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Contents Click on the links below to get to the stuff you really really want. USA – Rising virus cases and reimposition of lockdown in Texas sinks stocks; Facebook finally accedes to advertiser pressure to be less crap; Fed limits bank shareholder payments (#USA) UK – Banks and airlines suffer; Intu shopping centre goes into administration (#UK) Continental Europe – Bund yields lowest in a month; Adidas dragged down by Nike (#Europe) Elsewhere – US restricts Chinese officials’ travel visas; Argentina’s economic activity down by more than 20% (#Elsewhere) WTF – Waffle iron day (#WTF) Links (#Useful) Numbers (#Numbers) Ts & Cs (#Ts+Cs)
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USA
Those rising virus cases in Texas, Florida and elsewhere quashed investor confidence on Friday. The economic consequences of the virus were also in evidence with Nike posting an unexpected loss and the Federal Reserve (equivalent to the Bank of England) stress tests giving cause for concern.
Those stress tests are how banks are measured for their ability to cope with a bunch of different adverse conditions. The idea is to make sure that banks have enough cash-to-hand to cope with loads of people wanting their money back at the same time. The latest results show that banks cash-to-hand levels have fallen close to the minimum levels that the Fed requires them to keep at all time. If they were to fall below those levels, the banks would have to rein in lending to pile up cash, and that would have the reverse effect that the central banks want at the moment by reducing the availability of borrowing to households and businesses.
That combination of cold factors of reality sent stocks down sharply, leaving the S&P 500 2.4% lower by the end of trading on Friday. Facebook was the biggest drag after it decided to add warnings to content postings that are nonsense or hate-driven. Funnily enough, they did this just after huge advertisers such as Coca Cola withdrew ad spend until Facebook did something about it. But bank share prices also had a tough day as the Fed limited payments to banks’ shareholders.
The nervousness was enough to send more investors into bonds which pushed their prices up and their yields down.
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UK
With cases rising in the US and lockdown restrictions being reimposed in Texas, the mood in the UK was also pretty downbeat. The FTSE 100 and FTSE 250 both closed only just higher than the prices at which they’d started the day.
Airlines had a tough day as folk pondered about their prospects for the rest of 2020; travel restrictions might be lifted but, with a resurgence in virus cases and no treatment yet available, people are likely to be reluctant to sit in a metal box with the same air being recycled over a period of hours with a bunch of strangers.
Shopping centre owners also struggled after Intu, the landlord for some large shopping centres, was set to call in the administrators (which it duly did after UK trading had finished).
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Continental Europe
Hopes of an economic rebound were scotched for the time being across Continental Europe as well. The resurgence in virus cases sent the Euro Stoxx 50 and German DAX down by 0.5% or more on Friday.
Adidas stocks were dragged down by the unexpected loss posted by US competitor, Nike. And banks were under pressure as well following stress test news and dividend payment restrictions in the US.
Governor of the European Central Bank, Christine Lagarde, opined that the eurozone was “probably past” the worst of the virus cases and immediate economic fall out. But I suspect that a recovery is only likely to speed up and hold its ground once a proven treatment is identified.
With nervousness abounding, the demand for and prices of low-risk rated bonds surged. That sent their yields down with the yield on the benchmark 10-year Bund (German government bond) down to its lowest level for a month.
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Elsewhere
China is coming back from its Dragon Boat festival to news that the US has restricted the availability of travel visas for Chinese officials. This is the latest response to Beijing suppressing freedom of anything in Hong Kong. It’s a gesture and it won’t make much difference but, in reality, there ain’t much that the US can do to stop China abusing its own people.
Just for a change, let’s have a look at a different basket case: Argentina. The country that ought for years, to have been powering ahead, continues to stymie its own progress due to political short-sightedness. The voters aren’t prepared to suffer the necessary financial pain to get the country back on an even kiel, hence they keep voting in populists who screw up the economy.
Add the virus consequences to that and you have an estimated 21% drop in economic activity in the country. And that’s a country which is defaulting on its bond payments to overseas investors just when it needs to convince those investors to invest.
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WTF (What’s The Fact?)
Waffle iron day
Yes, it’s waffle iron day. No, that’s nothing to do with a Margaret Thatcher speech, it is, fact, all about those tasty delicacies that folk (especially in the US) like to block their arteries with first thing in the morning.
This has absolutely nothing to do with my next subject: Wirecard. The stupendously dodgy money transferring service has finally collapsed after its fraudulent existence could no longer be hidden.
And here’s a warning for you and yours. Wirecard wasn’t a bank so people who had money with it are stuffed. It provided pre-paid money cards on which you could put money and then spend it. It looks like a bank card and Wirecard is one of a number of companies that do this bank-like activity.
Unlike banks, Wirecard and the like are not subject to stress tests and other regulations designed to limit the losses that customers could suffer.
So, while pre-paid cards are great for avoiding the racking up of debt, the companies behind them are not built on iron.
Sorry for the waffle.
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Links
Investopedia (www.investopedia.com/dictionary/) – Loads of free explanations of financial terms including some helpful videos. Not 100% accurate, but a good starting point Guffipedia (ig.ft.com/sites/guffipedia/) – Lucy Kellaway of the FT has collected some painful examples of corporate people disappearing up their own analogies Guardian (www.theguardian.com) – Free to access website with a couple of decent columnists (e.g. Nils Pratley and Larry Elliott) Times of India (timesofindia.indiatimes.com) – Why use five words when 37 will do? Daily Mail (www.theatlantic.com/magazine/archive/2016/07/the-war-on-stupid-people/485618) – Click it. I dare you.
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———————————————————— IMPORTANT This is my opinion. Yes I read a lot and share what I’ve read with you, but this content remains my opinion. It’s NOT advice. If you take my advice – don’t take my advice. Any decisions you make about investments, your hairstyle or whether or not to eat marzipan are entirely at your own behest. If you are too stupid to recognise the devil’s ear wax when you see it, then you’re on your own.
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