Wednesday 05/08/20

  1. In COMMODITIES NEWS, BP tries to go green, oilfield services companies continue to suffer and gold breaks $2,000
  2. In TECH NEWS, the TikTok drama continues, Twitter gets a big fine, Sony benefits from lockdown and Google/Fitbit gets the full EU treatment
  3. In HIGH STREET NEWS, both Dixons Carphone and Pizza Express make cuts
  4. In INDIVIDUAL COMPANY NEWS, Disney goes into the red, EasyJet increases flights and Diageo has a hangover
  5. AND FINALLY, I bring you sushi cake and a weird illusion…

1

COMMODITIES NEWS

So BP makes green noises, oilfield services continue to suffer and gold hits a new high…

Green pledges help BP to shine despite record loss (The Times, Emily Gosden) shows that BP had a bit of a mixed bag yesterday. It disappointed on the one hand with the announcement of a halving of its dividend and a record $17.7bn loss but then gave some investors reason to cheer as it announced an ambitious new green energy strategy whereby it would increase its alternative energy investments tenfold over the next decade to $5bn a year. The idea is that it will still invest around 50% of its annual spending in oil and gas that would generate cash to invest in wind and solar projects and transition it from being an oil and gas company to a broader energy company. * SO WHAT? * This is quite some statement coming from one of the biggest oil companies in the world. I think it sounds like a noble idea, but let’s face it CEO Bernard Looney has only had the top job since February this year. He is a BP ‘lifer’ who does what pretty much every new incoming CEO does – and that’s to do a major review and put his stamp on things so people can’t accuse him of benefiting from the work of predecessors. It would be great for the environment if he sticks to this new ideal, so we’ll just have to see whether he executes or falls short. In a weird kind of way, I wonder whether BP has actually been helped by the coronavirus. The world has been moving towards embracing alternatives for a while now and the low oil price (although it’s not THAT low now!) and coronavirus outbreak have given BP an excuse to do an almighty clear out and review of current assets. Alternative energy has made great

strides in the last few years as an increasingly viable proposition and if BP can put its full financial weight behind it, advances will just accelerate. Let’s hope BP lives up to its promise!

Parched US shale patch crushes oilfield services sector (Financial Times, Myles McCormick) shows that the oilfield services companies who do the donkey work for oil companies like drilling wells, laying pipes and maintaining roads are continuing to suffer. According to Goldman Sachs estimates, listed US oil producers have cut capex by about 50% and companies such as Schlumberger, Halliburton and Baker Hughes – with a combined market cap of $55bn – have taken almost $45bn in writedowns over the last year. Although activity is picking up, it’s not happening fast enough for the US shale industry and consultancy Rystad Energy reckons that global spending on oilfield services will fall by 25% this year. * SO WHAT? * Times are very hard indeed for the oil industry generally, but America’s exposure to the more expensive-to-produce shale oil means that it will probably be hit harder than most. It seems like Saudi Arabia’s plan to keep oil prices low to defeat the American producers has worked quite nicely – although there has been some collateral damage in the process.

Then in Gold price hits record $2,000 as investors seek safe-haven (Daily Telegraph, LaToya Harding) we see that the price broke through $2,000 for the first time in trading yesterday as demand continues to be driven ever-upwards by investors seeking out safe-haven assets. The gold price has risen by over 30% so far this year! Interestingly, Bank of America Global Research analysts believe that gold could reach $3,000 an ounce over the next 18 months as the trend continues…

2

TECH NEWS

The TikTok thing continues, Twitter gets a big fine, Sony benefits from lockdown and Google/Fitbit will get the full treatment…

TikTok defends sale of US arm as investors move behind Microsoft (Financial Times, Henry Sender, James Fontanella-Khan and Demetri Sevastopulo) highlights the increasing drama going on in the fight for TikTok in America. In a letter to employees, ByteDance chief exec Zhang Yiming said that he had “no choice” but to accede to Trump’s demands to sell the app in order to avoid punitive action by the Committee on Foreign Investment in the US (“Cfius”) which could completely ban TikTok in the US. Interestingly, Microsoft is also seeking reassurance from China that there won’t be any retaliatory measures taken against it if the sale goes ahead – and there is even talk that Microsoft might sell some of its China business to ByteDance to smooth things over. On the other hand, TikTok owner hits back over claims he caved in to Trump (The Times, Simon Duke) shows that ByteDance has been facing criticism from China for caving to Trump and some users of Douyin, China’s domestic (and and more advanced!) version of TikTok have said they will delete the app in protest. * SO WHAT? * This is a tricky problem for Zhang Yiming as he is going to have to placate both the Chinese and American sides to this tetchy deal in order for ByteDance to emerge unscathed. I think that, ultimately,

he’ll do pretty well out of it (he’ll surely keep a chunky share in it). As I said yesterday, I don’t think he’ll get LOADS of heat from the Chinese government on this because it’s not exactly a strategic asset – BUT the Americans will probably need to sweeten the deal a bit so he can emerge with at least a bit of dignity. 

