The Weekly Note: 24 March 2020

24 March 2020

The Weekly Note is brought to you by the ALPHA: r² discretionary service team.

Market news

European stocks are rallying strongly today following the Federal Reserve's unprecedented promise of unlimited funding to support the US economy and keep jobs safe. The news was not enough to stop Wall Street sliding further yesterday, but Asian markets reacted well overnight and futures point towards a US rally later today. Market volatility, which saw the S&P 500 fall 15.0% last week, shows no sign of abating. 

The FTSE 100 has been up as much as 4.5% today, despite the revelation that UK business activity has contracted at a record pace. The IHS Markit flash UK Purchasing Managers' Index (PMI) for services fell to 35.7 in March, from 53.2 previously. The data was collected before Boris Johnson announced the closure of all bars, pubs and restaurants, as well as the much tighter UK lockdown announced last night, which will last at least three weeks. 

Last week, chancellor Rishi Sunak announced that the government would pay 80% of wages for those who are not working due to the coronavirus. Sunak's open-ended funding promise came just a few days after he had announced a £350bn package and followed the Bank of England's decision to reduce its interest rate down to a record low of 0.1%. 

The financial rescue operation has been well received, but sterling has fallen beneath $1.18, its lowest mark since the mid-1980s. UK consumer confidence has fallen from its post-election heights to its lowest level since last May, according to IHS Markit. Meanwhile, the UK's top companies have been ordered by the regulator to not publish any results for at least two weeks, in order to curb some of the market chaos. 

Business activity in Europe has also been shown to have plummeted in March, with IHS Markit's composite index displaying its lowest reading since the series began in the late 1990s. It shows the drastic containment measures are starting to bite and points to a deep recession. 

Stock focus

Royal Dutch Shell has said it will stop buying back its shares and will slash its spending this year, in response to the collapse in oil prices, which has seen Brent crude fall from over $68 to around $27 since the start of the year. Shell is aiming to reduce underlying operating costs by $3bn-$4bn over the next year and said that it would reduce its capital spending to $20bn or less. 

ITV has reduced its annual production budget by £100m and scrapped a planned dividend package worth £216m in response to advertisers reducing their spending because of Covid-19. It said that the cancellation of the Euro 2020 football tournament would account for much of the savings, while it was “too early to quantify” much of the pandemic's impact. 

JD Sports has withdrawn its financial guidance for the year and pushed back the release of its financial results until May. The company, which has shut all its stores in the UK, United States and Europe, added it was experiencing major disruptions to its business operations. 

H&M, the prominent fashion retailer, has pledged to redirect its suppliers to manufacture thousands of masks and other pieces of equipment needed by health services. It said it would use its purchasing operation and transport networks to deliver help to hospitals as soon as possible. 

Other companies that have refocused their resources to help the crisis include LVMH, the owner of Louis Vuitton, which has ordered 40m facemasks for France. It is also making hand sanitiser in its cosmetics factories, something Brew Dog, the British craft beer company, is achieving at its distilleries. Meanwhile, Deliveroo is going to deliver some essential M&S products to help those in isolation.

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