Thursday 28/05/20

1. In MACRO NEWS, the EU puts forward a coronavirus response package and things get more tense in/for Hong Kong
2. In CORONAVIRUS “WINNERS” AND LOSERS, we take a look at how airlines, retail-related companies and other industries are coping
3. In INDIVIDUAL COMPANY NEWS, Ghosn’s masterplan continues to unravel and Boohoo rejects criticism
4. AND FINALLY, I bring you what must be the world’s coolest McDonald’s…

So the EU comes out with a plan and the US reacts further to the HK/China tensions..

European Union plans $2trillion coronavirus response effort (Wall Street Journal, Laurence Noonan) highlights the European Union’s response plan which comprises of a €750bn recovery plan and €1.1tn budget over the next seven years. The idea is to give a massive financial boost to some of the bloc’s most affected countries without adding to their already heavy debt burdens. This would give room for the governments in Italy, Spain and Greece (and others) to spend more now in order to recover more quickly. * SO WHAT? * Sounds great in theory, but for this to go through, the plan HAS to be approved by ALL 27 member states and already the ‘zone’s “frugal four” – the Netherlands, Denmark, Austria and Sweden – have called it into question. IMO this could be make or break for the Eurozone – and it sounds like it has its work cut out in convincing everyone to quite literally buy in to this.

US says Hong Kong is no longer autonomous from China (Financial Times, Katrina Manson and Demetri Sevastopulo) heralds the latest development in the China vs Hong Kong vs The Rest of the World debate as Washington says that China’s latest moves to impose a national security law on Hong Kong means it has effectively lost its autonomy. * SO WHAT? * The US has previously classified Hong Kong as being independent enough from China to receive special treatment but that has now been revoked. Subsequent moves have yet to be made but things could get pretty serious from here depending on what the Americans decide to do. If you want to find out more detail about what this is all about, What is China’s proposed national security law for Hong Kong (Financial Times, Sue-Lin Wong and Nicolle Liu) does a really good job. Basically, though, China’s new law will just take precedence over Hong Kong’s existing laws and legal system and will prohibit “splittism, subversion, terrorism, any behaviour that gravely threatens national security and foreign interference”. It could basically give Beijing licence to do whatever it wants. Some of the more controversial consequences of an implementation include making it a criminal offence to insult the Chinese national anthem and officially endorsing the presence of Chinese secret police.

There are winners, but on the other hand job cuts rack up in the airline industry, retail woes continue to cause fallout and other industries see suffering ahead…

In the “winners” corner today, we have The US publishers hiring staff despite news media storm (Financial Times, Anna Nicolaou and Alex Barker) which shows that the New York Times Company and Dow Jones (which owns the Wall Street Journal) are seeing a major uplift in subscribers – very useful given that many newspapers are suffering a severe drop-off in ad sales. Web grocery sales double in ‘permanent’ shift online (The Times, Ashley Armstrong) highlights a doubling of the online grocery market, according to the latest statistics from Nielsen. Retail bosses expect the consumer shift to online to continue after the lockdown as people trend back to big weekly shops and older people get used to shopping over the internet. This probably explains Tesco and Sainsbury’s sales outpace Aldi for first time in a decade (Financial Times, Jonathan Eley). Interestingly, sales growth at the biggest supermarkets was still bettered by Lidl. Maybe Lidl’s bakery is the difference?!?

I must say that it feels to me like I am constantly bringing you bad news about anything to do with aeroplanes and any related industry. Unfortunately, today isn’t going to be any different as Boeing to axe 12,000 US workers even as Max assembly resumes (Financial Times, Claire Bushey) signals job losses both domestically and internationally as part of the company’s plan, announced last month, to cut 10% of its workforce. American Airlines to cut 30% of management and administrative staff (Wall Street Journal, Alison Sider) shows that although there are early signs that things are picking up, they are not picking up enough to save jobs and Job cuts ready for takeoff at Ryanair (The Times, Robert Lea) highlights up to 3,000 potential redundancies – a sixth of its workforce – in the airline’s bid to stay alive. Given that air travellers are likely to be far fewer in number in the coming months at least, none of this is particularly surprising.