Twitter braced for $250m fine over ad data (Daily Telegraph, Margi Murphy) shows that the social network may have to pay a hefty $250m fine for using people’s phone numbers and e-mails for targeted advertising without users’ knowledge following a complaint from the US Federal Trade Commission. This covers 14m people in the UK between 2013 and 2019 (!). Naughty naughty. This is why I laughed when Twitter took the moral high ground versus Facebook on political advertising. Twitter is just as bad as everyone else!

Then on the tech hardware side of things, Lockdown’s captive market for Sony (The Times, Simon Duke) highlighted Sony’s strong performance over the latest quarter thanks to the boom in online video games over lockdown. Sony will be looking forward to another boost later this year when the PS5 goes on sale. * SO WHAT? * OK, so other divisions like films aren’t going to do so well due to delays in production and closed cinemas but games have done really well. I think that covid provided a boost that Sony would not have been expected as game and console sales tend to fall off in the run-up to a new console launch. The success of the launch will depend on timing and what the games line-up is like.

3

HIGH STREET NEWS

The gloom continues with job cuts at Dixons Carphone and Pizza Express…

Dixons Carphone to get rid of 800 managers across UK stores (The Guardian, Zoe Wood) shows that the electrical goods retailer is cutting costs despite benefiting from brisk sales of laptops, monitors and games consoles during lockdown as people kitted themselves out for working from home and home-based amusements. The company said it was trying to create a “leaner” management structure at its outlets and the latest cuts are in addition to the 2,900 announced in April when it closed the Carphone Warehouse chain.

Then in Pizza Express puts 1,100 jobs and 67 outlets at risk as buyer sought (Daily Telegraph, Hannah Uttley) we see that the pizza chain is looking to close 67 of its restaurants in the UK, putting 1,100 jobs on the line. It is making deep cuts now as its current owner, China’s Hony Capital, is looking for a buyer. A restructuring is taking place under a CVA which will mean the closure of about 15% of its store portfolio, but it is subject to approval by landlords and creditors. Hony Capital will retain ownership of the mainland China business. * SO WHAT? * The tough times continue for casual dining chains. The landscape that was already changing before covid hit was put into overdrive under lockdown and it’s still unclear as to how things will look even a few months from now.

4

INDIVIDUAL COMPANY NEWS

Disney goes into the red, EasyJet targets more flights and Diageo suffers…

Disney slips into the red for first time since 2001 (Daily Telegraph, James Titcomb) highlights the current state of the company as the entertainment giant was hit by their theme parks, cruise lines, movie business and sports broadcasting businesses all being hit at the same time by the coronavirus. Sales cratered by a whopping 40% in the latest quarter. Disney Plus, on the other hand, has been wildly successful. * SO WHAT? * Who’d have thunk it, eh?? Virtually everything Disney does was hit by lockdown. Its cruise ships remain docked, blockbuster projects like Avatar and Star Wars have been delayed and its theme parks, when operational, run on very limited capacity. It will just want to hunker down and weather storm until it passes.

Then in EasyJet to increase flights after passenger demand rises (Financial Times, Tanya Powley and Sarah Provan) we see that EasyJet plans to increase flights this

summer due to continued strong demand despite rising numbers of coronavirus cases in Europe. Despite this, it will still only be flying at 40% of last year’s capacity going into the end of September. This compares with Ryanair plans to run at 60% of its capacity in August and 70% in September. * SO WHAT? * It’s interesting to see this move and maybe what I said last week is coming true as initial fears of a complete travel collapse were overdone as those already working from home are probably more likely to be relaxed about the prospect of self-isolating on their return to the UK.

Lockdown leaves Diageo with hangover (The Times, Dominic Walsh) shows that the drinks giant suffered more than market analysts were expecting through the coronavirus as it had to take a big hit on its emerging markets business. It suffered through the closure of bars and restaurants, so potentially this may start to rise (slowly) as such outlets start to open back up. Clearly supermarket sales of brands including the likes of Guinness, Captain Morgan, Baileys, Smirnoff and Tanqueray were not enough to mitigate the loss of business elsewhere!

5

...AND FINALLY...

…in other news…

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Some of today’s market, commodity & currency moves (as at 0749hrs 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 **
6,036 (+0.05%)26,828 (+0.62%)3,307 (+0.36%)10,941 (+0.35%)12,601 (-0.36%)4,890 (+0.28%)22,519 (-0.30%)3,378 (+0.17%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$41.7700$44.5300$2,030.051.308061.18157105.621.1070311,296.41

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