Thursday 30/04/20

  1. In MACRO, MARKETS & REOPENING NEWS, we see US and China difficulties, French and German protectionism, market hope and varying degrees of bids to reopen
  2. In PHARMACEUTICALS-RELATED NEWS, Gilead is on the up again, GSK highlights delays and AstraZeneca is looking good
  3. In TECH NEWS, Facebook, Microsoft and Spotify put in strong performances
  4. In INDIVIDUAL COMPANY NEWS, the Boeing and Airbus nightmare continues, WPP announces cuts, Amazon looks set and Odeon pouts
  5. AND FINALLY, I bring you an impressive marble run and a nation’s call to eat chips…



So US GDP craters, China’s hopes look tricky, France and Germany get protective, world markets climb and Musk issues a rallying cry while UK high street players plan a return…

US GDP falls 4.8% in worst economic decline since 2008 (Financial Times, Mamta Badkar, Eric Platt and Demetri Sevastopulo) puts a figure on what we probably all expected. This preliminary estimate from the Bureau of Economic Analysis marks the sharpest fall in GDP since the 8.4% drop at the end of 2008 and is worse than consensus estimates of 4%. Personal consumption, which is the biggest driver of US GDP growth, fell by 7.6% – the steepest fall since 1980. Things could well get worse over the next quarter because the US economy was powering along nicely before coronavirus hit – and this is obviously included in the headline number. The next quarter will not have that support to mitigate the economic damage.

China slowdown puts Xi in political bind (Financial Times, Don Weinland) shows that the coronavirus outbreak is making President Xi Jinping’s goal of achieving xiaokang shehui (“moderately prosperous society”) by the Communist Party’s 100th anniversary next year much more difficult. The plan originally called for a doubling of GDP from 2010 to 2020 and an end to extreme poverty. China was on track to achieve this by the end of this year as it would have had to get 5.6% GDP growth to hit the target – and no-one doubted they would. Interestingly, the government has been downplaying the goal since the outbreak began, but it certainly looks unattainable at the moment.

France and Germany lock out foreign ‘predators’ (The Times, Adam Sage) shows that Europe’s top two economies are getting protective as French authorities are aiming to beef-up their powers to prevent foreigners from buying businesses in “strategic” sectors such as defence, transport, energy, aerospace, cybersecurity, robotics, telecoms and biotechnology. At the moment, the government can stop a non-European investor from buying a stake of over 25% in such a sector but the economy minister, Bruno Le Maire, wants to reduce this threshold to 10% during the outbreak. Interestingly, Spain already did this last month. Meanwhile, in Germany, the government is now allowed to block acquisitions of stakes in companies if it is deemed not to be in the public interest and will result in “likely harm” – whereas previously, they could only do so if there was a “danger” to the national interest. * SO WHAT? * This is an interesting one as ailing companies will no doubt be willing to accept money from pretty much anyone under the current circumstances. However, it would seem rather unfair for governments to stop foreign investors from building up big stakes in companies if they are not actually helping them as it would almost imply that the government would rather a company die than let someone

from another country take it on. If you take away with one hand, I think it’s only fair to have to give with the other. I expect more of this type of protectionism to come.

Meanwhile, World’s stock markets soar on treatment hopes (The Guardian, Larry Elliott) highlights that hopes of a Covid-19 treatment breakthrough powered stock markets upwards. Although recent test findings from Chinese scientists were disappointing, the US Federal Drug Administration looks like it will allow emergency use of Gilead Science’s drug remdesivir in the treatment of the coronavirus following large-scale clinical trials by the US government. * SO WHAT? * Without wishing to sound like a party-pooper, I would say that you should be very wary of relying too much on drug news at the moment. In more “normal” times, drug testing takes place pretty much behind closed doors, but because everyone is so desperate to find a cure/vaccine/treatment, the results of such trials seem to be available for all to see even while they are still ongoing. This is good to hear, but it is not the final word and so we will probably keep seeing market volatility as markets lurch up and down on investor hopes and fears.

