It looks like a second wave, but not as we know it. Even if cases are starting to rise in Britain and elsewhere, deaths are not picking up in the same way as before – younger, less vulnerable people are getting the virus this time it seems. The World Health Organization (WHO) recorded a record one-day rise in cases globally. France recorded a record number of new infections – some 10k over the weekend. There is not the appetite for blanket shutdowns of the economy again – this is good, but the ongoing fear factor will keep a lid on animal spirits. And governments could be spooked into heavy-handed responses, even if they don’t want to kneecap the economy.
Fear can be vanquished with a vaccine, so it’s good news that AstraZeneca and Oxford University are resuming trial of their vaccine candidate, after it was paused a week ago. News on a vaccine – good or bad- is set to emerge in October, it seems. Pfizer says there is a good chance it will deliver data from its late stage trials of its candidate vaccine, developed with German drug maker BioNTech. If approved, it could be available to Americans by the end of the year. The question is whether this may be needed – Sweden seems to be showing the way towards herd immunity.
UK Company announcements
| Aviva (AV.) | Shares are up 5 per cent in early trading, after an announcement late on Friday that the majority stake in its Singapore arm will be sold for £1.6bn, equal to almost two times the division's net asset value. Newly-arrived CEO Amanda Blanc is wasting no time re-shaping the sprawling insurance group into a leaner operation. |
| AstraZeneca (AZN) | It was revealed over the weekend that the Oxford/ AstraZeneca Covid-19 vaccine trial has resumed, after the Medicines Health Regulatory Authority (MHRA) confirmed that it was safe to do so. The trial had paused to look into a possible illness in one of the study’s participants. |
| International Personal Finance (IPF) | Fitch Ratings has said the high-cost credit provider could face pressures on its BB/negative rating if it fails to address an upcomnig bond maturity before the year end. The credit ratings agency expects the refinancing to succeed, but flagged a number of concerns around its half-year results. |
| MJ Gleeson (GLE) | Operating profits plummeted 86 per cent during the year to June as completions fell 30 per cent for Gleeson Homes. The strategic land business reported just two land sales, compared with nine the same period the prior year, but said sales were beginning to improve to housebuilders. No final dividend was declared. |
| Abcam (ABC) | Adjusted operating profits dropped from £83.6m to £44.5m after planned investments and the impact of Covid-19. On a reported basis, the same metric landed at £10.5m – down from £56.1m, after the additional hit of a £14.9m impairment charge on an acquisition from 2015. Management has maintained its investment plans, but halted the dividend. |
| Silence Therapeutics (SLN) | First-half revenues landed at £1.1m, up from a nil value one year earlier. Pre-tax losses widened from £9.6m to £13.3m after higher research and development costs. As an R&D-focused company, Silence has continued to make progress on both its wholly-owned product candidates. It also signed a collaboration deal with AstraZeneca (AZN) in March. |
| Costain (COST) | The group swung to a £92m statutory pre-tax loss in the six months to 30 June – versus an £8.4m profit a year earlier – thanks to exceptional charges on two problem contracts. This includes a £45m impairment on the A456 road project as arbitration over additional costs went in favour of the Welsh government. Costain is sitting on £141m of net cash – which includes £85m tied up in joint ventures – and a £4.2bn order book. |
| Keystone Law (KEYS) | The number of new client instructions fell by 30 per cent in the first six weeks of lockdown, recovering to near pre-pandemic levels by the end of July. Even so, the group increased its revenue by 6.5 per cent year-on-year in the six months to 31 July, to £24.5m, although higher overheads meant pre-tax profit dropped by a fifth to £1.9m. With no final dividend being declared last year, Keystone has decided to pay two interim dividends of 3.3p per share each. |
| Avon Rubber (AVON) | The £180m sale of its dairy business, ‘milkrite|InterPuls’, to milking equipment provider DeLaval has received the necessary regulatory clearance and the transaction is expected to complete on 25 September. |
| MP Evans (MPE) | The palm oil producer’s top-line climbed up by more than two-thirds year-on-year to $75.6m (£58.8m). Management has maintained the interim dividend at 5 pence per share. |
With vaccines and herd immunity, unemployment becomes a much bigger problem. The end of the furlough scheme raises the prospect of employment rates reaching a cliff-edge. Unemployment could spiral and redundancies are taking place at twice the rate of the last recession. US initial jobless claims last week indicated the recovery is slow, even if job openings are more encouraging.
