Wednesday 06/05/20

  1. In MACRO & OIL NEWS, Germany stirs things up with the ECB, world inflation drops, accurate stats will be more difficult to come by and oil prices calm down
  2. In CORONAVIRUS “WINNERS” & LOSERS, we look at online gainers and offline strainers
  3. In INDIVIDUAL COMPANY NEWS, Netflix looks towards reopening production, California sues Uber and Lyft and Wendy’s runs out of burgers
  4. AND FINALLY, I bring you the correct way to fold fitted bedsheets and some thunderbolt sand sculptures…



So Germany could be a fly in the ECB ointment, world inflation falls, stats get harder and oil prices calm down…

German court questions ECB stimulus (The Times, Bruno Waterfield) sounds like it could potentially be ominous for Europe as Germany’s constitutional court in Karlsruhe has decreed that Germany’s Bundesbank must pull out of the European Central Band’s massive €2tn stimulus in three months unless its judges can see evidence that bond purchases are “proportionate” to monetary policy objectives. * SO WHAT? * This puts a mini-spanner in the works for now because it will sow the seeds of doubt in the minds of investors that one of the ECB’s main ways of averting complete financial disaster could potentially be dealt a fatal (if not almost-fatal) blow. If the judges decide in August that they are not convinced that the frenzied bond buying is based on a longer-term strategy, this mini-spanner will turn into a HUGE spanner given that Germany is the eurozone’s biggest economy. Germany’s finance minister, Olaf Scholz, hastily pointed out that a lot could happen in three months, but behind closed doors, he must be tearing his hair out (actually, I’ve seen his picture – there’s not much left to tear out) about this decision. He’s talking a good game about European solidarity now, but this could be a nightmare for the ‘zone. The decision comes at a particularly sensitive time as the EU still can’t agree on how to finance a  pandemic recovery fund…

Inflation collapses around the world amid pandemic (The Guardian, Richard Partington) cites the latest figures from the Organisation for Economic Cooperation and Development (OECD) which show that inflation across a group of 37 advanced countries has collapsed at the fastest pace since the 2008 financial crisis. It fell from 2.3% in February to 1.7% in March. * SO WHAT? * I think everyone and their dog was expecting this, but I think it’s likely to get worse before it gets better as April will hardly have been a stellar month for most – plus the oil price was a disaster. This just puts a number on what we were all thinking anyway. 

With the economy frozen, statistics are harder to count on (The Times, Gurpreet Narwan) shows that members of the Bank of England’s Monetary Policy Committee (MPC) are going to find it harder to get accurate readings of what’s going on in the real economy because shopping habits have been turned upside down. Under usual circumstances, they gather prices on a “basket” of goods to ascertain whether prices are going up or down, but given that we either can’t or aren’t buying certain items the usual basket has become incredibly skewed. The Office for National Statistics is thinking about just using price estimates because data can’t be collected from shops. Although this story is from across The Pond, Wall Street ‘flying blind’ after companies scrap guidance (Financial Times, Richard Henderson) shows that this lack of concrete stats is starting to affect the predictive ability of analysts because many companies have stopped giving out guidance. What normally happens is that analysts have their own financial models of a company and use official company guidance to tweak their valuations. However, companies just don’t know what’s going to happen next month let alone in three months’, six months’ time – so any estimates you see now from analysts could be pretty shaky. * SO WHAT? * This lack of visibility from a government level as well as a corporate one is going to make planning for a world post-coronavirus much harder than it already is because there is a lack of solid data on which to base future decisions.

Meanwhile, Oil price recovery continues amid hopes of a revival in demand (The Times, Emily Gosden) highlights the recent recovery in oil prices as hopes increase about higher demand following the lifting of lockdown restrictions. As people start to go back to work, traffic levels are creeping up and factories are starting to produce again. * SO WHAT? * I am pretty sceptical about this big rise in the oil price because oil storage levels are still high and the OPEC-led production cuts also sound low. I just can’t see global trade returning to normal levels for some time and when you factor in things like a decimation in air travel cutting demand for fuel it just seems to me that this bounce is not really based on anything other than hope. Still, we’ll see!



Online gain, offline pain…

And in the “winning” corner today, we have Lockdown drives boom in healthcare apps (Financial Times, Siddarth Venkataramakrishnan) which highlights the massive jump in popularity of healthcare apps such as eConsult (which lets patients send GPs their symptoms in written form along with picture) and accuRx (which comprises text messaging, video consultations and document/picture sending functionality) which have benefited from being already integrated into NHS systems. The usage of such apps is crucial now but is likely to have long term ramifications. eConsult has doubled its reach to one in three surgeries across the UK and AccuRx has seen a rise in usage from about 50% of surgeries to 95% since March 9th. * SO WHAT? * Although this all sounds great, there are downsides – including privacy over some of an individual’s most sensitive information. Although tech is not likely to replace face-to-face contact in the long term, I imagine that the current pandemic has advanced its development by some years!