As you know, many people are getting pretty antsy now about lockdowns – and it’s getting worse as some of the most affected countries around the world are now making tentative steps towards normality. This is making us all feel like a kid pressing their nose up against the window of a sweet-shop looking in. Elon Musk: ‘Give people back their goddam freedom’ (Wall Street Journal, Tim Higgins) shows that Tesla’s colourful founder is stirring things up and pushing for a relaxation of the rules (on Tuesday night he tweeted “FREE AMERICA NOW”). If you recall, he’s the one who told his followers on Twitter that “the coronavirus panic is dumb” at the beginning of March and the one who also fought tooth and nail to keep his Fremont factory open despite local authorities telling him to shut it down. As an aside, his company reported surprise first quarter profits on Wednesday although it was cautious on the outlook. This is notable given it is the first time Tesla has had three consecutive profitable quarters in the 16 years of its existence.

Back in the UK, preparations are being made for a relaxation of lockdown. Wetherspoon targets June reopening despite lockdown restrictions (Financial Times, Alice Hancock) shows that the pub chain is pushing ahead despite a lack of government guidance – although founder Tim Martin said that plans were still fluid (actually, he said that it was “complete cobblers” to suggest that the company had firm plans). Dixons Carphone plans drive-through and contactless shops (The Guardian, Sarah Butler) shows that the electrical retailer is working on adapting its offering to Covid-19. Its share price rose by 16% in trading yesterday on the news that it only saw a 3% sales decline in the five weeks to April 25th due to strong online sales. You should also read Britain’s tourist hotspots set to flourish after lockdown (Daily Telegraph, Tom Rees) if you want to take note of other potential trends once coronavirus panic calms down as it talks about “staycations” becoming the norm for the foreseeable as Brits get more cautious about foreign travel.



Gilead rides a wave of optimism and we get the latest on GSK and AstraZeneca

I’ve already touched on this above but US explores emergency-use approval for Gilead drug after study found it helped recovery from Covid-19 (Wall Street Journal, Joseph Walker) goes into more depth about remdesivir, which the National Institute of Allergy and Infectious Diseases said helped patients recover faster. Although recovery was only four days faster with the drug than without, it was taken by many as a positive development although another study from China published yesterday came up with negative results for the drug. * SO WHAT? * As I said above, be wary of news stories about cures and vaccines etc. because testing is ongoing.

Among the pharmaceutical giants, Delays for drugs trials (Daily Telegraph, Hannah Uttley) shows that

GlaxoSmithKline has admitted that most of its clinical drug trials are being delayed in some way because priority is being given to finding treatments for the coronavirus. Chief exec Emma Walmsley said that around 87% of its clinical trials would probably be delayed by between one and three months.

Having said that, No pain but plenty of gain as Glaxo meets pandemic challenge (The Times, Alex Ralph) highlights strong first quarter results for GSK as it benefited from increased demand for pain relief treatments and vitamins and minerals while Astra’s star on the rise with new drugs and blockbusters (The Times, Alex Ralph) also benefited from bigger prescriptions, more assiduous adherence to treatments by patients and stockpiling. Revenues rose for the quarter and were supported by demand for newer medicines as well as a decent pipeline. * SO WHAT? * It’s good to see the pharma companies do well – and I would imagine that they will continue to do so as I would have thought that there may even be an upswing in demand for medicines as people venture back out to their GPs as lockdown restrictions lift.



Tech giants continue to do well…

Facebook shares soar on ‘signs of stability’ (Financial Times, Hannah Murphy) highlights good news for Facebook, which says that it is seeing “signs of stability” after a dramatic drop-off in advertising revenues. Revenues rose by about 17% in the first quarter (and advertising is the main part of that) and although it was its slowest pace of sales growth since Facebook listed in 2012, it seems that we could be at the floor. Investors seems to think so as the share price rose by 10% in after-hours trading. * SO WHAT? * As I said yesterday, even if advertising budgets are slashed everywhere, I actually think that DIGITAL advertising won’t suffer as badly as, say, advertising in newspapers because you arguably get more bang for your buck in that it is more targeted. FWIW, I wonder whether TV advertising will make a bit of a bounce-back as people will probably be glued to their TVs for a while yet as social distancing etc. continues to confine people to their homes more than before.

