Tuesday 17/03/20

  1. In MARKETS & MACRO NEWS, the Dow collapses but there’s still ammo
  2. In RETAIL & HIGH STREET NEWS, Amazon announces a hiring spree, Halfords, Primark and Debenhams all have problems while LSL abandons talks with Countrywide, hospitality faces death and the lack of sporting events is to damage bookies
  3. In TRAVEL & LEISURE-RELATED NEWS, Airlines ask for help, Tui applies for state aid and railways could go under state control while streamers are doing very well
  4. In OTHER NEWS, I bring you some amazing egg art…



So markets take another pasting but the Fed has more up its sleeve…

Dow plummets nearly 3,000 points as virus fears spread (Wall Street Journal, Caitlin McCabe, Anna Hirtenstein and Chong Koh Ping) highlights the benchmark’s sharpest decline in the recent sell-off (which is saying something!) and reflects ongoing concerns about whether the Federal Reserve has enough in the tank to head off a recession. Fed deploys its full arsenal, but it still has some tools (Wall Street Journal, Nick Timiraos and Julia-Ambra Verlaine) highlights a few more tricks that the central bank could still use to help things – namely, the Term Auction Facility (which provides short-term loans to banks without the banks having to dip into the Fed’s emergency-loan discount window. The latter is something which they usually try to avoid because some interpret doing so as desperation) and the Commercial Paper Funding Facility, which it used in the wake of the financial crisis to increase the flow in the commercial paper market. Some are also urging the Treasury and the Fed to use a pool of money called the Exchange Stabilization Fund, which has $94bn, in

order to fund cash-starved businesses and healthcare systems. * SO WHAT? * TBH, the important things about these measures is the fact that they are there, that Fed chair Jerome “Jay” Powell is aware that he has access to them and that there is the will to use them if necessary (and they will be!). If he can conjour anything else up, I’m sure everyone would see that as a bonus. Clearly, in times like these, you don’t want to release everything at once (well, not too early, at any rate) otherwise you will be in a whole world of hurt with nothing left in reserve.

Equities buoyed by hopes of US coronavirus stimulus package (Financial Times, Hudson Lockett, Daniel Shane and Leo Lewis) shows that Asia stocks stabilised and US futures rose after yesterday’s biggest Wall Street sell-off for 30 years. Investors look inclined to believe that Washington will do enough to mitigate the impact of the coronavirus (at least today, anyway!). * SO WHAT? * It’s good to see the market taking a bit of a breather, but we are by no means out of the woods yet. Expect more volatility over time as we see rises on  governments announcing various stimulatory measures and falls on investor disappointment and negative company news. Having said that, I would expect a marked surge if and when the number of new cases starts to fall (as it is supposedly doing in China).



Amazon goes on a hiring spree, retailers have a very tough time, hospitality faces extinction and betting is also looking tricky…

Amazon to hire 100,000 warehouse and delivery workers amid coronavirus shutdowns (Wall Street Journal, Dana Mattioli) heralds a big move by the e-tailing giant as it plans to hire 100,000 employees in the US whilst also raising pay for those working in fulfilment centres, transportation, stores and deliveries in the US, Canada, UK and Europe. This sudden move reflects the need to meet rising consumer demand (Amazon already accounts for 39% of all online orders in the US!) whilst at the same time ensuring existing employee welfare. It is a significant uplift in numbers as the company employed almost 800,000 workers on a full and part-time basis as at the end of last year. * SO WHAT? * Given the sudden uptick in online retail activity for daily staples, this makes a lot of sense. Amazon is one of the few firms that has the financial firepower to do this. It also has the ability to take up any online retail slack from other companies who are struggling with the sudden increase in volumes.

Gear change at Halfords calls time on cycling shops (The Times, James Hurley) highlights the company’s decision to shut all of its 22 Cycle Republic shops and its Boardman Performance Centre next year, putting 200 jobs in the balance. After a strategic review found that the business was too stock-intensive with poor profit margins, it has decided to concentrate more on its profitable motoring business. It’s not completely abandoning cycling, though, as it said that it will still put money into Tredz, its online cycling business. * SO WHAT? * Given that the company announced three profit warnings last year and that the appeal of cycling appears to have peaked out for the time being at least, the writing was on the wall. It’ll be interesting to see whether the “new” owner of rival Evans Cycles, Frasers Group (which changed its name recently from Sports Direct) comes to the same conclusion or decides to double down on this area. I think that cycling has had a really strong few years since British success at the Tour De France and on the track at the Olympics, but it is losing momentum somewhat. Maybe Evans could take advantage of having one less competitor – or maybe Frasers Group’s chief exec could use the coronavirus and changing consumer behaviour as an excuse to make big cuts.

Elsewhere on the high street, European lockdown hammers Primark (The Times, Simon Duke) highlights drastic measures taken by the retailer, owned by Associated British Foods, to temporarily close 20% of its stores in France, Spain, Italy and Austria as Europeans

become increasingly homebound and Debenhams asks for rent holiday as shoppers shun streets (The Guardian, Angela Monaghan and Julia Kollewe) just reflects ongoing troubles at the embattled department store – but is also something that will no doubt become a cause that other retailers will be latching on to as shopper numbers continue to fall sharply.

