Wednesday 08/04/20

  1. In MARKETS, MACRO & OIL NEWS, share prices rise again, Wuhan’s lockdown eases and Exxon cuts capex
  2. In CORONAVIRUS “WINNERS” & LOSERS NEWS, we take a look at small businesses repurposing but Samsung and Lufthansa suffer
  3. In INDIVIDUAL COMPANY NEWS, WeWork sues SoftBank and Asos raises money
  4. AND FINALLY, I bring you Pret’s cookie recipe and why hand sanitiser goes out of date…



So markets climb again, Wuhan relaxes and Exxon slashes capex…

From bear to bull? Global markets extend rally into second day (The Times, James Dean and Callum Jones) shows that markets strengthened for the second day in a row as investors displayed cautious optimism. Coronavirus cases in New York may have peaked out earlier than forecast and it looks like Congress and the White House are thinking about unleashing a second economic stimulus of about $1tn. Economic adviser to the President, Larry Kudlow, envisaged a “reopening” of the US economy in the next four to eight weeks. The rate of new infections also appears to be slowing in France, Spain and Italy. Airline stocks took off as a result as investors bet that they would resume flying earlier than expected – EasyJet was up by 15.1% and Ryanair by 5.9%. * SO WHAT? * Markets are still very sensitive at the moment IMO, but there will definitely be a time to get back in properly (I actually think that could be pretty soon, as things stand). Any bit of newsflow seems to have an outsize effect on the market so active investors at the moment will have to be very brave. Huge gains can be easily snuffed out and turned into huge losses in markets like this.

Fear lingers in Wuhan as China eases lockdown (Wall Street Journal, Jeremy Page, Natasha Khan and Warren P Strobel) heralds the end of the city’s 77-day city lockdown as healthy people are now allowed to come and go freely into and out of the city. Some specific areas are still locked down, but there is a worry that authorities are downplaying case and death numbers as an official newspaper said on Monday that there could up 10-20,000 “asymptomatic” cases in Wuhan (these cases are defined as people who don’t yet display symptoms put who have tested positive and might be infectious), but it was quickly deleted online. * SO WHAT? * The accuracy of the data coming out of China

is absolutely critical for the rest of the world as everyone is looking at it as an indicator of how the disease may develop in their own countries. There will be particular scrutiny on what happens in Wuhan in terms of what happens after lockdown restrictions are lifted. Critics say that local and regional officials don’t report bad news further up the chain and that the number of deaths and infections have been underreported because it did not test widely in the early days. On the other hand, China’s Premier Li Keqiang emphasised that he wanted local officials to be honest in case reporting. Just to be clear, it’s not just China who may be underreporting cases and deaths – other countries such as the US and Italy are also facing difficulty in churning out reliable data – Italy’s death toll is thought to be much higher than originally stated, for instance. Widespread and accurate testing will be key to improved data quality, so anything at the moment probably has to be treated with a large pinch of salt wherever you are.

Exxon cuts capital spending by 30% in response to coronavirus (Wall Street Journal, Christopher M Matthews) highlights plans for the oil major to slash its capital expenditure this year as global demand for oil remains weak. Most of the $10bn cuts will be in the Permian Basin, the biggest US oilfield. * SO WHAT? * This is unsurprising given that other oil majors, such as Chevron, are also cutting capex for the same reasons. Opec and non-Opec countries are due to hold a virtual meeting tomorrow to talk about the possibility of production cuts that could boost the oil price, but if you take into account the growing amount of reserves sloshing around at the moment, Rystad Energy estimates that any proposed cuts won’t be enough to stop sustained oil price weakness. Demand is just that weak at the moment as the coronavirus outbreak has just shut pretty much everything down globally. 



Small businesses repurpose, but some big companies continue to lose out…

It’s good to see that there are some examples of phoenixes rising from coronavirus ashes. From guitar accessories to medical gear, a start-up pivots to a new era (Financial Times, Patrick McGee) highlights the travails of guitar accessory manufacturer Thalia that laid off its 12-person production team only to take them all back on a week later as they started to make “intubation boxes” (a box that sits over a patients head so that tubes can be inserted into the mouth without endangering medical staff), which are now referred to as “Thalia boxes”. Because of Thalia’s small size, it was able to turnaround production incredibly rapidly, meaning that their products are now already making their way to hospitals. Small manufacturers pivot to making simple masks (Wall Street Journal, Micah Maidenberg) shows that sewing shops and mattress makers are switching production to make masks that will help to prevent infected people from spreading the virus. * SO WHAT? * I think it’s brilliant that some small companies are able to carry on by retooling and thus keep staff in work – potentially giving themselves another lifeline for the future AND helping the coronavirus effort at the same time. We hear so much about small businesses suffering these days that it’s nice to hear something positive.

