Category: WORLD BUSINESS & ECONOMY

By Hussein Sayed, chief market strategist, FXTM

 

After a brief celebration of a new intraday record high on the S&P 500 and a two trillion Dollar market cap for Apple on Wednesday, the music suddenly stopped and with it, the ‘rally of everything’. All major US indices began to stumble, the dollar woke up from a 27-month low, oil declined and gold lost 3.5% in value.

Asian and European stocks are following Wall Street lower today and US futures are also indicating further declines to the start of the trading session across the pond.

The change in mood has been clearly down to the release of the minutes from the FOMC’s July meeting which reminded investors that the economy is still not in good shape. The surge in Covid-19 infections over the summer has muted the recovery and anyone still believing in a V-shaped recovery needs to do some reassessment. However, this was not the only reason why investors turned defensive. The fact that the Fed appeared reluctant to step up further stimulus efforts imminently disappointed the bulls who were expecting further clues on the trajectory of monetary policy.

While the Fed did not rule out the idea of yield curve control or targeting specific maturities on the yield curve, policymakers do not seem committed to following this path yet. The other disappointment came from a lack of commitment towards more forward guidance on the path of the federal funds rate. That was a significant change from the previous minutes which indicated the need to provide longer-term forward guidance and to only raise rates when specific economic thresholds are met. Despite the fact that the Fed has been clear that rates will remain low for a long period, market participants needed more assurance and they did not get this.

The failure of Wall Street to build on Tuesday’s record closing high may be worrying. The rally over the past five months has been mainly driven by Tech firms which have become a defensive sector in the Covid era, but there were hopes that the more economic sensitive sectors, commonly known as ’cyclical stocks’, would follow suit. Now with concerns overvaluation in tech stocks growing bigger, improvements in economic data likely to cool down, and the scale of fiscal stimulus still unknown, expect to see further profit-taking and a return to a more volatile market.

The problem that many investors will face today in a market downturn is the high correlation between asset classes. There is no place to hide and diversification is no longer effective in such connected markets. The only way to protect portfolios is through increasing cash allocations and buying expensive put options.

Charles Abuede

The world’s top five automobile manufacturing companies, Volkswagen Group, Ford Motors, Toyota Motor Corporation, Daimler AG and General Motors saw $63 billion peel off their total market capitalisation between December 2019 and the third week of August, 2020 as a result of mounting pressures from the coronavirus (COVID-19) pandemic, an analysis of their stock performances has shown.

From a total market cap of $426.5 billion in December 2019, it plunged to $363.5 billion in the third week of August, official buyshares statistics access by Business A.M. revealed.
The COVID-19 pandemic has severely impacted the global automotive industry, placing intense pressure on a market which already was coping with a downshift in global demand for automobiles, and resulting in a sharp supply chain disruptions and factory or business closures.

Volkswagen Group and Toyota Motor Corp lost a combined $33.1 billion in market capitalisation

Volkswagen, the world’s largest automaker, managed to reduce the effects brought about by the coronavirus crisis during the first six months of 2020, but the financial report of the group shows that sales revenue fell by 23.2 per cent since January to reach €96.1 billion at the end of June, this year. Until the close of the second quarter, Volkswagen also reported a significant year-on-year decline in its deliveries by 27.4 per cent to 3.9 million vehicles.

Volkswagen’s market cap stood at $87.6 billion by the end of 2019 with the figure falling by $17.7 billion to $69.9 billion in August 2020, according to Yahoo Finance,

Frank Witter, a member of Volkswagen Group’s management board in charge of Finance and IT, said: “The first half of 2020 was one of the most challenging in the history of our company due to the Covid-19 pandemic. Thanks to the great team effort, we have gradually been able to ramp up operations within the group and up until now, have steadily managed to navigate through this unprecedented crisis.”

On the other hand, Toyota Motor Corp, the second-largest motor manufacturer in the world, lost $15.4 billion in market cap to the COVID-19 pandemic, falling from $196.9 billion as at December 2019 to $181.5 billion eight months later. The company’s financials show that the firm recorded the smallest quarterly profit in nine years as the pandemic halved its global car sales. By the end of the second quarter, Toyota’s operating profit plunged by 98 per cent to $131.73 million.

