Thursday 27/02/20

  1. In CORONAVIRUS NEWS, global economies shudder, Trump’s denial could gift Sanders and the Tokyo Olympics hangs in the balance
  2. In RETAIL/HIGH STREET-RELATED NEWS, Hermès sees light, Walmart looks to offload Asda, Ted Baker axes staff, McColl’s cuts shops and Wagamama’s owners look to the US
  3. In FINANCIALS NEWS, Lloyds, Virgin Money and Direct Line cut jobs, Metro Bank’s woes continue and Klarna posts its first loss
  4. In OTHER NEWS, I bring you an amusing reporter and some brilliant trivia games…



So coronavirus fallout continues as the Tokyo Olympics now looks vulnerable…

Brace yourselves, people – there is a LOT to talk about today!

Virus batters global economy amid fears that the worst is yet to come (Daily Telegraph, Georgina Hayes and Tom Rees) does a decent roundup of the current state of play as markets take a pasting. Luxury brand retailers with big China exposure are suffering as half of the luxury goods stores in China have closed and the other half have reported a 90% drop in footfall. Outside China, the prospect of a global pandemic could shatter the retail sector – a Retail Economics survey showed that around 20% of consumers said they’d avoid restaurants, entertainment venues and shopping malls if the outbreak worsened. Factory shutdowns in China will soon result in shortages of product on the British high street over the next few weeks as supplies dwindle, leaving less to buy in the shops. A report by analysts at UBS said that Dunelm, H&M and Card Factory could be particularly hard hit. The car industry is facing a major parts shortage and Moody’s predicts that car sales, which are already weak, will fall 2.5% globally this year. Airlines are also feeling the pain with huge numbers of flight cancellations. Long haul flight cancellations to China will hit many of the major carriers, including British Airways and Air France-KLM and short-hauler specialists EasyJet and Ryanair will be counting the cost of Italian exposure (19% of Ryanair flights go to Italy versus 12% of easyJet’s) and fewer holidaymakers. Countries such as Thailand, Malaysia and Singapore who rely heavily on tourism (especially from China) could lose up to $6bn, according to GlobalData and French finance minister Bruno Le Maire recently admitted that tourist numbers have already fallen 30-40% lower than expectations. Coronavirus: US travel groups forecast hit from outbreak – as it happened (Financial Times, Alice Woodhouse, Mamta Badkar, Matthew Rocco, Peter Wells, Adam Samson, Philip Georgiadis, Myles McCormick, Naomi Rovnick) details company projections via a live update. Marriott International says that it is expecting revenues to take a monthly hit of $25m due to weak travel demand in Asia, Microsoft announced it would fall short of revenue targets for its Windows and Surface business and Booking Holdings (which owns sites including Kayak and said it has experienced a “significant and negative impact” on its business this quarter. The list goes on…US companies in China warn 2020 revenue could halve if coronavirus persists (Wall Street Journal, Julie Wernau) cites a survey conducted between Feb 17th and 20th by the American Chamber of Commerce in China (aka “AmCham”) which shows that 20% of respondents said that revenues from China would fall by over 50% if the epidemic continues beyond the end of August.

While we’re on the subject of America, if you are of a nervous disposition you should definitely not read Trump faces a ‘Chernobyl moment’ after slashing pandemic defences (Daily Telegraph, Ambrose Evans-Pritchard) because it shows how the President has cut US pandemic defences considerably. His administration has cut funding for the Centers for Disease Control (CDC) by 9% – and has proposed this month to cut it by another 16%. He also got