Going online delivers in lockdown (The Times, Simon Duke) cites research firm Global Data which says that spending on online groceries is going to increase by 25.5% this year and that demand will remain high even post-lockdown. Tesco is aiming to expand its 600,000-ish online order slots to 1.2m a week, Sainsbury’s is aiming to increase its online delivery slots by 75% to 600,000 while Asda and Morrisons have increased their capability significantly. And it’s not just groceries that have benefited – HelloFresh raises sales forecast as appetite grows for home meal kits (Daily Telegraph) shows that the German meal-kits-in-a-box seller has seen sales rise by two-thirds in the first quarter of this year on the back of a 62% rise in active customers over this time period. It also saved on marketing costs as well which helped turn a €26.1m loss to a €63.1m profit. It now forecasts sales to rise by between 40% and 55% for the full year versus original forecasts of 22-27%. * SO WHAT? * I think that online grocery shopping will indeed benefit long term as a result of the coronavirus pandemic, but this will increase costs for the supermarkets concerned which may feed through to prices on the shelves. It’ll be interesting to see how Aldi and Lidl react to this as they have not been able to benefit from the upside. I

wonder whether a potentially cheaper option of click-and-collect might be something they could do relatively easily (although that would require warehouse capacity). Although Ocado might see an uptick in interest from companies to use their technical expertise, it would take a while to feed through as Ocado’s facilities take time to develop.

And in the losing corner, Virgin cuts almost a third of staff and quits Gatwick (Daily Telegraph, Oliver Gill) shows the carrier axing over 3,000 jobs in a desperate bid to conserve cash; Norwegian Cruise Line warns of ‘substantial doubt” it will survive (The Guardian, Rupert Neate) highlights difficulties at the world’s third largest cruise operator as it attempted to raise $2.2bn to stay afloat quite literally and Airbnb to cut 25% of workforce as coronavirus stalls global travel (Wall Street Journal, Rolfe Winkler) all show how restrictions on movement during the outbreak are having devastating effects on pretty much anything to do with travel. Having said that, Europeans plan holidays as Airbnb sees signs of rebound (Financial Times, Dave Lee, Miles Kruppa and Alice Hancock) shows that bookings in a number of European countries are up. * SO WHAT? * I actually think that Airbnb might get out of this OK in the end because although movement restrictions are really hitting international travel, I think that people who have been cooped up under lockdown will have an urge just to go SOMEWHERE that’s not their home! This will help domestic tourism and I think that people will use Airbnb more as a result. Also, they seem to have investors that are willing to support it and now they have cut costs as well. What they lose in international visitors may be mitigated at least to some extent by the gain from domestic ones.

In the gloomy world of automobiles, Volkswagen warns of rising costs as car market faces deep recession (Financial Times, Joe Miller) highlights the rising cost of car parts putting pressure on any potential profits as it restarts production. They are unlikely to pass on higher costs to customers in the teeth of a recession and so they will have to absorb them. However, UK car sales plunge to lowest since 1946 (The Guardian, Jasper Jolly) shows that the market is dire at the moment (new vehicles sales fell by 97% last month according to the Society of Motor Manufacturers and Traders). I think that near-term prospects remain unattractive as people are highly unlikely to want to commit money to big ticket items such as cars against the current backdrop of economic uncertainty. Mind you, if you can afford it, there are likely to be bargains galore!



Netflix thinks about a return to production, California sues Uber and Lyft and Wendy’s runs out of burgers…

In a quick scoot around some of the day’s other major stories, Netflix lays out plans to reopen production on shows and films (Financial Times, Anna Nicolaou) shows that the streamer has now outlined plans to get back to producing shows and films. It has already started up shooting in South Korea, Japan and Iceland with plans for Sweden this month and Norway next. * SO WHAT? * I suspect that there will be a lot of relief here because content is starting to get a bit thin on the ground as lockdown binge-watching is leaving the cupboard increasingly bare in terms of fresh new content.

Meanwhile, California sues Uber, Lyft saying they misclassified drivers as independent contractors (Wall Street Journal, Sebastian Herrera and Tim Higgins) is a

great example of kicking companies when they are already down as California is not letting go of the whole employee vs contractor classification thing. This could increase the companies’ costs drastically if they lose and it is happening just as they are trying to survive the impact of the coronavirus.

You know I’ve been going on about meat processing problems in the US? Well it seems that this is now starting to trickle down to customers in Meat shortages hit Wendy’s, leaving burgers unavailable at some restaurants (Wall Street Journal, Heather Haddon) – but it’s not just the US that is having problems with its meat supply chains. Ireland’s beef industry takes severe hit from coronavirus (Financial Times, Arthur Beesley) highlights the travails of Europe’s biggest meat exporter (it sells 90% of its beef to the UK, France, Italy and Germany among other places) as coronavirus outbreaks in six meat processing plants and falling prices are hitting it hard. * SO WHAT? * Meat processing has been hit hard everywhere as restaurants and other mass catering venues remain locked down, cutting out entire customer categories. Unfortunately for the meat producers, you would have thought such venues will be among the last to see a lifting of restrictions…



And finally, in other news…

I have to admit, this blew my tiny mind when I read it: Trick to neatly fold fitted bed sheet shows we’ve all been doing it wrong (The Mirror, Luke Matthews just all makes sense! Apologies to all of you who already know this, but I thought I’d put this out there for those of you who don’t! Also, I just thought that the photos in this article were amazing: Here’s The Real Truth About Those Viral Photos of ‘Sand After a Lightning Strike’ (Science Alert, Carly Cassella Interesting, no?

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Some of today’s market, commodity & currency moves (as at 0736hrs 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 **
5,849 (+1.66%)8,80910,729 (+2.51%)4,476 (+2.23%)HOLIDAY2,878 (+0.63%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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