On a rather larger scale, Garnier is turning its hand to sanitiser (The Times, Ashley Armstrong) shows that the cosmetics giant is switching production from the popular Micellar Water make-up remover (one bottle of which is bought every five seconds in the UK!) to hydro-alcoholic hand gel and, talking of sanitiser, Air Liquide sells hand sanitiser business to private equity group (Financial Times, Kaye Wiggins and Michael Pooler) shows that M&A isn’t quite dead yet as private equity group EQT Partners is in exclusive talks to buy Air Liquide’s hand sanitiser and disinfectant business, Schülke, for around €900m. Air

Liquide had put this business up for sale last year. * SO WHAT? * Wow! Talk about timing! Air Liquide had touted a $1bn valuation for the business and was seeking a premium. Still, €900m isn’t too shabby and, who knows, Air Liquide may even be able to squeeze more out of it. 

Other companies benefiting from current circumstances include the tiny publishing company in Coronavirus has turned children’s workbooks into bestsellers (Wall Street Journal, Jeffrey A. Trachtenberg) where a husband-and-wife team has seen their business thrust from minnow to mainstream as their children’s workbooks have seen huge orders via Amazon as parents look for ways to educate and entertain their kids while schools are in shutdown mode. Sales at Modern Kid Press have shot up by 500% and recently, it had five of its books in Amazon’s top 100 bestseller list! Also, Plus500 revenue soars nearly 500% as volatility fuels boom in bets (Financial Times, Antonia Cundy) shows that revenues for the online trading platform have benefited handsomely from all the market volatility as punters have tried their best to “buy low, sell high”.

On the other hand, Cineworld’s takeover of Canada’s Cineplex in doubt (Daily Telegraph, Oliver Gill) shows that increasingly precarious-looking financials are making the takeover look vulnerable to collapse, Samsung projects quarterly profit near lowest level in 5 years (Financial Times, Song Jung-a and Edward White) reflects pessimism from the world’s biggest producer of computer chips, smartphones and electronic displays as the company predicts that weaker demand for mobile phones, in-car and consumer electronics will shrink chip demand and Lufthansa decommissions 40 jets and axes Germanwings (Financial Times, Joe Miller, Tanya Powley and Peggy Hollinger) shows the German flag-carrier’s willingness to take drastic measures in a troubled industry following a board meeting yesterday. * SO WHAT? * Given the current circumstances, I think it is prudent for these companies to reconsider acquisitions, cut forecasts and make the difficult decisions. I would have thought that, in any case, things will be much cheaper in the short term anyway, so if the companies’ respective finances prove to be resilient, they may be able to get back on track with their original strategies but pay less money for the privilege. 



WeWork sulks and Asos raises money…

SoftBank faces fight after it pulls $3bn WeWork offer (Daily Telegraph, Matthew Field) follows on from the recent story that SoftBank decided to pull a $3bn tender offer for shares in the embattled office space provider. WeWork alleges breach of contract over the sale. This is going to get interesting. * SO WHAT? * Given that SoftBank has poured so much money into WeWork, you would have thought that its U-turn over the deal AND WeWork’s decision to sue would imply that neither side is seeing a long term future together. If there is a messy divorce I would imagine that WeWork is going to have to offload

properties somehow, meaning that the market is potentially going to see greater supply at much cheaper prices that could drag the whole market down just at a time when demand is not a given.

Investors join party in Asos fundraising (The Times, Ashley Armstrong) highlights another company that has decided to ask investors for more money to get it through current lean times. It has asked institutional investors for £200m which, along with £60-80m from a new banking facility, should help to ease Asos’ situation somewhat. Apparently, the share placing was over four times oversubscribed (very impressive, considering current market conditions). * SO WHAT? * It seems to me that there is still investor appetite out there that will help to keep companies going. WH Smith decided to refinance, now Asos is doing it and I suspect there will be more to come as companies do what they can to survive.



And finally, in other news…

It seems that many fast-food places are sharing some of their recipes so you can get your fix under lockdown and Pret releases its secret ‘quick and easy’ chocolate chip cookie recipe (The Mirror, Paige Holland is just one such example! I’ve talked a bit about hand sanitiser in today’s edition, so thought it fitting to close on Why does hand sanitizer have an expiration date? (mental_floss, Jake Rosen So now you know!

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Some of today’s market, commodity & currency moves (as at hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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