Tuesday 24/03/20

  1. In MACRO NEWS, the US wades in, Germany takes action, BoJo gets stricter and Ramaphosa orders a three-week lockdown
  2. In HIGH STREET/SUPERMARKET NEWS, Burger King wobbles, Eat shuts down for good and we look at US and UK supermarkets
  3. In INDIVIDUAL COMPANY NEWS, Pearson takes a hit
  4. In OTHER NEWS, I bring you a videoconferencing fail and the best cat video ever made…



So the US throws more money at the markets while Germany, the UK and South Africa take more drastic measures…

Federal Reserve launches aggressive plan to buy government-backed debt (The Guardian, Dominic Rushe) highlights the Fed’s latest intervention as it launched a plan to buy unlimited amounts of government-backed debt just as a massive business bailout was being debated in Congress. The Fed said it would relaunch a huge bond-buying programme, the snappily-titled Term Asset-Backed Securities Lending Facility (aka TALF), which was last used in the 2008 Financial Crisis, in order to keep the flow of credit to individuals and businesses. US stock-index futures and global equities rise after Fed move (Wall Street Journal, Joanne Chiu) shows that markets rose following this news after the Dow fell in trading on Monday due to the failure of a rescue package to get through Congress but Has Fed used up all its ammunition (The Times, James Dean) questions whether we are getting to the end of what the Fed can do to prop up markets. Its moves to unleash quantitative easing was expected but its sudden intervention in bond markets was not. It may have to look to the government to bolster its latest moves with a bailout package, but things look like they’re getting tight at the moment.

Elsewhere, Germany opts for drastic action to support economy (The Times) highlights the implementation of a hefty €750bn package of grants, loans and credit guarantees for companies and individuals which will push Germany into its first budget deficit since 2013. Measures include grants for the self-employed, unlimited credit for companies in crisis, a ban on landlords evicting tenants and extra money for hospitals among many other things. Johnson forced to close Britain in bid to halt rapid virus spread (Financial Times, George Parker, Sebastian Payne and Laura Hughes) shows that restrictions on movement will be tightening as “non-essential shops” were ordered to close down and people were told to stay at home unless they had specific reasons to go out. The new measures will be in force for at least the next three weeks. In Ramaphosa orders 3-week lockdown for South Africa (Financial Times, Joseph Cotterill) we see that South Africa’s president has now taken the most drastic measures in Africa to contain the spread of the coronavirus which will go into effect from midnight on Thursday. The number of cases in South Africa rose sixfold yesterday and the president said that “This is a decisive measure to save millions of South Africans from infection and save the lives of hundreds of thousands of people”. The armed forces will support the police in enforcing the new stricter rules. * SO WHAT? * Things are getting even more serious now but with the prospect of things slowly getting back to normal in China and South Korea reporting its lowest number of new cases in four weeks, at least there appears to be some light at the end of the tunnel – unless, of course, the loosening of measures results in a second wave.



Burger King wobbles, Eat closes and we look at US and UK supermarkets…

Burger King among UK businesses set to default on rents (Financial Times, Alice Hancock and George Hammond) shows that Burger King, Carluccio’s and Yo! Sushi are just some of the hundreds of businesses that will be witholding rents this week in order to save cash to survive. Burger King’s UK chief exec wants to save the money to be able to pay staff after the government said that employers who don’t pay will lose their leases. Quarterly rents are due tomorrow and many businesses will have difficulty in paying. * SO WHAT? * Everyone’s waiting for a government handout now – and Numis analyst Robbie Duncan said that if the real estate sector has to go two quarters without rent, it will be in dire need of one in order to survive. Landlord actions so far have been mixed, so I think it would be good for the government to have a clear policy.

Sandwich chain Eat closes permanently after 24 years (The Guardian, Rebecca Smithers) heralds a sad moment for many – including me (it was my joint favourite “chain” sandwich shop – the other one is Birleys FYI) – as Pret a Manger, which bought it in May 2019, announced it would be closing the remaining 90 branches permanently. You’ll have to go further afield to get your fix as the franchises in Paris Gare du Nord and Spain will be the only ones left. Pret itself announced the temporary closure of its 400 UK shops on Saturday due to the coronavirus outbreak. * SO WHAT? * This was predictable given the big losses Eat was

making, but I would have thought that the coronavirus accelerated its ultimate demise.

Supermarkets have spent decades planning for this crisis in the aisles (Daily Telegraph, Laura Onita) is a really interesting piece which informs us that supermarkets have been preparing for pandemics for years. Although pics on social media would have you think otherwise, supermarkets aren’t actually running out of food – they have just been edging towards a “just in time” supply chain over the years in order to minimise the storage of inventory. The problem now is that everyone is buying a bit more because there are more people are at home, no-one’s eating out and more staff are being sucked in to fulfil the massive uptick of online orders. New figures suggest that we have only spent 10% more than we normally would over the last three weeks and only 3% of buyers were hoarders. Clearly, the ordering from supermarkets themselves is now adjusting but the risk now is that staff will catch the disease and we see a second wave of bare shelves because there aren’t enough healthy staff to fill them. Grocers stopped stockpiling food. Then came coronavirus (Wall Street Journal, Annie Gasparro, Jennifer Smith and Jaewon Kang) shows that the same thing has been going on in the US. Supermarkets are now ignoring their own buying algorithms, contacting manufacturers directly and making decisions in real time. * SO WHAT? * You can’t really blame the supermarkets for moving to the “just in time” model given the savings they’ve made in rent, utilities and staff costs over the years – but now they are having to make drastic moves in additional hiring and product sourcing in order to keep up with the huge uptick in demand (one former Walmart exec observed that some major food sellers said they had sold three months of supplies in ten days!). Let’s hope that a “second wave” can be avoided.



Pearson’s profits take a pasting…

Test centre closures hit Pearson profit (The Times, Simon Duke) highlights a profit warning from the world’s biggest education publisher as its unexpected trading update sent the share price down by 9%. It had to close a whopping 22,000 testing centres that normally host nervous applicants for driving licences, nursing certificates and other professional qualifications but it expects pent-up demand to pick up once the coronavirus effects recede.

Pearson: school’s out (Financial Times, Lex) acknowledges the company’s shortcomings – especially its relative lack of virtual education capability – but points out that its strong balance sheet and education focus will ultimately prove to be a major boon to its longer term survival. * SO WHAT? * Pearson certainly has the content to make an impactful move to digital and maybe the coronavirus will give it more reason to do so sooner than it would otherwise have done. It may well have missed the current boat with online learning, but I would have thought that it has the wherewithal to rectify this sooner rather than later if it can get through this difficult time.



And finally, in other news…

Many people will now be working from home as the coronavirus hits harder. However, let the following be a lesson to all you WFH would-be multi-taskers out there: Woman suffers mortifying fail on video chat with colleagues while working from home (The Mirror, Luke Matthews https://tinyurl.com/tqx28tw). Oh dear. I don’t know how you recover from that one 😂. And then I thought I would end on what I think must be the greatest cat video ever made in Japan’s Cats and Dominos video warms the heart, makes us want to home and watch it all day (SoraNews24, Casey Baseel https://tinyurl.com/v6ow5ws). This should win an Oscar!

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Some of today’s market, commodity & currency moves (as at 0722hrs 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 **
4,994 (-3.79%)19,382 (+4.25%)2,331 (+4.18%)6,8618,741 (-2.10%)3,902 (-3.20%)18,092 (+7.13%)2,722 (+2.34%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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