Tuesday 28/07/20

1. In MACROECONOMIC & COMMODITIES NEWS, the dollar falls on virus fears, Chinese manufacturers profit again, an extension on Help To Buy is on the cards and gold hits record highs
2. In LEISURE/TRAVEL NEWS, the whole industry gets a massive kicking
3. In RETAIL NEWS, an online sales tax is being considered, things ain’t great for LVMH or Harrods and Amazon pressures grocery rivals
4. In INDIVIDUAL COMPANY NEWS, Moderna starts late-stage trials, AstraZeneca signs a cancer drug deal, Google tells its staff to stay home and Tesla fades
5. AND FINALLY, I bring you a DIY BBQ restaurant and some gummy bear horror stories…

So there’s European travel chaos, a banning of junk food ads and choppy waters ahead for businesses…

*** FYI, re podcasts, I’ve been doing a weekly one for the last few months that you can access via Apple Podcasts, Spotify and Google Podcasts (among others), but I started doing a daily podcast yesterday which goes into more depth on one or two of the Daily’s stories (around 5 minutes long). I will also include interviews with interesting people every now and again. I recorded one interview last week, for instance, with a lawyer who started out at a Magic Circle firm and went on to have a really interesting and varied career – I’ll put this up shortly ***

Dollar sinks to two-year low on concern over US virus toll (Financial Times, Harry Dempsey, Bryce Elder, Colby Smith and Hudson Lockett) shows that the dollar hit new lows yesterday due to investor sentiment taking a hit on the rising number of coronavirus cases. The dollar is now heading for its worst month since April 2011 as investors fear that the US is not controlling the spread of the virus particularly well. The US Federal Reserve is due to meet tomorrow and ultra low interest rates are expected to stay super-low, putting more pressure on the currency. Increasing US-China tensions aren’t great for the currency either.

Talking about China, China’s factories increase profits for second month (Daily Telegraph, Lizzy Burden) cites the latest data from the country’s National Bureau of Statistics which shows that manufacturers saw their earnings rise by the biggest margin in over a year! Manufacturers will certainly be pleased with a second consecutive month of profit. * SO WHAT? * There are worries that this rise is not

sustainable given the uncertain nature of the current US-China trade relationship, the sector’s major reliance on state-led investment and wobbly demand – both globally and domestically – as people worry about a second wave. Still, at least it’s good for now!

Back home, UK government draws up extension to Help to Buy scheme (Financial Times, Jim Pickard) shows that UK ministers are close to announcing an extension to the Help to Buy property support scheme. As things stand, it is due to end in December, but the Help to Buy Equity Loan programme looks likely to be extended in order to assist those whose purchases got caught up in the coronavirus pandemic (developers who were building their houses had to down tools for a few months). * SO WHAT? * It’s amazing to think that the programme started back in 2013, enabling people with a deposit of 5% of the property’s total value to get on the property ladder – but it has been criticised over the years as effectively handing developers money as they have just raised prices. The extension will apply to people who are already in the process but from April it will be replaced by a much stricter scheme that will only be open to first-time buyers and have region-dependent price caps. It seems to me that if you are a first-time buyer and have a cash lump sum (and a steady job/steady jobs) you are in a very strong position to buy a house at the moment as you will not only be able to take advantage of the Help to Buy scheme, you will also (probably) be able to take advantage of the stamp duty holiday! Happy days!

Then in Gold price hits record high amid fears over coronavirus crisis (The Guardian, Joanna Partridge) we see that the yellow stuff has hit new highs as investors worried about the world economy and bought something tangible instead. It has now overtaken the level of $1,920 it hit in September 2011, rising 28% this year. * SO WHAT? * Gold is seen to be a “safe haven” asset where investors park their money when other investments get too volatile/unpredictable and they are a way of hedging against falling assets such as stocks or currencies.

