Tuesday 12/05/20

  1. In MARKETS, MACRO & OIL NEWS, Asia markets wobble, Russia has leadership issues, German employers slash jobs and cheap oil has consequences
  2. In CONSUMER & SPENDING NEWS, Americans face challenges, UK household spending is actually worse than originally thought and we see that consumers aren’t spending on fun things
  3. In INDIVIDUAL COMPANY NEWS, Branson tries to use Virgin Galactic to save its earthbound counterpart, British Airways comes under criticism and Russia’s Yandex pivots
  4. AND FINALLY, I introduce you to an inspirational Malaysian school girl and, separately, the worst song I have EVER heard…



So Asia markets have a moment, Russia has leadership problems, German employers cut jobs and cheap oil has downsides and upsides…

Asia stocks fall on fears over new coronavirus infections (Financial Times, Hudson Lockett) highlights a market fall over fresh concerns over the ongoing impact of the coronavirus in the region. In China, producer prices fell at their fastest rate for four years and there were reports of new infections in Wuhan, coronavirus cases in South Korea increased due to lockdown euphoria going wild in Seoul’s nightlife district and Australia took a hit as China suspended red meat imports from four abbatoirs in the country. As I keep saying – I expect market volatility on increased sensitivity to coronavirus newsflow, however “big” it is.

Coronavirus leaves Russian government rudderless (Financial Times, Henry Foy and Max Seddon) shows that Russia’s having a few leadership issues at the moment as Vlad’s “new” PM, Mikhail Mishustin, is laid low with the virus and so stand-in Andrei Belousov has now taken on a job that surely no-one would want. * SO WHAT? * He is tasked with slowing down the rate of infections AND lifting the six-week national lockdown which is causing huge damage to the economy and will probably end up being Putin’s fall guy if it all goes wrong. He’s doing this with his hands tied behind his back because oil revenues that were supposed to finance a national infrastructure spending programme have been thin on the ground because of the ongoing oil price weakness. Russia needs oil prices to be at around $42bn to balance the budget. This is a tough ask.

There’s bad news in Europe as German employers slash jobs as coronavirus lay-offs mount (Financial Times, Martin Arnold) shows us what the future could be in the UK as even Europe’s strongest labour market is being hit by the outbreak as restaurants, hotels and recruitment companies are seeing huge lay-offs – over 50% of them, according to the closely-watched Ifo survey. Everywhere is being hit – carmaking, travel, sports and entertainment companies etc. Unemployment is now at a three-year high of 5.8%. When you consider that Germany entered the crisis with almost full employment, you can appreciate how dire the situation has become.

The cheap oil price continues to have consequences in Shale-drilling pioneer Chesapeake Energy warns its future is in peril (Wall Street Journal, Rebecca Elliott) as it said that it has hired advisers to look into options that include bankruptcy. * SO WHAT? * Another shale producer looks like it’s close to biting the dust, following in the footsteps of Whiting Petroleum, which filed for chapter 11 last month. Research firm Rystad Energy reckons that 140 US oil and gas companies will file for bankruptcy protection this year as they just can’t cope with an environment with prolonged weak oil prices.

But then on the flipside, Morrisons, Asda and Tesco cut petrol prices to less than £1 a litre (The Guardian, Rebecca Smithers and Jillian Ambrose) shows that normal punters in the UK will be able to at last take advantage of the weak oil price. * SO WHAT? * This will certainly help consumers who are actually using their cars at the moment – but there are not so many of them these days! Great news for key workers, though, as they have had to bear the brunt of garages keeping their prices high. Garages aren’t going to be able to do that for much longer now…



American and British household budgets are dented and there’s a lot less spending on fun things these days…

Millions of Americans to lose health insurance as jobless rate soars (Financial Times, Hannah Kuchler and Kiran Stacey) highlights a very concerning state of affairs as people losing their jobs will be losing out on health insurance in increasing numbers, putting more pressure on the White House to cover the costs. The government launched a scheme this week that will cover 28m uninsured Americans for the cost of coronavirus tests and treatment but insurers and healthcare providers say that it won’t be enough to cover laid-off workers who are going to lose their insurance. * SO WHAT? * Given that almost 50% of all Americans get insurance through their jobs (the average family pays over $20k a year for insurance!) you can see why this is a nightmare waiting to happen. Think about THAT when you clap for NHS workers this Thursday – we are SO lucky to have the NHS.