 

Daimler, Ford and General Motors lost $29.9 billion in combined market cap

Daimler AG, the world’s third-largest vehicle manufacturer also saw a staggering drop in its market capitalisation by as much as $9.1 billion in the midst of the coronavirus crisis. Statistics accessed by Business A.M. show that within eight months, the automaker’s market cap fell from $52.8 billion as at December 2019 to $43.7 billion in August. The European vehicle manufacturing giant also reported a substantial loss during Q2’2020 due to sharp fall in sales on the grounds of the coronavirus pandemic.

During the second quarter of the year, Daimler’s auto total sales by unit fell by 34 per cent to 541,000 passenger cars and commercial vehicles with the company witnessing a drop in revenue by 29 per cent to €30.2 billion at the end of June.

In a similar development, the total market capitalisation of Ford and General Motors, the two leading U.S. manufacturers on the list, declined by $20.8 billion since the outbreak of the COVID-19. According to statistics, Ford’s market cap plunged by $10.4 billion in eight months from $37.9 billion as at the end of 2019 to $27.5 billion in August.

Although Ford was struggling in the midst of an $11 billion restructuring plan to control and roll out new vehicles, before the emergence of the pandemic, which forced the firm to close US factories for more than seven weeks during Q2’2020, it, however, reported a $1.12 billion net profit in Q2 amidst the virus.

General Motors, the fifth largest automaker in the world, on the other hand, lost $10.4 billion in market cap to the virus in eight months, as the automaker witnessed a fall from $51.2 billion to $40.8 billion between December 2019 and August, the statistics revealed.

BY: Moses olajuwon Obajemu

 

Futures linked to the S&P 500 and Dow dipped on Friday as data showed domestic retail sales growth slowed more than expected in July, adding to worries about a wobbly post-pandemic economic recovery in the absence of a new U.S. fiscal stimulus bill.

Aggressive stimulus measures have helped Wall Street’s main indexes bounce from a coronavirus-driven crash in March, and the S&P 500 briefly traded above its Feb. 19 record close for a second straight day on Thursday.

But the benchmark index has struggled to top its all-time high of 3,393.52, which was also hit on Feb. 19.

Reuters says data on Friday showed U.S. retail sales increased less than expected last month and could slow further due to spiraling COVID-19 cases and a reduction in unemployment benefit checks.

The reading also comes at a time when the domestic labor market is struggling and a nascent rebound in China appears to be slowing.

“The state of the consumer and the ability in the interest to spend is going to be key in self-sustaining the economic recovery ultimately,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

A deadlock between top Democrats and the White House over more stimulus measures to support the economy has also been a major point of focus.

Uncertainty over the timing of an agreement has undercut sentiment in recent sessions, with the upcoming U.S. presidential elections expected to add another layer of caution.

At 8:55 a.m. ET, Dow e-minis were down 93 points, or 0.33%, S&P 500 e-minis were down 3.25 points, or 0.1% and Nasdaq 100 e-minis were up 27 points, or 0.24%.

Leading gains among Nasdaq 100 stocks trading before the bell was Applied Materials Inc, up 3.7%, after it forecast fourth-quarter revenue above analysts’ estimates following a rebound in demand for chip equipment and services.

Electric car maker Tesla rose 3.2% after Morgan Stanley upgraded the stock, citing potential in the firm’s battery business.

Chinese search engine giant Baidu Inc posted quarterly revenue a notch above estimates, but its shares slid 5.1% after its streaming service iQIYI said it was being probed by the U.S. Securities and Exchange Commission.

Britain officially entered during the second quarter of the year as its economy contracted by a record 20.4 percent with the country in lockdown over the coronavirus pandemic, official data showed Wednesday.

“It is clear that the UK is in the largest recession on record,” the Office for National Statistics said.

Britain officially entered recession in the second quarter after gross domestic product (GDP) contracted by 2.2 percent in the first three months of the year.

The technical definition of a recession is two quarterly contractions in a row.

The ONS said that the contraction for the first six months of 2020 “was slightly below the 22.7 percent seen in Spain but was more than double the 10.6 percent fall in United States”.

It added that Britain’s dire second quarter was driven by a 20-percent drop in output in April, “the biggest monthly fall on record reflecting widespread… declines in output across the services, production, and construction industries”.

The economy is beginning to rebound, however, as the government eases its lockdown restrictions.

