices that were already weakening cratered after the Saudis decided to pump out as much as they can. Occidental, Apache, Diamondback Energy, Continental Resources, ConocoPhillips, Concho Resources, Pioneed Natural Resources, Parsley Energy and Cimarex are among the shale producers who are cutting back drastically on spending. Supermajor Chevron joined this group on Tuesday, saying that it would slash its capex in Permian shale by $2bn this year. * SO WHAT? * Clearly, this affects the shalers, but many support businesses that have grown around supplying them over the last three years will also be hit. Senior director of BCG’s Center for Energy Impact, Jamie Webster, made an excellent soundbite when he said “Shale thrives at $100 a barrel, survives at $50 and dies at $25”. Guess where we are now??

Oil price may fall to $10 a barrel as world runs out of storage space (The Guardian, Jillian Ambrose) cites a report by energy consultancy Rystad Energy which says that the oil price could be heading towards $10 a barrel because storage space is running out. This means that oil producers will need to cut oil prices further to sell their oil as producers just keep pumping out more of it. The downward pressure on prices could get even worse next month when the current production quota agreement between Opec and Russia lapses and it becomes a free-for-all.



Supermarkets continue to see stronger sales, UK high street chains refuse to pay rent, Wetherspoons softens its stance and offies get “essential” status…

Coronavirus boosts Target’s sales but squeezes profits (Wall Street Journal, Sarah Nassauer) shows that US supermarket Target is benefitting from stellar sales of food and household goods but its profits may fall short of expectations because sales of higher margin products like apparel aren’t doing so well, plus staffing and cleaning costs are rising. Supermarkets buckle as demand from shoppers soars (Financial Times, Antonia Cundy and Jonathan Eley) highlights the problems our supermarkets are having as they have admitted that they can’t cope with the overwhelming increase in demand for online food shopping. Andrew Opie, head of food and sustainability at the British Retail Consortium, pointed out that although retailers are continuing with their efforts to increase capacity, online sales only account for 7% of total food sales – meaning that we will still have to go shopping in person for the foreseeable future! Although stock levels are slowly getting back to normal, it’s taking time because they have been absolutely decimated. However, things could get worse as more workers call in sick. The question is, will the new hires be able to take up the slack??

Meanwhile, on the high street, UK high street chains refuse to pay rent (Financial Times, Jonathan Eley) shows that Primark, Burger King, Tonkotsu, Yo! Sushi, Carluccio’s, Debenhams and New Look are among those either

refusing to pay rent, or taking up/asking for rent holidays in order to be able to pay their staff and conserve cash. This comes after the government announced a three-month moratorium against eviction for non-payment of rent earlier this week. * SO WHAT? * Landlords will be particularly concerned about Primark not paying rents because it has been seen to be a particularly attractive tenant as it is financially solid, sells high volumes and brings decent footfall to high streets and shopping malls. The headache for retail landlords continues to worsen…

Elsewhere, Wetherspoon chief in U-turn on staff salaries (Daily Telegraph, Hannah Utley) shows that controversial CEO Tim Martin has now decided to pay staff after a massive public backlash, although he maintains that suppliers won’t be paid until the government rescue package kicks in and Off-licences given ‘essential’ status as orders flood in to online wine merchants (Daily Telegraph, Hannah Utley) shows that booze sellers are allowed to stay open. Interestingly, Majestic had to take its website offline on Tuesday as it struggled to keep up with demand. The company had to close its stores to allow staff to fulfil online orders and said that they will take around two weeks to arrive rather than the usual two or three days. Naked wines also had to stop all new orders last week while Oddbins and Laithwaite’s have also suspended online orders. * SO WHAT? * It doesn’t sound to me like stocks are running low particularly – it’s more of a case that, much like grocers have found, the sudden uptick in online orders coupled with more staff calling in sick and stretched delivery networks has caught everyone off guard. It will be interesting to see whether this surge of interest in online booze buying is just a coronavirus thing or whether it will continue to boost such sales further down the line.



We look at the pasta supply chain, Dyson making ventilators and a potential delay for a 5G iPhone…

Pasta supply chain gives producers food for thought (Financial Times, Emiko Terazono and Judith Evans) is a REALLY interesting article which shows why you can’t buy any ****ing pasta at the supermarket!!! Fun fact: pasta sales shot up by 168% in the week to March 14th versus the same period a year before! In terms of the pasta we buy over here, we get Canadian wheat, Barilla and De Cecco (among others) process it in Italy, it’s then transported by trucks through Europe and then UK wholesalers, like Princes, distribute it to supermarkets. Wheat production is actually OK, Italian factories are at full capacity, but border controls etc. could slow transportation and government stockpiling in different countries may also have an effect on supply. In our case, one particular bottleneck is the Channel crossing given the demand on shipping. * SO WHAT? * Interesting, no? You really should read the full article if you can, though. Given that 90% of our food is from the UK and Europe, it is unlikely that we will run out, it’s just the variety that may suffer.

Dyson and Airbus expect green light to start making ventilators (The Guardian, Rob Davies) heralds a plan by the government to get a consortium of manufacturers, led by Airbus, to start making 30,000 ventilators from next week to help the NHS fight Covid-19. Members of the consortium will be working together to hit production targets. Encouraging news!

Apple could delay launch of new 5G iPhone (Daily Telegraph, Margi Murphy and Hannah Boland) would normally be big news, but given everything else that’s going on, it’s hardly surprising. It had been scheduled for launch in September but it looks like that will be put back for a few months. * SO WHAT? * Given the disruption to supply chains, this is not a surprise. I believe that Apple’s release of a decent 5G phone will have a halo effect and turbo boost demand for 5G phones generally and a delay may also not be a bad thing from a geographical coverage perspective. It may also give developers more time to generate more content that will benefit from 5G.



And finally, in other news…

I thought you I’d bring you a couple of ideas for alternative things to do during the lockdown. FIFA and Fortnite players can earn extra cash during lockdown by teaching others to play (The Mirror, Courtney Pochin could nourish your bank account 💰, whereas You can adopt a lonely grandparent to keep them company during self-isolation (The Mirror, Paige Holland will nourish your soul 😇.

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Some of today’s market, commodity & currency moves (as at 0731hrs 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 **
5,627 (+3.32%)7,5959,874 (+1.79%)4,403 (+4.85%)18,665 (-4.51%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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