Back in the UK, Coronavirus hit household spending much harder than BoE assumed (Financial Times, Chris Giles)

shows that household spending fell by over 40% in April according to a survey of anonymised bank accounts conducted by the London Business School. The findings make it look like the Bank of England’s forecast of the worst recession in 300 years was too optimistic! This assumption was made on the premise that household consumption was down by “only” 30%.

Under Armour says revenue could fall 60% this quarter (Wall Street Journal, Micah Maidenburg) shows that the company is going to cut more costs as store closures bite while first quarter revenues fell by 23% versus the previous year. Execs think revenues could drop by up to 60% in the second quarter. Then Caesars, Eldorado revenues fall on coronavirus casino shutdowns (Wall Street Journal, Micah Maidenburg) highlights weak revenues for the first quarter, confirming a trend that we saw last week with MGM Resorts and Wynn Resorts.

Interestingly, Disneyland Shanghai reopens in test case for recovery (Financial Times, Christian Shepherd) shows that the theme park opened yesterday to a limited number of visitors who had to adhere to strict social distancing rules. This will be closely watched by everyone but could be a model that will be rolled out to its other theme parks around the world. Baby steps, I guess…



The airline dramas continue and Yandex pivots…

Branson sells $500m space stake to bolster Virgin Atlantic survivial (Daily Telegraph, James Titcomb) shows that Branson is resorting to desperate measures to save Virgin Atlantic as calls for government help seem to be falling on deaf ears. * SO WHAT? * This is interesting because it would mean that he will give up majority control of Virgin Galactic, but then it would raise cash to support the leisure, holiday and travel divisions of the business. I wonder whether the government is looking at billionaire Branson, thinking that he has a lot of assets he could sell off to keep Virgin Atlantic going and that any potential handout will only come when he has endured some pain as well.

Meanwhile, Walsh ‘using virus as cover for sacking thousands of BA staff’ (The Times, Robert Lea) shows Branson’s arch-rival in a bit of a PR pickle as MPs are slinging the mud with abandon at BA parent IAG’s chief Willie Walsh. * SO WHAT? * TBH, what do they expect? With the best will in the world, air travel is absolutely decimated everywhere you look and it is unlikely that travellers are

going to return in their droves until a vaccine/cure is found for the coronavirus. Although it is clearly an absolute nightmare for all affected, airlines just have to hunker down, cut as many costs as they can and survive this horrendous coronavirus “winter” and hope that it all goes away. Part of that will be cutting staff costs, painful though that will be. 

In lockdown, Yandex evolves from Russia’s Google to its Amazon (Financial Times, Max Seddon) shows how even a massive company can pivot in response to the coronavirus as tech giant Yandex has managed to benefit from a 75% growth in use of its delivery apps and drive more people to use its other platforms for search, blogging and streaming. Its two core businesses of advertising and taxis have been badly hit by the outbreak, but it is hoping that these other businesses can mitigate some of that damage. Its chief operating officer Greg Abovsky said in an interview that “This obviously will sound super ballsy/arrogant, but we potentially have an opportunity to build a FedEx in the space of a few months”. Wow! * SO WHAT? * We often hear about smaller companies being able to switch focus under the coronavirus outbreak, but it is interesting to see how a giant like Yandex adapts.



And finally, in other news…

I actually got quite emotional when I read this story: For Malaysian schoolgirl, homework is sewing PPE gowns to help beat coronavirus (Reuters, Ebrahim Harris https://tinyurl.com/yag5ev2z). What a great little girl! And then at the other end of the scale I thought I’d bring you what I think must be the worst song ever written in Get your lazy body movin’ with PPAP singer’s new fitness challenge song, “Hoppin’ Flappin’ (SoraNews24, Casey Baseel https://tinyurl.com/ydbwy8zd). O.M.G. 😱😱😱

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Some of today’s market, commodity & currency moves (as at 0742hrs 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 **
5,940 (+0.06%)9,19210,825 (-0.73%)4,489 (-1.34%)20,366 (-0.12%)2,892 (-0.11%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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