Wednesday 17/06/20

1. In MACRO, MARKETS & OIL NEWS, a global rally fades, Jay Powell urges caution, Trump pushes infrastructure, UK and Oz talk trade and true oil price recovery looks a way off
2. In CONSUMER/RETAIL/LEISURE NEWS, we see strong US sales and developments on the UK high street
3. In PHARMACEUTICAL NEWS, the UK has a corona-breakthrough and Royalty Pharma’s IPO rockets
4. In TECH NEWS, Apple faces antitrust investigation and China’s biggest chipmaker lists in Shanghai
5. AND FINALLY I bring you an old favourite…

So markets rally and then calm, Jay stays cautious, Trump announces infrastructure, the UK and Oz talk trade and we get an official spin on the oil price…

Global stock rally loses steam as geopolitical tensions rise (Financial Times, Hudson Lockett) highlights the rise then fall of global markets as unexpectedly strong US retail sales figures initially boosted markets that were then tempered by gloom surrounding heightened tensions between North and South Korea and a skirmish between Indian and Chinese troops in the Himalayas that resulted in the death of 20 Indian soldiers. News of a new outbreak of coronavirus cases in Beijing also didn’t help sentiment. Trump readies $1tn infrastructure bill to aid recovery (Financial Times, Demetri Sevastopulo and Lauren Fedor) had also helped to boost sentiment as the President announced plans to spend more on roads and bridges over the next ten years but Powell warns of ‘significant uncertainty’ over US recovery (Financial Times, James Politi and Colby Smith) reiterated the US central bank chief’s caution over the “timing and strength” of any US economic recovery.

Elsewhere, Australia looks for UK trade deal ‘by end of 2020’ (Financial Times, Jamie Smyth and Sebastian Payne) shows that Australia is seeking to sign a comprehensive free trade deal with the UK that will cut out tariffs and quotas in “record” time. Australia’s trade minister, Simon Birmingham, will be launching negotiations with his UK counterpart Liz Truss today via videolink and concedes that concluding a deal by the end of this year would be challenging (but presumably also doable). * SO WHAT? * Sounds nice, but trade with Australia just is a tiny drop in the ocean compared with the trade we do with the EU. In fact, it’s so tiny that even if the UK was to have free trade agreements with ALL of the 11 nations in the Trans-Pacific Partnership (TPP), it would only increase our GDP by 0.1 to 0.4%.

Following on from what BP said about its oil price expectations, Oil will not take flight ‘for at least two years’ (The Times, Emily Gosden) shows that the Paris-based International Energy Agency believes that oil demand will experience a record drop this year and will not recover until at least 2022. Having said that, it added that the drop may not be as bad as had initially been feared because China’s demand for oil was bouncing back strongly.

US retail sales surprise on the upside while many changes are afoot on the UK high street…

As I said above, Record rise in US retail sales beats forecasts (Daily Telegraph, Lizzy Burden) shows that US retail sales had a record 17.7% rise in May as lockdowns relaxed around the world – the sharpest rise since records began in 1992! Before you reach for the Bolly to celebrate the good times, this is a rise from a very low base and levels are still short of what they were pre-outbreak.

Meanwhile, the UK is gradually opening up and Al-fresco dining to come to London in relaxation of the rules (Financial Times, Jim Pickard, Alice Hancock and Andy Bounds) shows that regulations could be relaxed to let restaurants put tables outside on pavements, Thai restaurant operator Giggling Squid rescued by emergency loan (Daily Telegraph, Oliver Gill) shows that one restaurant chain has managed to get a stay of execution after agreeing an emergency loan, Greggs to reopen 800 stores on Thursday but warns of lower sales (The Guardian, Kalyeena Makortoff) highlights opening plans that will delight cheap pastry fans and McDonald’s US sales bounce back (Wall Street Journal, Heather Haddon) show what could be in store for such outlets as it has managed to make up for the ground it lost in April in terms of sales as hungry customers craving their fix returned in their socially-distanced droves. * SO WHAT? * It’s great that these outlets can open once more, but I don’t think that current arrangements are sustainable for the long term because they just won’t get enough customers to pay for their existence. At least they can get the wheels in motion again, but until social distancing at least reduces I can’t see this going on for much longer than a few months. The high

streets will already be decimated by businesses who have already gone under and continued 2m distancing will make the situation even worse from an economic point of view. What that means in terms of public health is another issue.

Elsewhere on the UK high street, Boohoo set for purchase of Oasis and Warehouse (Daily Telegraph, LaToya Harding) shows that Boohoo is on the verge of snapping up a couple more retailers two months after they fell into administration. If it all goes ahead, it will bring the total number of brands under Boohoo’s umbrella to nine (remember they bought Coast and Karen Millen last August?). Fun fact: Boohoo’s market cap is now more than double Marks & Spencer’s. That just goes to show you how well Boohoo has done and how much 💩 M&S is in at the moment.

