Tuesday 26/05/20

  1. In MACRO NEWS, Beijing gets serious with Hong Kong, German confidence improves and Sunak talks “last resort” bailout plans
  2. In CAR-RELATED NEWS, Europe puts big money into EVs, VW loses in court, Nissan mulls more cuts, Hertz goes under and Uber makes cuts in its self-driving division
  3. In INDIVIDUAL COMPANY NEWS, Lufthansa gets a state bailout, Shopify continues to benefit and Novacyt eyes a windfall
  4. AND FINALLY, I bring you the correct way of folding crisp packets and an amazing raffle…



So Beijing gets tough, German confidence improves and Sunak talks bailouts..

Beijing’s message to HK: ‘We waited for you guys long enough’ (Financial Times, Tom Mitchell) highlights China’s impatience with Hong Kong and the effect that last week’s announcement – that it would impose a new national security law – had on the territory. The move was condemned by the international community and set off Hong Kong’s largest street protests since the coronavirus lockdown on Sunday. * SO WHAT? * You will recall that last year, Hong Kong chief exec Carrie Lam’s clumsy handling of a proposed extradition agreement between Hong Kong and China led to six months of mass protests and Lam backing down. The new security law is even more controversial and so it seems that Beijing has decided to bypass her and impose it themselves. There will no doubt be more criticism – but I suspect it will be all noise and no back-up as I doubt anyone will be minded to implement sanctions on China at this moment in time. Having said that, Trump might use this as an excuse to tear up the phase one trade agreement with China that was probably doomed anyway and make him look a bit macho to the American electorate into the bargain. 

Global flickers of hope after German data hints at revival (Daily Telegraph, Tim Wallace) highlights pockets of hope around the world that suggest that there is a gradual movement towards normality. Japan’s state of emergency has been downgraded and the country is now allowing some flights. Spain has been lifting restrictions and now cafés and restaurants have opened in Greece. The influential German Ifo survey now points to businesses being increasingly confident about the future across services, manufacturing and exports. This will be a source of some comfort in Europe, given that Germany is its main economic driver.

Unions and business support Sunak’s ‘last resort’ bail out plans (The Guardian, Jasper Jolly) highlights the Chancellor’s plans to help strategically important companies with taxpayers’ money. The plan is called Project Birch and the idea of it is to limit the tsunami of job losses in sectors that have felt the most damage during lockdown. Virgin Atlantic, Loganair, Rolls-Royce, Jaguar Land Rover, Aston Martin and Tata Steel are all appealing for government aid at the moment. Details are still being hammered out, but at least there is movement in the right direction because, after all, it’s not just the companies themselves that will be affected – it’s the whole supply chain.



Europe ups its EV investment, VW takes a legal blow, Nissan considers cuts, Hertz goes under and Uber reduces employee numbers in self-driving…

Europe eclipses China in electric vehicle investment (Financial Times, Joe Miller) cites figures from the Brussels-based Transport and Environment campaign group which says that investment in electric vehicles and battery development has shot up over the last year, mainly due to VW’s push into emission-free vehicles. According to the report, the US currently lags Europe and China on electric vehicle investment. * SO WHAT? * European car manufacturers have had to invest in zero-emission technologies to comply with rules that kicked in at the beginning of this year which state that they have to cut their fleet-wide carbon emissions to an average of 95g per kilometre by 2021. Non-compliance will result in massive fines – so the sense of urgency is palpable! This is all very well and you will see loads of stats showing a huge percentage increase in the sale of electric vehicles – but the problem is that they are still a miniscule percentage of overall sales under more “normal” circumstances and although people may WANT to buy them, there is still the problem of poor charging infrastructure. This is not something that can be addressed overnight. It would also help if governments increased incentives to buy EVs – but that will be yet another expense for the government that could, arguably, slide down the list of priorities given what’s going on at the moment.

Talking about VW, German court rules against Volkswagen in ‘dieselgate’ scandal (The Guardian, Jasper Jolly) highlights VW’s loss in a landmark legal battle in the highest civil court in Germany over compensation for the purchaser of a secondhand minivan that had the emissions-cheating software. VW now has to pay the plaintiff €28,257.74 in compensation. * SO WHAT? * This will pave the way for the payment of compensation to 60,000 German VW owners and is the latest blow to the carmaker. VW has thus far paid out over €30bn in fines and compensation around the world since the scandal first came to light in 2015. It currently faces 91,000 consumer claims under a group litigation order in the UK and is disputing allegations that it installed an emissions-cheating device. It seems that many owners are set to receive a very useful windfall during current lean economic circumstances.