Misery in retailing continues to have knock-on effects as Shopping centre owner British Land slashes value of retail portfolio (The Guardian, Mark Sweney) shows that the retail landlord has written down the value of its property portfolio by over 25% following the impact of the coronavirus on its retail tenants. This follows not long after rival Landsec went through the same exercise (although its

valuation didn’t take quite such a drubbing). Hammerson boss quits as his retail strategy unravels (The Times, Louisa Clarence-Smith) shows another casualty of retail doom as the the chief exec of one of the country’s biggest shopping centre owners, David Atkins, has decided to step down although he will stay in place until next spring by which time they should have found a successor. What a job that is going to be!

Other industries face an uncertain future. Brokers could pay the price if insurers dodge Covid bullet (Daily Telegraph, Michael O’Dwyer) highlights potential problems for insurance brokers if insurance companies manage to swerve paying out on business interruption policies. Companies like Hiscox and Aviva are the target of a test case being brought against insurers by the Financial Conduct Authority (FCA) at the moment, but if they are not found liable, hotels, pubs, dentists and others will probably focus their attention on insurance brokers who they will say gave them duff advice. Nasty.

I’ve mentioned this before but The £75bn car finance sector has finally met its match – coronavirus (Daily Telegraph, Tim Kiek) says that the car finance sector might be teetering over a precipice as its business, which has been powered by super low interest rates for a number of years now, could be highly vulnerable as consumers have been getting hooked on PCP (Personal Contract Purchase, not the recreational drug “angel dust” 😂) and the warm feeling of “owning” a new car on a relatively regular basis. At the moment, the industry has won a stay of execution as the FCA instituted a three-month payment holiday on finance deals but this isn’t going to last forever and the danger is that consumers forego buying a new car due to cashflow issues.

Another potential loser of the current situation is identified in UK holiday home manufacturers warn of risk of collapse (Financial Times, Alice Hancock) as the UK’s £9bn static caravan market is looking decidedly shaky due to their clients, holiday parks, being shut down over the lockdown and look vulnerable to collapse. Three manufacturers have 75% of the market share in this sector – including Willerby and ABI – with small operators making up the rest and because holiday parks have been closed, orders for new homes have evaporated. * SO WHAT? * I think that survival will depend greatly on how soon holiday parks are allowed to open. I would have thought that many of them are actually OK in terms of social distancing and would actually provide attractive options for those emerging from lockdown to escape to. Still, their futures are hanging in the balance in the meantime…

Nissan backpedals on Ghosn’s ambition and Boohoo rejects criticism…

Renault and Nissan scrap Ghosn strategy in move to slash costs (Financial Times, Peter Campbell, David Keohane and Kana Inagaki) shows that former chief Carlos Ghosn’s strategy of bringing Renault, Nissan and Mitsubishi closer together is being thrown in the bin as the three makers are to divide responsibilities across the partnership and not go ahead with a full merger. They believe that divvying up responsibilities will save billions in costs – more detail of which is to be announced tomorrow. Interestingly, they have split things up as follows: Renault will be lead in

Europe and Russia and focus on smaller cars and diesels, Nissan will concentrate on the US and Japan focusing on larger vehicles and Mitsubishi will lead in south-east Asia on hybrid development for SUVs. Hmmm. What could possibly go wrong…

I mentioned doubt being poured on Boohoo’s figures yesterday, so Boohoo pooh-poohs attack by hedge fund (The Times, Ashley Armstrong) appears to be the online apparel retailer’s response saying that it “strongly refutes the allegations made in the research note” published by Shadow Fall. The report claims that sub-brand Pretty Little Thing was boosting its profits by underpaying for things like office space but the company disputes this. * SO WHAT? * I suspect this will run – and could become a real thorn in Boohoo’s side. We’ll just have to see how this develops, but it’s not great timing for Boohoo as it attempts to pull away from the coronavirus outbreak intact…

…in other news…

It may surprise you to know that I am not a massive fan of McDonald’s – but I would definitely go to this one if I could: A McDonald’s in New Zealand lets diners eat inside a decommissioned airplane (Insider, Sophie-Claire Hoeller https://tinyurl.com/y8n4fxgu). How brilliant is this??