- In MACRO & OIL NEWS, Sunak promises more money and oil price prospects look poor
- In INDUSTRIES IN CRISIS NEWS, anything to do with planes looks pretty bad and meat processing nightmares aren’t good for pigs
- In INDIVIDUAL COMPANY NEWS, Apple decides to delay its 5G iPhone and Tesco starts to cut staff
- AND FINALLY, I bring you a lockdown idea you can try…
MACRO & OIL NEWS
So Sunak promises more money and oil prices weaken…
Sunak backs down and offers small firms 100% loan guarantees (The Guardian, Richard Partington) shows that UK Chancellor Rishi Sunak has relented and will now offer some of Britain’s smallest businesses 100% government-backed rescue loans. This move will enable businesses to apply for “micro-loans” worth up to 25% of their turnover with a £50,000 limit and they can apply in high street banks from next Monday. Sunak plans ‘gradual’ wind-down of job support scheme (Financial Times, George Parker and Daniel Thomas) highlights the Chancellor’s intention to wind state support down gradually in order to avert what would be a sharp rise in unemployment if the current scheme (where taxpayers pay 80% of furloughed staff’s wages) were to stop abruptly on the current June 30th deadline. As things stand, the official line is that no decisions have been taken on when and how to end the current scheme, but the government is surely thinking about it.
Meanwhile, oil is having a nightmare. Oil price heading for another plunge into the negative (Daily Telegraph, Ed Clowes) shows that the price for West Texas Intermediate (WTI – the US benchmark for oil) fell by over 27% and Brent Crude (the European benchmark) fell by over 8% as demand stays weak because OPEC-led production cuts aren’t
enough to turn the price around. The fact that oil storage is nearing capacity on a global scale means that negative oil prices could potentially happen again (where producers pay customers to buy the oil to take it off them) if the supply-demand balance doesn’t improve. In the meantime, buyers have got to store their oil somewhere and as land storage is particularly difficult to come by Tanker rates boom as refiners turn to floating storage (Financial Times, Neil Hume) shows that the demand for “smaller” tankers that can carry around 800,000 barrels of oil is now shooting up, as per their larger VLCC cousins. Customers are hoping to buy oil at current cheap prices, stick it on a tanker and park it off the coast somewhere until oil prices go up again, whereupon they will sell it. If you are thinking of doing this, it will cost you $173,000 a day to rent a Long Range 2 tanker – double what it cost around a week ago! According to Vortexa, an oil analytics firm, there are 72m barrels of oil floating (in tankers!) around the world at the moment – a hefty increase on the 33.7m barrels of floating stock just a month ago. * SO WHAT? * All this means that the whole industry is suffering and Oil collapse puts 30,000 jobs at risk (The Times, Greig Cameron and James Dean) shows the number of British individuals who could potentially be paying the price over the next 12 to 18 months, according to a report by Oil and Gas UK. The longer oil prices stay weak, the more we’ll see project cancellations and company bankruptcies – not to mention job losses in the companies that support the oil industry.
INDUSTRIES IN CRISIS NEWS
The air travel industry continues to look turbulent and meat processing problems are growing…
Norwegian Air says most of fleet will stay grounded until 2021 (The Guardian, Gwyn Topham) highlights a gloomy outlook for the airline which had to ground its fleet in the middle of last month and has temporarily laid off over 80% of its staff. The article also looks at some of the other airlines like Virgin Atlantic (which is trying to get money from the UK government at the moment), EasyJet (which said it’s able to survive for about 9 months after it got a £600m loan from the government and Bank of England), Lufthansa (which looks likely to get a state bailout), Air France-KLM (which is going to get around €10bn in total from the French and Dutch governments) and US carriers (who are in line to get a slice of two pots of $25bn, depending on their needs). As far as the plane makers themselves go, though, Airbus warns it is ‘bleeding cash’ and may need more job cuts (The Guardian, Kalyeena Makortoff) as the company announced it was putting thousands more of its staff on furlough. It recently said that it would slash production by a third and rumours are circulating about more job cuts being announced tomorrow. Boeing CEO sees slow recovery for global aviation (Wall Street Journal, Andrew Tangel and Doug Cameron) shows things aren’t much better at its American rival as Boeing’s chief says that he doesn’t expect air traffic levels to get back to normal for two or three years. He added that when things do calm down, the commercial market will be smaller and customers’ needs will change. And if that’s not bad enough, Jets from bust airlines set to flood the market (The Times, James Dean) shows that things could be even worse for the plane makers as thousands of cheaper planes could suddenly be available as airlines around the world go bust and the aircraft they have been leasing become available. Some in the industry believe that 10% of the world’s fleet of aircraft (about 2,400 planes) could be repossessed or put into storage and around half
of the world’s 800 airlines could go bust by the end of next month, according to forecasts from the Centre for Asia-Pacific Aviation. Aercap, Avolonand GE Capital Aviation typically rent out three to seven year old planes from Airbus and Boeing for between ten and fifteen years but many customers are asking for help, including payment deferrals. * SO WHAT? * This is an absolute nightmare for the whole industry and until travel restrictions are fully lifted there’s no chance of a return to normality IMO. I would have thought that individual customers may be less inclined to fly as household budgets have been squeezed for many. There may also be a lingering reticence about travelling too far afield given the recent experiences of travellers when the coronavirus hit initially. In addition to this, I would expect fewer travellers on business class as companies get used to using more videoconferencing and cut travel budgets to save on costs. All of which doesn’t bode well. Everyone in the whole chain from airlines to hotels to travel agents will surely have to discount heavily to tempt back numbers – but how long can they do that for?