GDP output growth was 8.7 percent in June, the ONS said.

“The economy began to bounce back in June, with shops reopening, factories beginning to ramp up production and house-building continuing to recover,” noted Jonathan Athow, deputy national statistician as the statistics office.

“Despite this, GDP in June still remains a sixth below its level in February, before the virus struck.

“Overall, productivity saw its largest-ever fall in the second quarter. Hospitality was worst hit, with productivity in that industry falling by three-quarters in recent months,” he added.

Britain’s recession is its first since the 2008 global financial crisis.

By Charles Abuede

 

• Company records 1.3 billion-pound ($1.7 billion) impedance due to Covid-19 impacts.
• Operations in Nigeria, India, Ethiopia and Korea reflected a lower sales value
• Plans to pay £4.5 billion in dividend as compensation for shareholders

 

Diageo Plc, the United Kingdom global beverage producer and parent company of Guinness Nigeria, has conceded that sales dropped as the coronavirus pandemic prompted the closure of bars and eateries, with rising e-commerce business and market buys failing to fill the hole, as the organisation recorded £1.3 billion ($1.7 billion) impedance due to Covid-19 impacts.

According to the London based firm, the organization needed to take an erratic hit of £1.3 billion to mirror the lower value of its operating activities in India, Nigeria, Ethiopia and Korea as the infection swept across those business sectors. Consequently, company’s revenue fell 8 per cent in the year through June on a natural premise.

Operating profits plunged 47.1 per cent to £2.1 billion as deals fell about 9 per cent to £11.8 billion while development in deals in North America during the year to 30 June was more than balanced by substantial falls in different districts.

In spite of the foregoing, company CEO,  Ivan Menezes said he would in any case still pay final dividends to investors as last year, of 42.47p a share, carrying the entire year dividend to 69.88p, up 2 per cent on a year before.

Menezes described the situation as a “year of two halves,” saying: “After a good, consistent performance in the first half of fiscal  year 2020, the outbreak of Covid-19 presented significant challenges for our business, impacting the full-year performance.

“However, the extensive restructuring of the business over the past six years had created an organisation with the flexibility to respond to the crisis. We are now a more agile, efficient and effective business.

“While the trajectory of the recovery is uncertain, with volatility expected to continue into fiscal ’21, I am confident in our strategy, the resilience of our business… We are well-positioned to emerge stronger,” Menezes said.

The payment of dividend is probably going to be viewed as a compensation for investors after Diageo put on hold a 3-year plan to return £4.5 billion to them as the organization tousled to defend its balance sheet report. That procedure also included doing a $2 billion bond issue earlier than planned and set up a £2.5 billion credit facility with banks.

Meanwhile, Diageo said it won’t continue the payments until it gets its leverage down as a proportion of its underlying profits. That proportion has deteriorated because of the sharp fall in its profits, presently standing at 3.3 per cent – over the 2.5 to 3 per cent targeted band and it is expected to remain above that goal through the year ending next June too.

In a related turn of events, the company’s free cash flow tumbled from £2.6 billion in 2019 to £1.6 billion as profits and dividend income from joint ventures and partners plunged.

While in the key US market, scotch deals fell after the earlier year’s effective exhibition of the Johnnie Walker White Walker launch. Smirnoff, Ketel One and Ciroc vodka sales also tumbled. However, solid shop deals of tequila – up by a third – prompted net sales growth of 2 per cent for the year.

In Europe, Guinness deals endured monstrous falls, down over 20 per cent in the year. That rate fall was the equivalent in Johnnie Walker as bars and hotels were shut during the lockdown. Vodka and gin fell, as well, with the gins declines driven by Gordon’s and Tanqueray, again because of the terminations of bars.

Sales in the UK were not down as seriously as the remainder of Europe, falling 4 per cent compared to 12 per cent overall as more individuals purchased rum and alcohols in shops. The sales of Lager, scotch, wine and vodka fell vigorously.  While Ireland was one of the most noticeably awful nations affected because of the country’s love for Guinness. Sales were severely hit by the lockdown on bars and pubs.

Cancellations of large celebrations and events where Diageo’s brands will in general sell well additionally pounded the outcomes.