Talking about retailers in the 💩 currently, Poundstretcher could close 250 UK stores (The Guardian, Sarah Butler) shows that the discounter is on the verge of closing over half of its stores as part of restructuring designed to save the company. It is currently asking creditors to support a CVA which will involve rent cuts of over 30%. * SO WHAT? * The tough times continue, but even if the company manages to push through this CVA there is no guarantee of long term survival. Mind you, if we do hit deep recession, stores like Poundstretcher tend to benefit as consumers tighten their belts but the company may be too far gone by then to keep going. If it can weather this storm, there may be upside – but it is touch and go IMO.

Then there’s good news for people who are tired of watching their TV and want something a bit bigger in Cineworld is ready to fight back (The Times, Dominic Walsh) as the cinema chain is preparing to open all of its 787 venues, starting with those in the US and UK on July 10th. A welcome bit of positive news after the strain of its attempted abandonment of the proposed acquisition of Canada’s Cineplex.

The UK makes a breakthrough and the good times roll for Royalty Pharma’s IPO…

Cheap generic steroid significantly cuts Covid-19 mortality rates (Financial Times, Anna Gross) highlights a major breakthrough made by British scientists that dexamethasone, which is a cheap and widely available generic steroid, significantly reduces the risk of dying from coronavirus. It cuts the death rate of severely ill patients on ventilators by one third and by those on oxygen by one fifth. Superb news! Mind you, some remain sceptical about this given the number of false dawns we’ve seen so far on coronavirus treatments.

I mentioned the company yesterday but Royalty Pharma shares surge 59% after IPO (Financial Times, Richard Henderson) shows that the biggest US IPO of the year so

far felt some serious love from investors who powered up the share price in its stock market debut yesterday. The company earns royalties paid by pharmaceuticals companies including Merck, Gilead and Johnson & Johnson for producing drugs and the pharmaceutical sector is pretty hot right now. * SO WHAT? * Deal advisers will be delighted by this performance and they will hope that this will persuade others to come out and enjoy the IPO party (and pay them fat fees to help them do it). OK, so seeing a company’s share price shoot up by 60% on its debut may make you think that you could have achieved a much better initial offer price, but psychology of deals is also important because if companies see wobbly flotations they get nervous very quickly. I do wonder whether current market conditions will make companies return to “traditional” flotations because they will want more hand-holding rather than strike out and do direct listings (which cut out the investment banks to a large extent – thus saving on fees), which is the road that Spotify and Slack Technologies took in their respective flotations…

Apple faces investigation and China’s biggest chipmaker lists in Shanghai…

Apple Pay and App Store face investigation over competition rules (The Guardian, Alex Hern) highlights the beginning of what will undoubtedly be a long and drawn-out process as the EU competition commission announced that it has breached competition rules after years of niggle from Spotify and other regulators. The allegations concern Apple forcing apps to pay them a 15-30% cut as well as a ban on telling users other ways of paying for the digital content. If it is found to be in breach, Apple could be fined up to 10% of its global turnover. The EU’s bite at Apple could prove to be a game changer (The Guardian, Nils Pratley) argues that there’s a real chance that Margrethe Vestager, the EU’s competition chief, could not only slap a big fine on them – it could change the way Apple does business in the EU. * SO WHAT? * I’m going to be watching this with interest because I have found this frustrating myself. When I developed the Watson’s Daily app in the first few months of this year, I was wondering how to price it. I

was advised that I should potentially charge £3.99 per month on the App Store (to take into account the 30% cut Apple was going to take), which I did initially, but then I relented to charging £2.99 across the board because I thought I would be forever explaining myself as to why the app was £1 more on the App Store than anywhere else – so I decided to take the hit for simplicity. When I found this out initially it was a bit disappointing I must say – but hey it’s Apple, so what can you do?? I love their stuff – just a pity about how much they take!

Then in China’s biggest chipmaker bets on Shanghai listing (Financial Times, Yuan Yang and Nian Liu) we see that Semiconductor Manufacturing International Corporation (SMIC) decided that it would delist from the New York Stock Exchange in June and list on Shanghai’s new Star market instead. * SO WHAT? * This is particularly interesting because there has been momentum building for Chinese tech companies to wean themselves off reliance on foreign tech given Huawei’s experience over the last 12-18 months – and SMIC looks like one of China’s best bets to narrow the expertise gap. Currently, some say that SMIC’s gap with Taiwan’s TSMC is about five years, but if SMIC has a successful flotation it will raise money that the company can use to throw at this in order to narrow the difference.

…in other news…

Every day, when I write Watson’s Daily, I try to seek out amusing and/or informative stories to end with. I use a variety of sources and 99% of the time I can come up with something – but today I just can’t find anything that fits the bill 😥. In cases like this, I either tell you really bad dad jokes (I am a father and yes, I have actually written and performed a bit of stand-up comedy in the past) or just return to something that I have found to be particularly memorable. Today, I’ve gone for the latter and bring you what is quite likely the most bizarre video you will ever see. It is the Japanese man yodelling about chickens. Yes, strange – but also strangely compelling I think. If only Japan could enter the Eurovision Song Contest purely to showcase his work…