Largest US meat company warns food supply chain is breaking (Financial Times, Gregory Meyer) follows on from other companies having to shut down their processing plants as staff are increasingly affected by the virus – now Tyson Foods has had to shut three slaughterhouses and partially reopened a fourth over the last week for the same thing. Currently, around 30% of US pork processing capacity and 14% of beef capacity has been shut down, but poultry appears not to have been as badly hit thus far. * SO WHAT? * Clearly, the lack of processing capacity has consequences and Pork Industry USDA discuss euthanazing hogs after coronavirus closes plants (Wall Street Journal, Jacob Bunge and Kirk Maltais) shows that, ultimately, pigs in particular could be slaughtered in huge numbers to ease the resulting bottleneck as new piglet deliveries fall due. It ain’t pretty and it’s kind of ironic given that pork was in great demand before the outbreak as China had to cull around half of its pig population last year due to an outbreak of African Swine Fever. Some of the methods people are talking about re killing the pigs are pretty shocking…
INDIVIDUAL COMPANY NEWS
I would say that Apple delays mass production of 2020 flagship iPhones (Wall Street Journal, Yoko Kubota) is a somewhat unsurprising headline given likely manufacturing issues caused by the coronavirus and the prospect of launching at a time when customers might be not be feeling rich enough to splash out on a new iPhone. That said, Apple is going ahead with plans to launch four new phones, some of which will have 5G connectivity and all of which will have OLED screens. The company normally launches mid-September, which means that production starts to ramp up in early summer, but it’s thought that the launch will now be delayed by about a month. * SO WHAT? * At this moment in time, it’s anyone’s guess as to how any 5G iPhones will be received by consumers given Apple’s expensive price tags. I originally thought that the
introduction of a 5G-compatible iPhone would give Apple a huge uplift in sales going into the end of the year, but now I am less sure because it’s difficult to tell how consumers will behave. Will they splash out anyway to cheer themselves up or will they just battle on with their current handsets? It’s too early to tell at the moment.
Tesco starts laying off workers hired at peak of pandemic crisis (Daily Telegraph, Hannah Uttley, Tim Wallace and Laura Onita) heralds a rather interesting development as the supermarket has started to lay off the first batch of the 45,000 workers it hired at the peak of the coronavirus outbreak due to lockdown measures starting to ease and employees who were laid low by the virus starting to return. * SO WHAT? * A number of businesses are making preparations to get back to work and the Confederation of British Industry (CBI) wants schools and public transport to start operating so that parents can return to work. This is obviously likely to go down badly with transport workers and teachers’ unions, but it sounds like thoughts are turning to a phased return to some kind of normality.
And finally, in other news…
I thought I’d leave you today with a little project idea you could do at home if you are lucky enough to be feeling bored at the moment 😜: Girl swaps family portraits for crayon drawings and no one notices for 11 days (The Mirror, Paige Holland https://tinyurl.com/yaxxzdb9). I mean, why bother learning a new language, musical instrument, catch up with long-lost friends etc. when you can do something as pointless as this 😂??
Some of today’s market, commodity & currency moves (as at 0744hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!
|FTSE 100 *
|Dow Jones *
|S&P 500 *
|Oil (WTI) p/b
|Oil (Brent) p/b
|Gold Per t/oz
(markets with an * are at yesterday’s close, ** are at today’s close)