rid of the US Complex Crises Fund and cut the budget of the National Institutes of Health by 20% in 2018 and 27% last year. As things stand, there have been only 57 cases of infection – which sounds very low until you consider that only 426 people have been tested for the coronavirus! Only 3% of public health labs even have working test kits. Trump’s response has been to say that the virus is “very much under control”, that a vaccine is close and that “the stock market is starting to look very good”. On the other hand, Nomura says that global macro hedge funds have changed strategies since the outbreak, into trades that “prepare for a global recession”. Trump’s economics chief Larry Kudlow says that containment has been “pretty close to airtight” and the head of Homeland Security, Chad Wolf, told the Senate Committee that the mortality rate of Covid-19 is about the same as normal winter ‘flu (he’s talking 💩 because the latter’s mortality rate is about 0.1% versus Covid-19’s death rate of anything between 0.8% and 4% depending on whether you’re in Wuhan and how old you are). * SO WHAT? * If the CDC is right (that America’s on the verge of an epidemic) and Trump is wrong, the resulting drama and deaths will decimate Trump’s credibility and hand Bernie Sanders victory in the race to the White House. And if THAT happened, the US will be in for a world of hurt as he will slap big taxes on the rich, close down parts of the oil and gas industry and increase the role of the US government in everything. It could all get pretty dramatic.

Elsewhere, European companies face coronavirus hit to supply chains (Financial Times, Joe Miller, Martin Arnold and Miles Johnson) gives us more evidence of what we already know as factory shutdowns for Fiat Chrysler (and its subsidiaries), Renault, BMW and Peugeot are imminent, Why Iran’s coronavirus outbreak is dangerous for the Middle East (Financial Times, Namjeh Bozorgmehr, Chloe Cornish and Simeon Kerr) highlights how the largest number of coronavirus deaths outside of China is causing major concerns not only in Iran, but in neighbouring countries that have dodgy health systems and poor government control. Coronavirus threatens cancellation of Tokyo Olympics (Financial Times, Murad Ahmed, Oliver Ralph and Leo Lewis) shows growing concerns over the sporting showpiece, with the prospect of a final decision by the end of May. Economists and analysts in Tokyo have been swamped with requests from clients to calculate the financial impact of a postponement or cancellation of the Olympic Games. Coronavirus/concerts: show-stopping number (Financial Times, Lex) talks about the devastating effect that the coronavirus is having on the live music industry as concerts are cancelled and venues are shut down – promoters in China have so far cancelled 20,000 concerts. Live Nation Entertainment, the world’s biggest concert promoter, is facing tough times ahead and its share price has fallen by almost 20% in the last week after doubling over the last two years.

ANECDOTALLY, I have tried to think back to the SARS outbreak in 2002/3 and what the panic was like then versus now. It is obviously a while back, but I still have a box of facemasks somewhere that the company I was working for then gave all of its employees and my wife recalls being given medicines/access to medicines by her company. There was certainly a lot of tension in the air at the time, but it did die down eventually. However, my gut feel at the moment is that this sounds like it’s becoming more widespread, although seemingly less dangerous. Be careful out there!



Hermès sees light, Walmart considers an Asda offload, Ted Baker cuts staff, McColl’s cuts shops and Wagamama’s owner aims for “risk-free” US expansion…

Contrary to the overall picture, Hermès flies in with message of hope (The Times, Callum Jones) said yesterday that it was hopeful of a return to normal trading after it has reopened almost all of its 43 shops in China. Shoppers in China normally account for around a third of its customers – but even though its shops are opening, footfall is way lower than normal.

In Walmart set to check out in Asda sale (The Times, Ashley Armstrong) we see that Asda’s American parent is in talks with private equity firms about selling a majority stake in the supermarket a year after its failed merger with Sainsbury’s. It did, however, say in a statement that it was also considering an IPO as an exit strategy on a longer term basis. * SO WHAT? * Asda is the UK’s third biggest supermarket behind Tesco and Sainsbury’s, but surely now is not the right time for an IPO. I think that Walmart is desperate to get rid and the prospect of buying into an also-ran operator in a highly competitive market surely can’t be an attractive one. I hate to say it, but I think that whoever buys it will only be able to get money out of it by

cutting outlets and staff, making a few changes here and there and then selling it on again. Sounds like something for private equity to me…

Ted Baker axing 102 staff, mostly at HQ (Daily Telegraph) heralds more strife at the troubled fashion retailer as it tries to cut costs. Critics say that the company isn’t going far enough in its efforts to get back on track, but I am sure that there will be more to come. McColl’s scraps dividend and aims to shut 120 shops (The Times, Ashley Armstrong) highlights a massive £98.6m loss as the company announced it would be scrapping its dividend and shutting 120 shops a year to bring it down from the current store estate of 1,550 to 1,100. The retailer owns McColl’s and Martin’s newsagents.

