Wednesday 01/04/20

  1. In MACRO & MARKETS NEWS, China shows signs of life, five countries look vulnerable and markets tank over the quarter
  2. In FINANCIALS & FINANCE NEWS, the ECB presses banks on cutting bonuses, insurers close loopholes, Grant Thornton gives its employees a tough choice, dealmaking suffers but the cash-rich circle for bargains
  3. In INDIVIDUAL COMPANY NEWS, Zoom faces criticism, Carnival aims to raise money and the Xerox/HP deal is abandoned
  4. In OTHER NEWS, I bring you boss potato and a daughter’s honest picture…



So China sees some positives, other countries remain vulnerable and the FTSE has a nightmare quarter…

China’s factories stage unexpected recovery (The Times, Philip Aldrick) highlights an uptick in factory activity as the official purchasing managers’ index published by the National Bureau of Statistics of China indicated growth in the manufacturing sector after a shocker in February. Although activity is still way short of normal levels, it would seem that the easing of movement restrictions is helping. Green shoots of recovery in China give cause for optimism (Daily Telegraph, Lizzy Burden) embraces the positive in manufacturing but also warns that there could be a chance of a second wave of infections as newly-mobile migrant workers and students emerge from lockdown.  * SO WHAT? * Given that China was the first country to get the coronavirus, this will give some hope to others around the world who are now in the midst of the current crisis. It does look like things will get worse before they get better but there is light at the end of the tunnel.

The five countries facing the biggest financial crunch due to this contagion (Daily Telegraph, Tim Wallace) cites the

conclusions of a weekly report written by JPMorgan economists which tracks the metrics of 40 countries, including GDP growth. Countries where forecast GDP growth has fallen the furthest include Mexico (because it is heavily reliant on a weakening US, which is at the epicentre of the outbreak currently), South Africa (because of its lockdown and potentially tough recovery), New Zealand (due to the lockdown and fall in food exports), Thailand (due to its proximity to China and reliance on the now-battered tourism industry) and Spain (as the lockdown has severely hampered its services industry and tourism has suffered from global travel restrictions). Clearly, these are economists’ best guesses and are difficult to get right in the midst of a pandemic – but they are still worth tracking.

FTSE 100 posts largest quarterly fall since Black Monday aftermath (The Guardian, Richard Partington) just tells us what we probably all expected anyway, but this benchmark has fallen by 25% in the first quarter – its biggest quarterly fall since Black Monday in 1987. What a state of affairs considering we started the year on new highs! European stock markets have also hit record lows and Futures fall after S&P suffers worst quarter since 2008 (Wall Street Journal, FrancesYoon) only confirms similar gloom stateside.



Banks face pressure, insurers close loopholes, Grant Thornton employees face tricky choices, dealmaking slows and vultures circle troubled businesses…

ECB financial supervisor urges banks to cut back on bonuses (Financial Times, Martin Arnold) shows that the chair of European Central Bank’s supervisory board, Andrea Enria,  has warned that unless banks cut their bonus payouts to employees he will get involved. This action to preserve capital followed on from Friday’s order from the ECB to freeze dividend payments and share buybacks for all 177 banks under its control until at least October. Banks scrap dividends and bonuses under pressure from regulator (The Times, Katherine Griffiths, Patrick Hosking and Ben Martin) shows that Barclays, Lloyds, Royal Bank of Scotland, HSBC and Standard Chartered officially stated that they would scrap dividends and cash bonuses after being pressured to do so by the Prudential Regulation Authority. * SO WHAT? * This is all about conserving cash for the moment and I suspect that banks actually WANTED to do this but needed the big bad regulators to threaten so they could go to disgruntled shareholders and say “I REALLY wanted to pay you, honest, but the regulator says that I can’t”, so they can shift the blame.

In other developments, UK insurers tighten terms to explicitly exclude coronavirus (Financial Times, Oliver Ralph) shows that insurers are desperately closing loopholes and rejigging policies to make sure that coronavirus claims will be excluded. Lots of insurance policies are up for renewal on April 1st and so insurers have been racing to make sure they won’t have to make coronavirus payouts in future. * SO WHAT? * On a business basis, you can see why insurers are doing this, but on a human and moral basis I would say what a bunch of *******s. There’s a risk that customers won’t bother to take out insurance if they think insurers won’t pay out, but I doubt the majority will have the balls to “strike” like this. The Association of British Insurers’ director-general Huw Evans said that providing broader coverage for future outbreaks would require “significant state partnership”, which basically means they won’t cover unless they are largely underwritten by the government.