 

 

• Plans to cut around 35,000 jobs worldwide

HSBC, the global investment banking company, has announced profits of £3.2 billion in the half-year to June 30, down from £9.5 billion for the same period in 2019. It represents a huge 65 percent drop for Europe’s biggest bank, which was struck by coronavirus interruption and a dive in interest rates.

The London Evening Standard reports that the bank has persevered through an arid year on the markets with the London listed shares falling over 40 per cent from 595p to 342p. Though, the bank, in its update, said its future dividend policy would be looked into and included.

“Lower global interest rates and reduced customer activity have put increasing pressure on revenue, and are expected to continue to do so,” the bank said in a statement.

Noel Quinn, group CEO, who put the brakes on a wide-running repetition programme as the coronavirus grabbed hold, said: “Our first half performance was impacted by the Covid-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility.”

In any case, plans to eliminate around 35,000 jobs worldwide will be quickened, as the organization will likewise take a gander at different measures to take, “considering the new financial condition to make HSBC a stronger and more sustainable business”, Quinn said in the half-year results.

Meanwhile, HSBC, alongside other banks, consented to a Bank of England solicitation to hold dividends for investors, with the bank saying it would not make payouts or have share buy-backs until the end of 2020. Though, the company has made safe spot arrangements for credit losses of £2.9 billion in the quarter ending June 30, up from £420 million in a similar period of 2019.

As indicated in a report by the bank, the continued pressure between the US and China, and conversations over the state of Brexit will keep on affecting execution.

It stated: “Our performance in the second half of the year will continue to be influenced by the path and economic impact of the Covid-19 outbreak.

“Geopolitical uncertainty could also weigh heavily on our clients, particularly those impacted by heightened US-China and UK-China tensions, and the future of UK-EU trade relations.”

The bank, despite being headquartered in the UK, makes the majority of its profits in Asia and Quinn recognized the geopolitical hazard in the region.

He stated: “Current pressures among China and the US definitely make testing circumstances for an association with HSBC’s footprint. We will confront any political difficulties that emerge with an emphasis on the drawn-out necessities of our clients and the eventual benefits of our financial specialists.”

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European shares recovered from their lowest levels in a month on Friday, as investors looked past a severe economic contraction in Germany and on to company earnings, while the euro reached its highest in more than two years, set for its best month in a decade.

Reuters reports the pan-European STOXX 600 rose 0.74%, though it was on course to end the month flat or lower. Technology shares SX8P > propped up the rally, rising 1.6% after Wall Street’s tech giants, Apple, Amazon and Facebook , reported forecast-beating results overnight.

MSCI’s All Country World Index, which tracks shares across 49 countries, was up 0.1% on the day. Germany’s (-10.1%) and France’s ( -13.8%) numbers have already shaped expectations around the magnitude of the 2Q slump in the aggregated eurozone economy,” ING strategists said in a note to clients.

“Markets will therefore focus on assessing the slowdown in the Italian and Spanish economies, which were among the first and worst-hit countries in the pandemic.”

They added the euro could hit $1.20 within the next few days. The single currency passed $1.19 on Friday. EUR=EBS

The dollar was set for its worst month in a decade against a basket of currencies, as abysmal economic data for the second quarter and rising global COVID-19 cases darkened the mood. The dollar index =USD dropped 0.1% to 92.699 .DXY [FRX/]

Expectations the U.S. Federal Reserve will maintain its ultra-loose monetary policy for years also depressed the dollar.

U.S. gross domestic product plunged 32.9% in the second quarter, the biggest decline on record. Jobless claims rose last week, another sign the economic recovery has slowed.

Charles Abuede

With the current global travel limitations and lockdown rules across the airline market, which is expected to trigger the airline travellers revenues drop by $300 billion in 2020, the world’s biggest airlines, namely, Air France, Delta Air Lines, American Airlines, Lufthansa Group and United Airlines, are seeing stunning misfortunes in their market capitalisation. Very few enterprises have encountered such an extreme impact of the coronavirus pandemic like the airline business.

The combined market capitalization for the five largest airline organisations on the planet plunged by $40.9 billion since January, arriving at an aggregate of $36.9 billion toward the end of last week, according data compiled by BuyShares.

Combined market cap plunged by half amid COVID-19 outbreak

Data from YCharts and MacroTrends revealed that in January, the consolidated market capitalization of Delta Air Lines, American Airlines, Lufthansa Group, United Airlines, and Air France, as the world’s five biggest open carrier organisations by revenue, added up to $77.8 billion.