What a nightmare for the whole travel industry…

Further to what I was saying yesterday, European travel shares slide as new curbs hit recovery hopes (Financial Times, Philip Georgiadis and Jim Pickard) shows the immediate effect of the new travel restrictions on the €800bn European tourism industry, with the Spanish tourism industry bearing the brunt. Shares in Tui, Europe’s largest tour operator, fell by 11% while easyJet, IAG (owner of British Airways) and Lufthansa’s shares fell by 8%, 6% and 5% respectively. Tourism industry reeling as hopes to save summer season are dashed (Financial Times, Alice Hancock and Bethan Staton) also highlights the devastating effects that the latest travel restrictions have had on an already-fragile industry emerging from the pandemic and Ryanair has a few tricks left to see it through the pandemic (Financial Times, Cat Rutter Pooley) shows that, although the company’s shares fell by 4% (not too bad versus its rivals mentioned above) its quarterly results were actually quite good, all things considered. Although a second wave in the autumn could be devastating – and would result in more job cuts – but Ryanair has been hot on cost control, has a ton of cash in reserve having borrowed €600m through the Bank of England’s bond buying scheme, can borrow more money against around €7bn-worth of 737s and has the power to squeeze airports on fees by promising more passenger traffic. 2020 will be a terrible year, but Ryanair looks likely to weather it better than many others. * SO WHAT? * This is going to sound dramatic, but I think this is industry devastation on an epic scale. All the players within it are

going to have to just survive the best they can – and some will be better-equipped to do so than others. On the other hand, there is a danger here that we are overstating the impact. After all, many people have been working from home since the beginning of the outbreak and so it is possible that they could go on holiday and then come back and do the quarantine without that much impact because they have been working from home for some time anyway. Schools are out now and bosses are quite keen to get employees to take their holidays sooner rather than later so that they don’t have a massive holiday pile-up at the end of the year, so if you have been working from home anyway, have a valid passport and bit of money to spare, you will probably be able to bag yourself some bargains this summer (as long as airlines have enough flights to take you to your destination!).

Hospitality marches off a cliff (The Times, Dominic Walsh) cites the latest figures from a report by consultancy CGA which show that Britain’s hospitality industry has seen a £30bn collapse in sales in the three months since lockdown. The trade body UK Hospitality’s chief exec Kate Nicholls, noted how difficult the current situation is and added that “These figures substantiate our message that businesses still need support from the government”. * SO WHAT? * I am actually inclined to think that the whole Spain debacle could actually be a MASSIVE boost to the UK’s hospitality industry – which includes pubs, bars, restaurants, hotels and visitor attractions – because people are arguably going to be even MORE keen than normal to escape from the confines of their own home. If they feel uneasy about going abroad, I would argue that they will holiday in the UK. OK, so they won’t be able to pack visitors in like they used to because of social distancing, but surely numbers will see a marked improvement.

The government considers an online sales tax, LVMH and Harrods are having a tough time and Amazon aims to pressure grocery rivals…

UK weighs online sales tax to prop up high street (Financial Times, Jim Pickard and Chris Giles) shows that the government is weighing up a new online sales tax as part of a major overhaul of the current business rates system. Retailers had been crying out for changes in the business rates system before the pandemic hit, so this is likely to be a welcome move – although the results of the overhaul aren’t expected to see the light of day until next spring. Speculation has centred on a levy of 2% on all goods bought online in addition to a tax on customer deliveries. At the moment, it looks like the proposed online tax won’t be enough, so it is likely to run alongside business rates. * SO WHAT? * Although this is arguably a move in the right direction, it is a case of shutting the barn door after the horse has bolted. In fact, in this case, the horse has bolted, closed the door behind, galloped off at full speed into the horizon, found a mate and sired a few foals! Online retailing activity has just increased exponentially since lockdown and now that more people are used to its advantages, it is bound to continue to increase in popularity. Retailers have been going on for ages about the fact that they are being hobbled by having to pay rates and other taxes, meaning that their prices can never really compete with online rivals. An overhaul is long overdue, but at the moment it seems like the levy is just going to be an ADDITIONAL tax rather than something that will replace the current business rates system.