Wagamama has expansion on the menu to halt US losses (The Times, Dominic Walsh) shows that Wagamama’s parent, The Restaurant Group, has decided to continue with its US expansion with Conversion Venture Capital and two American restauranteurs. The idea is that they will open around 30 to 40 restaurants over the next five or six years. TRG will have a 20% stake in the venture with an option to buy out the rest in 2026. * SO WHAT? * This sounds like a reasonable way forward in that it reduces the risk on TRG but at the same time gives it some skin in the game. The company is having a tough time at the moment as the casual dining sector continues to suffer, so I guess this is a reasonable compromise between exiting the US business completely and taking 100% of the risks involved in major expansion.



Lloyds Bank, Virgin Money and Direct Line announce job cuts, Metro Bank is still on the ropes and Klarna posts its first loss…

The carnage continues for employees of high street banks as Lloyds, Virgin Money and Direct Line to cut 2,000 jobs (The Guardian, Kalyeena Makortoff) shows that Lloyds is cutting 780 roles, Virgin Money (which owns Clydesdale and Yorkshire Bank) is cutting 800 and Direct Line will be running down one of its two sites completely by 2022. * SO WHAT? * It just goes to show that the continued slowdown in footfall is meaning that companies are having to make brutal decisions. It won’t stop there, unfortunately.

Talking of which, Metro Bank scales back expansion plans after £131m loss (The Guardian, Kalyeena Makortoff) shows that Metro Bank is continuing to frustrate investors as its share price fell by 19% to a record low of 155p in trading yesterday. Amazing to think, then, that it was trading at over £40 just two years ago! * SO WHAT? * Metro Bank has been going down the toilet since the

revelation last year that it mis-classified its loanbook. Senior execs (including the founder) have had to leave and it has only just installed new CEO Dan Frumkin, who will no doubt be looking for ways to stem the losses. At the moment he says that he is not planning any job cuts or branch closures (he is, however, halving the number of new branch rollouts for the next five years) but I bet you he will be doing this within a year from now. Given what’s going on at his competitors, you can only bury your head in the sand so far.

Klarna no longer in the pink after first loss (The Times, Ashley Armstrong) highlights the announcement yesterday of a loss as the Swedish online payments “buy now, pay later” supremo has hit a bump in the road. It put the loss down to the cost of expansion and higher default rates. Klarna was Europe’s most valuable fintech until this week, when Revolut overtook it at its latest funding round. * SO WHAT? * Klarna has been very successful thus far, but I feel that it is one of those companies that does really well in an economic up-cycle when things are going quite well. However, if things start to go wrong their default rates will surely go through the roof and it could be in for a massive reality check.



And finally, in other news…

Sometimes, when you’ve done something embarrassing, you’ve just got to style it out. The guy in this story did a good job IMO: Reporter accidentally turns on Facebook face filters during weather broadcast (The Mirror, Luke Matthews Quality 👍. I know it’s a bit early for Christmas, but how about the stocking-filler (or just general gift) ideas in 10 Must-Have Trivia Games for Any Interest (Mental Floss, Hannah McDonald Partaaaaaay!

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Some of today’s market, commodity & currency moves (as at 0732hrs 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 **
7,042 (+0.35%)26,958 (-0.46%)3,116 (-0.38%)8,98112,775 (-0.12%)5,683 (+0.07%)21,948 (-2.13%)2,990 (+0.07%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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