Consequently, after the Black Monday crash, this figure halved to $25.3 billion in the third week stretch of March, indicating a 67 per cent fall since the start of the year. The downsizing pattern continued in the following two months of April and May with the joint market cap tumbling to $25 billion toward the end of May.

However, this figure expanded by almost $12 billion over the most recent two months, coming to $36.9 billion in the third week stretch of July. Nevertheless, the worth of the firms’ market cap by this time represents a 52 per cent dive contrasted with January figures.

Meanwhile, gathered data show the market cap of Delta Air Lines, as the world’s biggest airline by revenue, stumbled by 54 per cent in the midst of COVID-19 emergency, tumbling from $35.5 billion in January to $16.5 billion in the third week stretch of July.

Also, the combined estimation of portions of American Airlines, the second-biggest airline by income, and the leading carrier by flown passenger kilometres remained at $4.8 billion a week ago, representing a 58 per cent fall since the start of the year.

In a similar trend, United Airlines have seen a 57 per cent drop in market capitalization in the most recent seven months, with the value plunging from $19.3 billion in January to $8.2 billion a week ago. More data from YCharts and MarketTrends indicates that the three biggest aircraft in the United States lost a sum of $36.7 billion in combined market capitalisation in the midst of the coronavirus outbreak.

Two largest European airlines lost $4.1 billion in market capitalization

The world’s third-biggest carrier by revenue, Lufthansa Group, has moreover seen a significant fall in the total value of shares in the last seven months. In January, the market cap of Europe’s biggest carrier remained at $7.42 billion. After the Black Monday Crash, the absolute estimation of the organisation’s shares faltered to $4.49 billion, indicating a 40 per cent drop within a quarter. Statistics further revealed that Lufthansa Airline’s capitalization added up to $5.51 billion toward the finish of last week, showing a 25 per cent drop since the start of the year.

Air France, as the world’s fifth biggest flyer by revenue, lost $2.2 billion in market cap in the midst of the COVID-19 emergency. In January, the total value of the organisation’s shares remained at $4.2 billion, but fell below $2 billion by the end of last week. It was revealed in the data that the two biggest European airline firms on the list lost $4.1 billion in combined market capitalisation since the start of the year.

…concurred with Bank’s committee findings

Ben Eguzozie, with agency reports

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Details have emerged on how the high-level panel, established to independently review the report of the ethics committee of the boards of directors of the African Development Bank (AfDB) Group undertook its job, coming out with a ‘no-case submission’ on Akinwunmi Adesina, president of the pan-African financial institution.

The panel, which was announced on July 1 following U.S objection to the ethics committee findings, comprised Mary Robinson, former president of Ireland as chairperson, with Hassan B. Jallow, Chief Justice of the Gambia and Leonard F. McCarthy, president, LFMcCarthy & Associates as members. The panel members were given two to four weeks to complete their work, and submit report to AfDB’s bureau of boards of governors.

On July 27, the panel submitted its report to AfDB’s bureau of boards of governors’ chairperson, Niale Kaba. It concurred with the earlier report of AfDB’s ethics committee in its findings in respect of all the allegations against Akinwunmi, president of AfDB group, finding that the ethics committee’s report “were properly considered and dismissed by the committee.”

With this, Adesina, whom the BBC once described as ‘flamboyan in a reportt,’ sails directly into a second term as the only candidate for the August election to head the AfDB group, a pan-African multilateral financial institution to which he was elected five years ago, succeeding Rwandese Donald Kaberuka.

On its part, AfDB’s bureau of boards of governors re-echoed the panel’s conclusion regarding the earlier report of the bank group’s ethics committee.

“The Panel concurs with the Committee in its findings in respect of all the allegations against the President and finds that they were properly considered and dismissed by the Committee,” it said.

It also noted that the panel’s conclusion regarding the submission of the president (Adesina) to the ethics committee — that “it has considered the president’s submissions on their face and finds them consistent with his innocence and to be persuasive.”

The bureau expressed its appreciation to all AfDB governors for their support and patience during the process that was aimed at ensuring the integrity of the African Development Bank and its governance mechanisms, commending the panel for its work and for working tirelessly to ensure timely submission of its report.