Tuesday 16/06/20

  1. In MACRO & OIL NEWS, Chinese manufacturing gathers pace but consumer spending doesn’t, BP announces a massive coronavirus writedown and banks cut funding to shale producers
  2. In RETAIL & LEISURE NEWS, UK shops see queuing as they open, H&M shines and Cineworld faces legal action
  3. In PHARMACEUTICAL-RELATED NEWS, Royalty Pharma lines up the biggest US listing this year, the German government buys a slice of CureVac and the FDA withdraws approval for Trump-endorsed malaria treatment for Covid-19
  4. In INDIVIDUAL NEWS, Facebook launches WhatsApp Pay in Brazil, insurer LV= goes up for sale, jobs are shed at JLR and Travis Perkins and Bunzl pays back
  5. AND FINALLY, I show you what you could look like if you spend too much time on Netflix 😱 and what you can do about it…



So Chinese manufacturing gathers momentum but consumer spending doesn’t, BP announces a big writedown and banks cut funding to shalers…

China’s factories race ahead but consumer spending lags behind (The Times, Gurpreet Narwan) cites the latest official figures from China which show that industrial production increased by 4.4% in May – better than April’s +3.9% but not quite as good as market expectations of +5% – as the manufacturing sector benefited from state-sponsored infrastructure projects. On the other hand, household consumption disappointed as retail sales fell by 2.8% in the year to May – more than the market was expecting. Although sales fell for the fourth consecutive month, the rate of collapse has slowed down (which is some comfort) but it seems that Chinese consumers remain cautious despite strict anti-virus measures being relaxed. * SO WHAT? * This is a bit of a mixed bag and the road to recovery is not going to be smooth as exporters are suffering from sluggish global trade levels, meaning that domestic consumption is even more important than usual. Everyone remains nervous about the prospect of a second wave – something that is going to put a lid on any upside for the time being.

In oil, BP expects to take $17.5bn hit due to coronavirus writedown (The Guardian, Jillian Ambrose and Julia Kollewe) shows that the British oil major is making some negative assumptions about the future as it has decided to cut its oil price forecasts to around $55 a barrel on average between 2020 and 2050. This would mean that it will not be economically viable for the company to develop some fossil fuel discoveries. This glum forecast follows on from last week’s news about BP cutting 14% of its global workforce by the end of the year due to the global collapse

in demand for oil. * SO WHAT? * The company has suggested that the global pandemic will “accelerate the pace of transition to a lower carbon economy and energy system”. CEO Bernard Looney will soon announce detailed plans of how BP will be able to cut its carbon emissions to net zero. Call me old-fashioned/cynical, but I just don’t believe this. BP is a MASSIVE oil company. It seems to me that Looney is saying all the right things to please the environmentalists and saying that the job cuts are due to the coronavirus changing our long term behaviour (i.e. we are going to cut our use of fossil fuels). The fact is, green and well-intentioned or not, Looney will get the chop if he doesn’t turn the company’s fortunes around. By then the oil price might be higher and the temptation to go back to what BP is good at may be too attractive to turn down. I think his words are noble but I’ll need more convincing before I actually believe them. Also – a target of $55 a barrel between now and 2050?? He must be having a laugh. Who cares?? He might as well take a dart and throw it at a dart board to get a target like that 😂.

Banks cut shale drillers’ lifelines as losses mount (Wall Street Journal, Christopher M.Matthews and Andrew Scurria) shows that lower oil prices continue to have repercussions as banks are cutting credit lines to shale oil producers, who have been borrowing money over the last few years to expand. * SO WHAT? * Centennial Resource Development, Oasis Petroleum and Antero Resources are among those to have credit lines cut and it seems that the small-to-medium sized operators who make up 25% of US oil production are most at risk of bankruptcy. According to Rystad Energy estimates, if US oil prices stay around $30 a barrel this year, 73 oil and gas producers may have to file for bankruptcy protection followed by another 170 in 2021. Fortunately for them, the oil price seems to be turning up and some shalers are already restarting production as the oil price has hovered around $40. We’ll just have to wait and see whether a combination of Saudi Arabia and Trump talking up oil prices will continue to work.



UK shops experience queuing, H&M is a bright spot and Cineworld faces legal pain…

Long queues mask rocky outlook for retailers (Daily Telegraph, Hannah Uttley and Laura Onita) says that although media coverage yesterday showed massive queues outside shops, visitor numbers were down overall. Away from the scrums outside NikeTown and Primark, 90% of the retailers in London’s West End were open but the New West End Company estimated a 75% drop in footfall versus pre-outbreak levels. * SO WHAT? * Until the 2m social-distancing rule is cut/reduced and/or a vaccine is found, I don’t see how retailers are going to survive longer term. At least a 1m distance will give them a fighting chance – but at what cost ?? It seems that there is some pent-up demand out there, but consumers’ confidence and wallets have been hit badly overall, which will keep a buying frenzy in check IMO.