There’s more gloom in the automotive industry in Nissan, Renault prepare billions of dollars in cuts (Wall Street Journal, Sean McLain and Nick Kostov) which gives us the heads-up that Renault and Nissan are to announce huge cost cuts this week on Wednesday, Thursday and Friday. Nissan is aiming to cut vehicle capacity by a million vehicles and Renault is thought to want to cut costs by 20% over the next three years. * SO WHAT? * This is basically unpicking all the growth that previous boss Carlos Ghosn was so keen on. Rightly or wrongly, he is being blamed for a lot of the company’s ailments but the fact is that all car manufacturers are suffering from poor sales around the globe. It’ll take a few years to see whether this “right-sizing” is enough to help them survive.

In car-related news, Hertz was already in terrible shape. The pandemic finished it off (Wall Street Journal, Nora Naughton, Matt Wirz and Cara Lombardo) is a post mortem on Hertz, which filed for bankruptcy protection on Friday. All the major car rental companies are having a nightmare because they are hugely exposed to the airline industry, which is itself fighting to survive. Hertz was already in trouble with huge debts – but the coronavirus delivered the coup de grâce. * SO WHAT? * The company suffered more than rivals because it made a series of strategic errors, had ongoing issues digesting Dollar Thrify in 2012 and borrowed $19bn while traditional rivals Avis and Enterprise moved faster and new rivals, Uber and Lyft, started breathing down their necks. Anyway, if you are interested in an analysis in the downfall, definitely have a look at this article – it’s really interesting!

In Uber cuts employees from self-driving division (Daily Telegraph, Olivia Rudgard) we see that the company is making more cuts – this time at its previously sacrosanct self-driving division. Until now, this division has remained untouched because it is seen to be the future of the company, but this has changed and now 10% of its staff are to leave. It has also cancelled almost all internships and graduate positions. * SO WHAT? * Given what a mess Uber is in, it’s not surprising that it is getting a bit dramatic with the knife. The question is will it be enough?? I have not been a fan of Uber for a long time because I think it just burns cash at a silly rate and doesn’t seem to care at all about its employees contractors at all. The irony of it planning for a driverless future based on the money it has generated from human drivers is morally questionable IMO, but also I don’t like the fact that it is trying to be all things to all people all around the world and that it seems to flit from one “hot area” to another. At least rivals like Lyft try to concentrate on their knitting and aim for a geographical focus.



Lufthansa gets a leg up, Shopify continues to storm ahead and Novacyt stands to benefit…

I mentioned above that the airline industry is in dire straits at the moment and German government agrees €9bn bailout for Lufthansa (Financial Times, Joe Miller) reiterates that fact as the government will be taking a stake of at least 20% in exchange. The government said that it won’t exercise its voting rights and will sell its stake by the end of 2023. * SO WHAT? * This move is unsurprising and it’ll be interesting to see how/whether other countries follow suit. Under normal circumstances, the state taking an interest is a general no-no and is seen to engender unfair competition. It’ll be interesting to see how government bailouts benefit their respective flag carriers over the coming years. I would have thought that such subsidies will enrich the national airlines of rich countries whereas those of poorer countries will just go to the wall because their governments won’t be able to afford the luxury.

I must admit I was banging on about this company last week but Pizzas in the post: Shopify challenges Amazon for slice of lockdown trade (The Guardian, Zoe Wood) shows just how useful the Canadian e-commerce platform has been for retailers and restaurateurs during the coronavirus in helping them “pivot” to online sales. It has Amazon firmly in its sights! * SO WHAT? * This company appears to be an anti-Amazon in its working practices – and it’s good to see that Amazon will have decent competition. The announcement of Facebook Shops last week with Shopify as one of its partners is a real stamp of approval IMO. Let’s hope that its proposed warehouse and logistic network expansion goes to plan!

Then in Virus test makers in line for windfall (The Times, Alex Ralph) we see that the company making Covid-19 antivirus tests, Novacyt, could be paying out its top management some big bonuses after its shares have risen from 13p at the end of last year to a peak of 491p last month! They fell to 320p on Friday as investors have taken profits, but it seems that bosses in the company will benefit from supplying its Covid-19 test to over 100 countries, having received over £90m-worth of order by late April. It expects demand for its test to continue through to the end of this year at least.



…in other news…

You all know that I’m all for improving your lives, right? Well I think that Woman claims simple folding technique is the ‘right’ way to seal crisp packets (The Mirror, Paige Holland https://tinyurl.com/y8ccvsu7) could be life-changing for some while Couple spend two years renovating cottage to raffle it off for £5 (The Mirror, Paige Holland https://tinyurl.com/y9dnvytm) sounds like it could be life-changing in a different way! What a prize!

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Some of today’s market, commodity & currency moves (as at 0746hrs 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 **
HOLIDAYHOLIDAY11,391 (+2.87%)4,527 (+1.86%)21,271 (+2.55%)2,847 (+1.01%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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