This could make this week’s Bank of England meeting interesting. It has enough ammo in the quantitative easing quiver to last until the end of the year, but with only two more scheduled before 2020 is over, the Bank will need to lay the ground for more stimulus. Governor Andrew Bailey said central banks should go “big and fast” with QE and other stimulus at times of crisis. If there an explosion in unemployment, this line will be tested. I’d expect the Bank to sound more dovish this week, although it is unlikely to alter policy so far in advance of the November Budget, in which the government show its fiscal hand. Of course, there is still time for Rishi Sunak, the Chancellor, to extend furlough, as many are urging him to do. UK 2-year gilt yields hit fresh record lows this morning with the market seemingly convinced the BoE will give a very strong signal it is preparing to deliver additional stimulus – most likely in the form of increased asset purchases rather than a descent into a vortex of negative rates.
The problem of furlough schemes and extending them is of course one of productivity and the opportunity cost of maintaining people in a kind of output stasis. Zombie workers and zombie companies are a growing problem. Indeed, new research shows the number of zombie companies in the US is near the 2000 record.
European markets opened higher on Monday, with the FTSE 100 solidifying above 6,000 and the DAX ticked up to 13,300. This comes after a decent week for European markets that contrasted with Wall Street weakness. The Nasdaq finished last week down –4 per cent, with the S&P 500 dropping –2.5 per cent over the five days. The Nasdaq broke under its 50-day simple moving average, whilst the S&P 500 traded through it at the lows but held it at the close. European markets fared better as they were much less exposed to the sell-off in tech – some rotation taking place as investors look to ‘reopening’ stocks over the Covid-19 winners, but it was far from anything significant. Indeed, in dollar terms, the moves in the FTSE 100 for example were far less impressive. Investors in the US may also be paying attention to the presidential race – Biden's tax plans would knock earnings, although it’s far tighter race than the national polls indicate. US futures are higher and have cleared the Friday peak struck during the London morning session.
Suga-high for Japanese equities? In Japan, Yoshihide Suga, the former chief cabinet secretary, looks set to replace Shinzo Abe as prime minister after being elected to the lead the country’s ruling Liberal Democrat Party. Suga has pledged to maintain Abenomics and seems to be causing few ripples in the market. He will only have a year to make an impact though before the next elections are scheduled – he could choose to call a snap election to shore up his support, but the coronavirus might get in the way. The Nikkei 225 edged up 0.65 per cent, while the yen was steady against the dollar at 106.
M&A activity is rising and there are deals aplenty – TikTok seems to be heading the way of Oracle, whose chairman is a Trump support, whilst SoftBank is offloading Cambridge-based Arm to Nvidia. Meanwhile Gilead, whose remdesivir antiviral is treating Covid-19 patients, is buying Immunomedics for $21bn. With vast sums of private equity to be deployed, there may be a slew of deals and takeovers as we head into the autumn.
In FX, ongoing talks between the UK and EU look set to be the chief driver for GBP crosses. However, a Federal Reserve meeting this week will impact the USD side of cable. There is not a lot new to say about the Brexit talks after last week – we await to see whether the discussions can get any further. Usual headline risks to cable, but GBPUSD could get squeezed higher absent of any negative news. GBPUSD traded at 1.2840 in early trade having made a firm near-term base at the 200-day EMA at 1.2750. Downtrend still in force until the 1.30 handle is recovered.
Elsewhere, gold is still trading in a very narrow range around the $1940 level. US breakevens have come down a bit, US 10s are hunkered in around 0.66 per cent and real rates (10-year TIPS) have just come down a touch.
Remember it’s Fed week. The Federal Reserve convenes on September 15th and 16th for the first time since Jerome Powell signalled that the central bank would be prepared to tolerate higher inflation as a trade-off for a swifter economic recovery and jobs growth. Unemployment has fallen since the pandemic peak but is not improving quickly enough. The Fed is not expected to announce any fresh policy change but will reinforce Powell’s message from Jackson Hole on the policy shift. Indeed the main focus for the Fed right now is actually not monetary policy but fiscal as members await any move in Washington to deliver a fresh stimulus package.
Neil Wilson is chief markets analyst at Markets.com