On a positive note, H&M offers its own ray of sunshine for the high street (The Times, Louisa Clarence-Smith) highlights a better-than-expected performance for the first two weeks of June, providing some cheer for an embattled retail sector. The world’s second largest fashion retailer (#1 is Inditex, owner of Zara) has been opening its 5,000 stores

in 62 countries gradually, in accordance with local guidelines, with the majority of its UK outlets opening yesterday. * SO WHAT? * The company’s going in the right direction but, as with other apparel retailers, it’s going to be a long road to normality. I would expect companies like this to see a bit of a blip in demand once people start to trickle back to the office in greater numbers – but whether or not that is sustainable will depend hugely on what is going on with consumer confidence.

In Cineworld faces legal action for pulling out of Cineplex deal (Financial Times, Alice Hancock) we see the latest example of a company trying to pull out of a deal it negotiated pre-coronavirus. Cineworld, the world’s second biggest cinema chain, faces potentially expensive legal procedings as Canada’s Cineplex launched an action against it for pulling out of a $2.3bn deal that was supposed to complete this month. The acquisition by Cineworld was originally announced in December and was due to complete at the end of June. * SO WHAT? * Given what’s happened in the world economy – and especially cinemas in this case – this is an unsurprising turn of events. Many deals that were negotiated pre-coronavirus have unravelled or are in the midst of unravelling. Sycamore Partners’ proposed acquisition of L Brands’ Victoria’s Secret was abandoned and LVMH appears to be thinking about its agreed purchase of Tiffany & Co – and there are others. There will be more to come as companies try to save money where they can.



Royalty Pharma’s IPO, Berlin buys into CureVac and Trump’s malaria drug is withdrawn…

There have been some very interesting developments in the pharmaceuticals sector today! Royalty Pharma poised for biggest US listing of this year (Financial Times, Richard Henderson) heralds a $2.2bn IPO that will knock Warner Music off the top spot for the biggest IPO of the year as the company tries to simultaneously surf the current IPO feelgood wave and take advantage of pharmaceutical sector buoyancy. There are going to be five IPOs this week in the US – and they are all of pharmaceuticals companies!

Then in Berlin takes €300m stake in biotech firm CureVac (Daily Telegraph, Vinjeru Mkandawire) we see that the German government is taking heed of recent advice for European nations to take stakes in key companies to avoid foreign takeovers. It is paying a slug of money to buy 23% of private biotech company CureVac, which is on the verge of clinical trials of its vaccine for the coronavirus. Apparently, the Trump administration had been sniffing around in a bid to secure supplies of any future vaccine.

Talking of Trump, FDA pulls emergency Covid-19 use approval for hydroxychloroquine, taken by Trump (Wall Street Journal, Thomas M. Burton) shows that the FDA has revoked its emergency-use approval for chloroquine and hydroxychloroquine because they have now been deemed to be ineffective for treating Covid-19. Back to the drawing board then!



WhatsApp Pay is launched in Brazil, LV= puts itself up for sale, JLR and Travis Perkins announce job losses and Bunzl pays back…

In a quick scoot around some of the other stories in the news today, Facebook launches WhatsApp-based digital payments service in Brazil (Financial Times, Hannah Murphy) shows that Facebook is continuing with plans to expand in emerging markets and introduce e-commerce on its platforms by launching its WhatsApp-based digital payments service. This will enable Brazil’s WhatsApp users to transfer money to each other for free and make purchases from small businesses all within the app itself. This will be the app’s first nationwide rollout as chief exec Zuckerberg outlined plans earlier this year to introduce it in Brazil, Mexico, Indonesia and India. * SO WHAT? * This will be useful for Facebook as it will allow it to gather even more detail about consumers and their spending habits (which will be very useful for advertising, for instance). This latest service comes hot on the heels of the introduction of

Facebook Shops which allows sellers to create digital storefronts in the app. The company has already been rolling out a similar service called Facebook Pay over Facebook and Messenger.

Elsewhere, Life insurer LV= signals potential £1bn sale (Daily Telegraph) shows that Liverpool Victoria, one of the UK’s last mutuals (i.e. owned by its customers), is considering selling itself off to “maximise its value”, Jaguar Land Rover to cut more than 1,000 agency staff in UK (The Guardian, Rob Davies) shows further evidence of misery in the automotive sector and Travis Perkins to cut 2,500 jobs and shut 165 in UK (The Guardian, Julia Kollewe) shows that the owner of Wickes and Toolstation is hunkering down in the expectation of a lean few years following the coronavirus outbreak.

On the other hand, Bunzl to repay furlough funds after trading boost from Covid-19 (Financial Times, Naomi Rovnick) shows that another company is aiming to “do the decent thing” and pay back furlough money to the government (Ikea is doing this as well) but Furlough funds: payback time (Financial Times, Lex) says that this will continue to be the exception rather than the rule because most will not be able to afford it.



…in other news…

OK, so this article is from last week, but I think its message still holds true: ‘Netflix addict’ models show what binge-watching Brits could look like in 20 years (Daily Star, Sophie Bateman https://tinyurl.com/y79za8eu) gives us a visual representation of what could happen to us if we spend too much time in front of the telly during lockdown. Yuck! I’ve been doing a fitness challenge for the last five weeks because I felt I was turning into one of these models and wanted to break out of the rut by doing a variety of things. If you want any inspiration for what the human body is capable of, maybe have a watch of this insane workout! Some (well, let’s face it – almost all) of these exercises are just incredible 😱

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Some of today’s market, commodity & currency moves (as at hrs 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 **
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