LSL withdraws from Countrywide merger talks (The Guardian, Angela Monaghan) is another unsurprising consequence of the coronavirus effects as the estate agent mega-merger has been called off. It would have created a behemoth – and both Countrywide’s and LSL’s share prices fell on the news by 54% and 29% respectively. * SO WHAT? * It sounds to me like they are still trying to talk a good game, saying that housing sales have “seen some softening”, but surely the coronavirus has killed the market stone dead. Estate agents were starting to get cocky about rising prices and the positive momentum of a “Boris Bounce” at the beginning of this year, but I would imagine that the immediate effect of the anti-coronavirus measures will be to stop people from looking as they face potential uncertainty with their jobs – and the very practical thing that they probably won’t be able to physically carry out property viewings. I would expect more closures and job losses to come among estate agents.

‘Government has effectively shut hospitality sector down’ (Daily Telegraph, Hannah Uttley) shows trade body UKHospitality highlighting the potential terminal impact of BoJo’s latest pronouncements yesterday on “social distancing” that specifically targeted pubs, restaurants and mass gatherings. Restaurant bookings have fallen by up to 50% on average in the UK so far – but that is obviously going to get a lot worse. * SO WHAT? * This means that many businesses won’t be able to claim insurance and may struggle to pay staff. Unfortunately, I would have thought many businesses in this area will shut down and not open again given how much they rely on regular cashflow. On the positive side, I believe that any business that can survive long enough to weather the coronavirus storm will see a MASSIVE uptick in business as customers suffering from state-imposed cabin-fever will rush back to these places when things calm down. Unfortunately, I would have thought that it is more likely that the larger, more boring, chains are the ones that will survive as legions of independents fail. Things were already looking difficult for casual dining operators – and this will potentially be the hardest test of them all.

Going will get £110m heavier, says Paddy Power and Betfair owner (Daily Telegraph, Simon Foy) shows that bookmakers will be suffering as the number of events to bet on dwindles by the day. Flutter, the owner of Paddy Power and Betfair, says that the coronavirus could hit earnings by as much as £110m. Clearly, the more events that are cancelled, the more the gambling industry will lose.



Anything travel-related continues to suffer but music streaming benefits…

Most airlines ‘will become bankrupt by end of May’ (The Times, Robert Lea) cites warnings from the Centre for Aviation, a leading aviation consultancy, as flag-carriers around the world ask governments for handouts. It said that many will already be technically bankrupt and that cash reserves will be running down rapidly as more planes are grounded. The consultancy also pointed out that, thus far, governments have been uncoordinated in their response. Airports are already drawing up plans for job cuts. Travel giant in lockdown as it applies for state aid (The Times, Dominic Walsh) shows that Tui, the operator that benefited so much from Thomas Cook’s demise last year, has decided to cancel package tours, cruises and hotel operations “until further notice”. It says that it is in a strong financial position but it is also now applying for state aid guarantees to help the business until things get back to normal. * SO WHAT? * I bet that Hays Travel and Easyjet will be ruing their purchase of high street shops and launch of a new package holiday business respectively. They swooped in when Thomas Cook collapsed last year but will surely face a very difficult future as their business is decimated.

And on the subject of bailouts, Next stop, state control

after rail firms appeal for bail-out (Daily Telegraph, Oliver Gill) says that our railways could revert to state control as calls increase from rail firms for help as passenger numbers plummet. Existing rail contracts could be voided and replaced by a system that pays firms a fixed fee that doesn’t depend on the number of passengers who use their services. Negotiations are ongoing with the Department of Transport and other options are being considered. * SO WHAT? * I guess that this will at least keep our networks going in the meantime, but a long term plan needs to be put in place. In a way, I wonder whether a network shutdown (surely something like this is going to happen at some point in the near future?) would provide a rare opportunity for a complete re-set as private company and state priorities change. This would be nice in theory, but I suspect that any solution will be a rush-job given everything else that’s going on. It may even be one of those things where temporary measures end up becoming permanent ones given problems elsewhere in the economy.

On a positive note, Streamers on song in musical bonanza (The Times, Simon Duke) says that revenues for the British music industry are continuing to climb on the continued popularity of streaming and the resurgence of vinyl. Revenues at labels including EMI and FAMM are up, according to the latest figures from the BPI and money from subscription services like Spotify and Apple Music helped streaming to be the biggest contributor to the uplift. * SO WHAT? * I think that streaming is one of the few areas that will continue to grow as more of the world goes on lockdown and people’s need to be entertained continues unabated.



And finally, in other news…

I know that coronavirus news is everywhere and it’s all rather depressing – so how about we all forget it for a moment and marvel in Japanese mom wows us with her ‘eggstraordinary’ food art (SoraNews24, Katie Pask https://tinyurl.com/w764y2a). Just. Wow.

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Some of today’s market, commodity & currency moves (as at 0725hrs 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 **
5,151 (-4.01%)2,508 (+5.11%)6,9058,742 (-5.31%)3,877 (-5.41%)17,012 (+0.06%)2,780 (-0.34%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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