Tuesday 09/06/20

1. In MARKETS & OIL NEWS, markets power up, Saudi Aramco puts up its prices and BP slashes jobs
2. In CONSUMER NEWS, we look at US and UK spending habits and the jobs slowdown
3. In INDIVIDUAL COMPANY NEWS, Mulberry cuts jobs, Lookers wobbles and Cathay Pacific gets a bailout
4. AND FINALLY, I bring you some number puzzles…

So markets continue to power ahead, the Saudis increase the oil price and BP cuts a chunk of its workforce…

Global stocks extend gains on growing hopes of economic recovery (Financial Times, Hudson Lockett) reflects the current strength in markets as they all followed the US higher. Interestingly, US stocks have shot up by over 40% from their lows in the middle of March – erasing all the losses – on hopes of a coronavirus cure/vaccine and relatively swift economic rebound powered by co-ordinated central bank action. * SO WHAT? * I must say that I find it a bit bizarre that with global economies facing almost universal recession, record levels of unemployment and astounding levels of debt we are seeing markets return to levels they were at when things were, by and large, going extremely well! OK, so the hope is that we bounce back quickly, but I think that unless there is a vaccine/cure for coronavirus before the autumn/winter (when we get back into ‘flu season again) gains are likely to be tentative. The good news is that most countries have taken this threat seriously and taken action but I think it is folly to think that everything is back on track. Production is likely to be slow because it will not be at full capacity (social distancing measures) and consumption won’t be great either as many households will be feeling poorer and/or nervous about going mad on the spending front – and what they do buy is likely to be heavily discounted. I’d also argue that the options to spend will be limited – for instance, how many restaurants, pubs and hotels do you think will be shutting down over the next 18 months?? You could argue that the coronavirus has advanced some industries a few years (videoconferencing, delivery etc.) and given other companies opportunity to cut “fat” out of their organisations (although what that consists of is debatable), meaning leaner organisations for the future. Another major factor to consider in the current strength of the US markets is that it is a reflection of the increasing power and influence of tech companies that have benefited immensely from this pandemic. Their increased weighting within the indexes means that market movements are heavily skewed towards them and can consequently mask the rather more sedate/disastrous performance of other industries. FWIW, I think that this pandemic has been a huge learning opportunity and a catalyst for companies –

and individuals – to rethink their ways of doing things (e.g. broadening their supply chains, giving employees better work-life balance etc.). I just hope they don’t slide back into old habits…

In ‘Thriving’ oil demand prompts Saudi Aramo to lift prices (Financial Times, Anjli Raval) we see that the Saudi Arabia’s oil minister said that the state oil company, Saudi Aramco, has been able to increase its export prices for July in every region. He noted that demand in Asia has been particularly strong as China lifted its coronavirus restrictions. * SO WHAT? * This all sounds like chat to me (but I may be wrong!). I can get my head around demand going up – from a VERY low level – but really?? It sounds like the Saudis are talking their own book because if they can get everyone else to believe that demand is going up, prices will go up and they can sell into a strong market. I guess that US shale oil producers could limit the upside as they come back onstream but I would have thought that we will see a more modest uptick in demand than the Saudis are saying. It’s not as if the world switched off for a bit of a holiday and then came back refreshed! Businesses have failed, consumers aren’t confident and there’s less global trading activity. Even if economies are talking about embarking on massive infrastructure projects etc. it’s not going to happen overnight – plus they’ve got all the reserves to go through first! Remember, it was the sheer amount of “warehoused” oil that sent the oil price into negative territory only a few weeks ago!

Away from all the Saudi bullish chat on oil, BP to cut 14% of global workforce as drop in oil price bites (Wall Street Journal, Sarah McFarlane) shows that the British oil major is going to cut almost 10,000 jobs, accelerating existing plans to streamline the company in the wake of the coronavirus outbreak. BP’s new-ish CEO Bernard Looney (he took the job on in February) is expected to unveil a company-wide reorganisation and has stated that he wants to reposition the company for a low-carbon future. * SO WHAT? * BP’s dramatic move follows not long after rival Chevron announced it was cutting its workforce by up to 15%. Royal Dutch Shell announced plans to “resize” in April and oilfield services companies Schlumberger and Halliburton have already cut jobs. As for BP going for a low-carbon future, this sounds great but it’s a bit like tobacco companies saying that they want to wean themselves off cigarettes and supply “healthier” alternatives – nice PR but even if it did happen it would, IMO, take decades.