Elsewhere, LVMH profit plunged in first half (Wall Street Journal, Matthew Dalton) shows that the French luxury conglomerate has not been immune to the pressures of the

coronavirus as it announced yesterday that profit fell off a cliff in the first half of the year (surprise 😂!). Having said that revenues weren’t too bad considering and there were some decent performances by Louis Vuitton, Dior and its wines and spirits division. Profits got hammered, though, as the company couldn’t cut costs fast enough. Harrods fears tourists won’t be returning until 2022 (Daily Telegraph, Hannah Uttley) shows that Kensington’s little corner shop is expecting a 45% fall in annual sales due to the lack of Asian and American tourists. They account for 70% of Harrods’ revenues versus European tourists accounting for the rest. * SO WHAT? * Things are still rather tricky at the luxury end of the retail market, especially when the restriction of tourist movements are factored into the equation. They will just have to hunker down like everyone else, but it remains to be seen how quickly sales will bounce back when travel restrictions are lifted. For the moment, I would have thought luxury goods companies with more exposure to China will do relatively well as the pent-up spending power of the rich is released domestically – and Burberry has seen signs of this already.

Back in the real world, Amazon free delivery plan primed to hit grocery rivals (Daily Telegraph, Laura Onita) shows that the company is planning to offer free grocery delivery to its Prime customers as part of a massive expansion of its Fresh food network. The offer will only be available in London and the South East initially, but it will be rolled out across the country by the end of the year. * SO WHAT? * This is REALLY going to shake things up. All supermarkets currently charge for delivery at the moment, so this move is going to throw the cat among the pidgeons because offering free delivery for supermarkets will hurt their margin – their profits are virtually zero as it is from online sales due to the increased overheads which encompass extra staff, drivers etc. I think that this fear has been in the background ever since Amazon bought Whole Foods back in 2017, but it is now becoming a reality. Maybe Aldi and Lidl are better off not offering a full delivery service after all…

There are some interesting pharma developments, Google tells staff to stay at home and Tesla loses its shine…

Moderna, Pfizer coronavirus vaccines begin final stage testing (Wall Street Journal, Peter Loftus and Jared S. Hopkins) shows that two of the most advanced potential coronavirus vaccines entered the key “phase 3” trials yesterday with Moderna testing in the US and Pfizer testing in both the US and overseas. Then in Astra signs Japan deal for cancer drug (The Times, Alex Ralph) we see that the British pharmaceutical giant has signed a deal with Japan’s Dai-Ichi Sankyo to develop a potential blockbuster cancer drug worth up to £4.5bn. Great news!

In other news, Google to keep employees home until summer 2021 amid coronavirus pandemic (Wall Street Journal, Rob Copeland and Peter Grant) shows that the company has become the first major US corporation to formalise such a concrete timetable and will make other tech giants think about their own plans to return in January. Many of Google’s suppliers must be devastated by this. Then in Tesla’s market ride reflects larger forces at work (Financial Times, Eric Platt and Richard Henderson) we see that the carmaker’s share price has been cooling down since it announced a strong second quarter of results last week. No one seems to know why the shares have powered up so strongly, although some point to the effect of trading apps such as Robinhood, as retail investors just piled in on momentum stocks like Tesla.

…in other news…

I thought I’d leave you today with the rather intriguing restaurant in We sent Mr. Sato off to Yakiniku Camp, the restaurant where you cook your own food (SoraNews24, Katy Kelly) and something that I discovered last week that made me laugh so hard in Man’s disturbingly graphic review of Gummy Bears has people crying with laughter (The Mirror, Courtney Pochin). If you don’t like toilet humour, I would not recommend you read the latter story…just sayin’…