Grant Thornton asks workers to cut hours by 40pc or take sabbaticals (Daily Telegraph, Michael O’Dwyer) highlights tricky times for the accountancy firm as employees have been asked to either cut their hours by 40% or go on a three-month sabbatical on 30% of their normal salary. Staff who don’t volunteer for this could be furloughed with the government paying 80% of their wages up to £2,500 per month. Demand for outside consultants has collapsed as companies have cut all non-essential spending. * SO WHAT? * This is a worrying sign as Grant Thornton is a major accountancy firm, albeit not one of the “Big Four” – but if IT is having problems, there will be many others who will be getting it worse. Others may use this as an example and take similar actions.

Dealmaking grinds to a halt on coronavirus impact (Financial Times, James Fontanella-Khan and Arash Massoudi) highlights another consequence of the coronavirus outbreak as the amount of deal activity has fallen off a cliff according to the latest figures. Many expect this to continue as companies who were thinking about making acquisitions have put things on hold as the outbreak unfolds. The pace of deals had already begun to slow in the US before the coronavirus really kicked in and the volume of European deals only rose because of a few anomalies. Vultures are circling over world in turmoil (The Times, Simon Duke, James Dean and Ben Martin) shows that some private equity firms and hedge funds are sniffing around for businesses to buy into at bargain basement prices. Pershing Square, an American hedge fund, has already made a $2.6bn profit from a $27m bet on the coronavirus causing a market meltdown and immediately reinvested the money in cheap stocks. Others will no doubt follow and investors who are cash rich stand to benefit enormously by the number of businesses that will be on offer. * SO WHAT? * Corporate financiers will talk a good game about a sharp recovery in the M&A market when the dust settles post the coronavirus, but I’m not so sure because so much damage will have been done by then. I would have thought that most companies will be concentrating on getting their core businesses to fire up rather than take on others and it will only be the limited number of cash-rich companies that will actually be able to benefit. I would say that the same applies to private equity firms and that many of them will have enough on their hands making sure the businesses they currently own are OK before they go on a shopping spree. Again, cash-rich funds stand to gain the most if they can buy good companies on the cheap – and they will be able to magnify their financial firepower by borrowing even more money at universally cheap interest rates.



Zoom faces security issues, Carnival tries to survive and Xerox abandons its hostile takeover bid…

I already mentioned the other day that Zoom was facing some security concerns but Privacy concerns grow over Zoom videoconferencing platform (Financial Times, Hannah Murphy) puts a cloud over the videoconferencing company’s burgeoning popularity as questions mount over data security and privacy. The New York state attorney-general, Letitia James, has raised official concerns with Zoom over whether it is able to cope with the huge rise in traffic on its app and protect user data. Worryingly for Zoom, Workers could sue over personal privacy if they have to use Zoom (Daily Telegraph, Margi Murphy) suggests potentially painful legal consequences if the company can’t get this right. * SO WHAT? * Zoom is obviously fighting its corner, but I think it will have to act very quickly indeed to quell any concerns and it will have to spend money on a positive PR campaign as soon as

possible because there are other alternatives out there who could win at their expense. Although users have taken them on very quickly, I don’t think they’ve been using Zoom for long enough to engender much loyalty – especially if they are using free accounts.

Carnival cruises seeks $6bn funding amid coronavirus fallout (The Guardian, Gwyn Topham) shows how the world’s biggest cruise operator is doing what it can to survive – by raising $6bn  from a combination of bonds, convertible bonds and shares. * SO WHAT? * Good luck to it as it faces a massive uphill battle. Consumers’ desire for cruises will have undoubtedly been dented by scenes of ships stranded at ports worldwide as the holidaymakers within slowly succumb to the virus, and cruise companies are particularly exposed to the over-70s, who are the most vulnerable to it. These are the most difficult of times for cruise ships…

And perhaps somewhat unsurprisingly, Xerox is ending hostile takeover bid for HP (Wall Street Journal, Cara Lombardo). Buying a company that is three times its size was always a big ask for Xerox, but current uncertainties were just the nail in the coffin for this particular deal.



And finally, in other news…

I thought I’d highlight a couple of amusing stories today. Boss accidentally turns herself into potato during video meeting – and can’t undo it (The Mirror, Courtney Pochin shows how quickly your status can take a pummelling and Mum mortified after daughter’s drawing of her goes ‘into a bit too much detail’ (The Mirror, Paige Holland is just brilliant.

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Some of today’s market, commodity & currency moves (as at 0730hrs 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 **
5,672 (+1.95%)7,7009,936 (+1.22%)4,381 (+0.19%)18,065 (-4.50%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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