US and UK consumers spend amid the jobs slowdown…

Americans spend billions to look good in lockdown (Financial Times, Alistair Gray) highlights spending patterns of Americans under lockdown. According to data provider Nielsen, Americans have spent $32.2bn on health and beauty products as the closure of hairdressers and nail salons has prompted people to give it a go themselves. Men’s hair clippers, hair dyes and nail polish were among the big sellers as they saw sales increase by 53%, 156% and 150% respectively as everyone tried to look good on Zoom (and de-stress)!

Meanwhile, Retail sales figures give recovery hopes a lift (The Times, Philip Aldrick) says that GDP figures due out later this week will show that although our economy is now in the deepest recession for three hundred years, there are signs of growth. Helen Dickinson, chief exec of the British

Retail Consortium, pointed out particularly strong sales in food, clothing and beauty, office supplies, fitness equipment and bicycles, with DIY also starting to benefit as garden centres opened up. * SO WHAT? * It’s interesting to see what people have been spending their money on during lockdown, but as shops open I think that spending patterns will change again. I would imagine they will broaden but do not expect a major sustained uptick in discretionary spending across the board.

Jobs slowdown ‘unprecedented’ as one in six firms wields the axe (Daily Telegraph, Tom Rees, Tim Wallace and Michael O’Dwyer) cites Andy Haldane, one of the Bank of England’s Monetary Policy Committee (MPC), as saying that the gap between rich and poor is widening as lower-paid workers and young people are the ones who are disproportionately losing their jobs. A survey by Manpower painted a gloomy picture on the job front, but its MD Mark Cahill pointed out that about 75% of employers are expecting to maintain staffing levels for this quarter and over 50% believe they will return to normal hiring levels going into the beginning of next year.

Mulberry cuts jobs, Lookers is in more trouble and Cathay Pacific gets a bailout…

There’s more bad news on the jobs front in Mulberry to cut 25% of global workforce as coronavirus hits sales (The Guardian, Mark Sweney) as the luxury British brand decides to shed jobs in order to reduce costs. Sales have fallen during the pandemic and the company will be making the cuts across the whole business. On the plus side, Mulberry will be undergoing a phased opening of some of its UK stores from 15th June after having already reopened its stores in China, South Korea, Europe and Canada. It said that online sales had been decent, but not enough to offset the overall weakness.

Following on from last week’s job cut announcement, Lookers puts brakes on results again (Daily Telegraph, Alan Tovey) highlights the fact that the company has delayed the announcement of its results yet again amid allegations of fraud. Auditor Deloitte is also resigning due to

growing concerns at the business while Grant Thornton has been brought in to check the books. The company originally planned release its results in March, but it is now looking to release them by the end of August. * SO WHAT? * Markets do NOT like it when a company delays the publication of results as it is generally a sign of weakness or something dodgy going on in the background – and yesterday was no exception as the share price fell by 20%. It is currently under investigation regarding suspect transactions in one of its divisions.

Hong Kong government to take stake in Cathay Pacific (Financial Times, Primrose Riordan) was announced this morning as the government has decided to take a 6.1% stake in its own flag-carrier and get a seat on the board. It will put in HK$27.3bn into a bailout in the form of a bridge loan, preference shares and warrants. Swire Pacific will remain the biggest shareholder with a 42% stake, Air China will have a 28% stake and Qatar Airways’ will have 9.3% after the deal. * SO WHAT? * This is particularly notable as the Hong Kong government rarely takes stakes in private companies – but clearly airlines around the world are in tremendous strife at the moment and Cathay Pacific is no exception.

…in other news…

I thought I’d leave you today with the brainteasers in Give your brain a workout with these unique number puzzles (Popular Science, Claire Maldarelli https://tinyurl.com/y6usnsuf). Good luck!