- In MACRO, MARKETS & OIL NEWS, the US and UK consider further measures to mitigate coronavirus damage and we see market carnage and oil nightmares
- In RETAIL & LEISURE-RELATED NEWS, Tesco sells its Asian business, Amazon offers its tech and Cineworld takes a hit
- In TECH/MEDIA NEWS, Twitter comes to a Dorsey/Elliott agreement, Apple reports horrendous China sales and Quibi faces a hitch
- In INDIVIDUAL COMPANY NEWS, Aon buys Willis Towers Watson
- In OTHER NEWS, I bring you the weirdest new KitKat flavour yet…
MACRO, MARKETS & OIL NEWS
So the US and UK consider ways to pep things up, markets crash and oils prices crater…
Brace yourselves – there’s a LOT to cover today so let’s dive in!
Donald Trump floats tax cuts as response to coronavirus impact (Financial Times, Demetri Sevastopulo and James Politi) shows that Donnie T is considering a “major” economic relief package in order to mitigate some of the negative impact of the coronavirus outbreak. Bank expected to cut rates to 0.25% to battle recession (Daily Telegraph, Tom Rees) shows that investors are now expecting the Bank of England to cut interest rates by 0.5% (aka “50 basis points”, aka “50bps”, aka “50 bips” if you are talking about it) to 0.25% from the current 0.75% in order to boost the economy in the face of potential global recession. This is why Oil and stock futures rise after historic rout (Financial Times, Hudson Lockett and Leo Lewis) is happening today after headlines such as US stocks fall 7.6% in worst day since December 2008 (Financial Times, Philip Georgiadis, Adam Samson, Richard Henderson, Colby Smith and Hudson Lockett) are splashed across all of this morning’s broadsheets after yesterday’s market carnage. Things got so bad yesterday that we saw something very rare happening in Circuit breaker halts stock trading for first time since 1997 (Wall Street Journal, Akane Otani) where trading was suspended shortly after US stock market opening for the first time since October 27th 1997, aka “Bloody Monday”, when trading got suspended twice. Trading is automatically suspended when markets fall by 7% from the previous close to allow market participants to catch up with buy and sell orders and calm activity down. This “circuit breaker” was implemented following the “Black Monday” crash of 1987 where the S&P fell by 20%, in order to avoid the same thing happening again. If you are interested in seeing how events unfolded yesterday in a bit more detail, Twenty-four hours of mayhem (Daily Telegraph) does a brilliant timeline of what happened. Given that you are probably going to see a ton of articles that make comparisons with 2008, How this market crash is different from 2008, and the same (Financial Times, Mohamed El-Erian) is a very useful piece which compares yesterday’s crash with the one in 2008. In terms of differences, it was not instigated by a crisis in banking and settlements systems (they are actually OK) –
it was as a result of the confluence of three things. Firstly, the coronavirus is reducing supply and demand at the moment, hobbling global economic growth momentum; secondly, central banks have virtually no ammo to combat financial volatility because they cut their interest rates to the bone in the wake of the financial crisis and some of them left them there (look at the eurozone with its zero-per cent interest rate); thirdly, Saudi Arabia just picked an oil price war with Russia.
Following Saudi Arabia’s decision to increase oil production, Oil crash: why Saudi Arabia has started a global crude price war (Financial Times, Anjli Raval and David Sheppard) looks at the motivations behind this dramatic move after prices cratered by up to 30% in trading yesterday. Some say that the about-turn was a punishment for Russian non-compliance (OPEC members had previously agreed to oil production cuts and Russia refused to uphold this decision). It could also have been an attempt to consolidate its position as the world’s biggest oil exporter as it offered to undercut other suppliers by offering discounts. Saudi Arabia can raise production quite easily as it has loads of spare capacity and it can also use existing inventory to boost exports. Russia’s production, on the other hand, is currently running at peak levels. Coronavirus/oil price: war gaming the end of hydrocarbons (Financial Times, Lex) says that Saudi Arabia can still make money from oil even if prices go down to $13 a barrel whereas Russia prices in $30 a barrel for budgeting purposes (although I saw recently that it really needs oil prices to be at $42 a barrel to be profitable). * SO WHAT? * Saudi Arabia’s decision shocked markets and the subsequent sell-off was a knee-jerk reaction. Price recovery is happening as I write this, but I don’t really see how sustained this can be at the moment. In terms of what it means for the industry and consumers like you and me, Saudi Arabia’s gamble may push crude below $20 a barrel (Daily Telegraph, Andy Critchlow) cites some “expert” predictions, meaning that Price of petrol could fall to £1 a litre for first time in five years (Daily Telegraph, Ed Clowes). In the meantime, though, prolonged oil price weakness will hit some areas of the market particularly hard, as per US shale drillers could be casualties of oil-price war (Wall Street Journal, Collin Eaton and Rebecca Elliott) which says that shale drillers with high levels of debt, like Chesapeake Energy and Whiting Petroleum Corp, will get a massive pasting. In fact, the chief exec of Pioneer Natural Resources, Scott Sheffield, said that he thinks around half of the exploration and production (aka E&P) sector will go bankrupt within the next two years.