Microsoft earnings jump, aided by cloud-computing demand during pandemic (Wall Street Journal, Aaron Tilley) shows that the tech behemoth is continuing to benefit from the working from home trend as it announced strong growth in quarterly sales and profits – which came in above market expectations. I thought that chief exec Satya Nadella put it perfectly when he said “As Covid-19 impacts every aspect of our work and life, we’ve seen two years’ worth of digital transformation in two months”. Its videoconferencing software, Teams, now has 75million daily active users – over double the number it had in early March. Amazing.

Then Music streaming during pandemic boosts Spotify paying users (Financial Times, Anna Nicolaou) shows that Spotify has now reached 130m paying subscribers in the first quarter, ahead of analyst expectations, and is about a third more than it was last year. Listening behaviours have changed during the outbreak as 40% of US customers were listening to music more than normal in order to manage stress, according to a Spotify survey. * SO WHAT? * I think that the more users use services provided by the likes of Facebook, Microsoft and Spotify the more integrated they will get in people’s daily lives. And if that continues to evolve, it will mean even more success for them as time goes on.



Boeing and Airbus’s nightmares continue, WPP announces cuts, Amazon is all set and Odeon goes into a sulk…

In a quick scoot around some of the other stories doing the rounds today, Boeing and Airbus lose $2bn (Daily Telegraph, Alan Tovey) highlights more woes for the plane manufacturers as Boeing announces major staff and production cuts while both warn that the industry will take years to recover.

WPP cuts jobs as it leans on taxpayers for support (Daily Telegraph, Christopher Williams) highlights the travails of one of the world’s biggest “traditional” advertising agencies as it tries to cope with massive losses in business. It has applied for £600m of government support under the Covid Corporate Financing Facility (CCFF) which should supplement their credit reserves of £2.7bn. * SO WHAT? * WPP was already looking to slim down its vast global operations before this crisis, but the impetus to cut deeper will get even greater. As I have said above, I believe that traditional agencies like WPP will get hit much harder than the purer digital advertisers out there because digital advertisers can target audiences more precisely.

Amazon ready to deliver blockbuster sales at a high cost (Financial Times, Dave Lee) shows that Amazon is about to announce stellar sales, albeit involving higher costs, as it continues to be a life-saver to many stuck at home. Costs have increased because it has hiked staff wages, employed more people and purchased more equipment (e.g. thermal cameras to monitor staff health), but I think that investors will have little to complain about really.

I thought I’d include Odeon bans all Universal Pictures films as studio skips cinema releases (The Guardian, Mark Sweney) because it’s a good example of a company going into a sulk! The cinema chain said it has banned screenings of all Universal Picture films after the studio said it would skip cinema releases and make them available to streaming and on-demand services. Interestingly, this follows on from the massive success NBCUniversal had with the release of its Trolls World Tour release, which has actually generated $100m in sales so far! The studios get a bigger cut of revenues from streamers versus the cinema box office. * SO WHAT? * This is just a storm in a teacup. Once social distancing is a fading memory, Odeon will be back playing their movies to get the punters in. Not doing so would be the biggest ever case of cutting one’s nose off to spite one’s face! In fact, I’d even go so far to say that the studios will use the threat of going streaming-only to negotiate themselves a better deal with the cinema chains.



And finally, in other news…

It seems that some of us are using lockdown very productively as per Japanese elementary schooler creates amazing infinite loop device for marbles (SoraNews24, Shannon Very impressive! Then there is a call to action in Do your bit for farmers and eat more fries, Belgians urged (Reuters, Bart Biesemans and Christian Levaux I heard recently that beer is on the verge of going off at the moment because it’s just sitting around in kegs under lockdown. Now if we could somehow combine a national appeal for volunteers to drink beer and eat chips for the national good, I think we could be on to a winner 🍻🍟👍…

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Some of today’s market, commodity & currency moves (as at 0745hrs 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 **
6,115 (+2.63%)8,91511,108 (+2.89%)4,675 (+2.39%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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