RETAIL & LEISURE-RELATED NEWS
In Tesco uses Asia sale to top up pension fund (The Times, Alex Ralph) we see that the supermarket has agreed to sell its Asian operations to a Thai conglomerate for £8.2bn. The sale is subject to shareholder and regulatory approval, but is expected to complete in the second half of this year if there are no hitches. * SO WHAT? * This move has been well-flagged and the proceeds will go to shareholders and Tesco’s pension scheme. Naysayers will say that this cuts off Tesco’s one true avenue of decent growth while supporters will commend it for acting on an opportunity and getting a decent price. Tesco will now have to concentrate on its 3,800 shops in the UK and Ireland as well as its Booker wholesale business.
Amazon signs smart shopping deals (The Times, James Dean) highlights the company’s signing of a number of deals to sell its cashierless technology (which it calls “Just
Walk Out”) to other retailers. The tech enables customers to swipe their credit card on entry to a shop and then leave with their purchases without having to go through a checkout, as per its own Amazon Go and Amazon Go Grocery formats. Amazon did not say who had made the deals or for how much they paid. * SO WHAT? * This sounds like another smart move by Amazon and gives it another good income stream. I would have thought that barriers to entry to this will be considerable given the complicated tech involved, and so I don’t see many other competitors being able to replicate Amazon’s expertise.
Cineworld’s biggest shareholder GCT cuts stake by a third (Financial Times, Alice Hancock) highlights a blow for Cineworld as Global City Theatres announced that it had agreed to sell a 7.9% stake in the business for around £116m. * SO WHAT? * This will be an annoyance for the company that is currently in the throes of buying Canadian cinema chain Cineplex for $2bn and comes a week after share prices in cinema companies got mullered by news of blockbuster film launch delays due to the coronavirus response. OK, so it’s not a complete withdrawal, but it does add to the company’s air of vulnerability. Tough times for Cinworld (and everyone else!).
Twitter, Elliott strike truce that leaves CEO Dorsey in place (Wall Street Journal, Corrie Driesbusch) heralds a truce between activist investors Elliott Management and celeb-CEO Jack Dorsey that will bring changes to Twitter’s board but leave Dorsey in place. Elliott’s attack dogs were also calmed by the company agreeing to allocate $2bn to share buy-backs. * SO WHAT? * This all blew up initially because Elliott Management wasn’t a fan of Dorsey splitting his time by being the CEO of Twitter and Square simultaneously. They argued that this meant he wasn’t maximising Twitter’s opportunities. Anyway, a potential high-profile battle has been averted for the moment, but Twitter/Elliott: peace in our time (Financial Times, Lex) wonders whether he will actually want remain as CEO going forward given the increasing number of babysitters.
Apple iPhone sales down 61% in China (The Times, James Dean) cites figures from the China Academy of Information
and Communications Technology which show a massive fall in iPhone sales last month. * SO WHAT? * Unsurprising given the circumstances, but the two key things to watch here are a) how long the coronavirus will go on for and b) how quickly consumers will start spending again – which no-one knows!
Streamer Quibi faces patent infringement claim over video feature (Wall Street Journal, Amol Sharma) heralds a fly in the ointment for short-form streamer Quibi, which is aiming for a launch of its service next month. Quibi offers content that is 10 minutes or shorter and is designed to be viewed on smartphones. The controversy centres on its “Turnstyle” tech that plays different videos depending on how users are holding their phones (vertically or horizontally – it means that you can toggle between different points of view), which New York-based company Eko says it is responsible for. Obviously, Quibi denies this. * SO WHAT? * Quibi is trying to be The Next Big Thing by doing something different (providing high quality short-form video content for between $4.99 and $7.99 per month), so this will be a bit of an annoyance. I don’t think this will disrupt the launch but it will dent a bit of the feelgood factor.
INDIVIDUAL COMPANY NEWS
Aon announces a purchase of Willis Towers Watson…
Aon’s $30bn deal to create insurance giant (Daily Telegraph, Michael O’Dwyer) highlights the company’s purchase of Willis Towers Watson that will combine the world’s #2 and #3 insurance brokers to create the world’s biggest commercial insurance broker. This follows last
year’s purchase of Jardine Lloyd Thompson by Marsh & McLennan. * SO WHAT? * The industry has been consolidating in an effort to diversify income streams, increase commissions and become “one-stop-shops”. The deal will be subject to shareholder and regulatory approval.
And finally, in other news…
What is it about Japan and KitKats?? I love both, but just can’t work out the logic behind Yoghurt Sake is the newest Japanese KitKat we need to get our hands on right now (SoraNew24, Oona McGee https://tinyurl.com/rjhsznq). Whaaaaaat???
Some of today’s market, commodity & currency moves (as at 0850hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!
|FTSE 100 *||Dow Jones *||S&P 500 *||Nasdaq**||DAX *||CAC-40 *||Nikkei **||Shanghai **|
|5,966 (-7.69%)||7,951||10,625 (-7.94%)||4,708 (-8.38%)||19,867 (+0.85%)||2,997 (+1.82%)|
|Oil (WTI) p/b||Oil (Brent) p/b||Gold Per t/oz||£/$||€/$||$/¥||£/€||$/₿|
(markets with an * are at yesterday’s close, ** are at today’s close)