The Weekly Note: 17 March 2020

17 March 2020

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Market news

Global equities have continued to tumble rapidly in tandem with the unrelenting spread of COVID-19, the coronavirus that has already brought numerous countries to a standstill. The likes of Spain and France have followed Italy, and China before it, in placing the sort of restrictions on their citizens not seen since wartime. Britain is following suit, with Boris Johnson warning last night that regular life could be disrupted for up to a year. 

Wall Street tripped its `circuit breaker' for the third time in six trading sessions yesterday, after plummeting at the open in spite of emergency action from the Federal Reserve on Sunday night. Cutting interest rates to near zero was not enough to allay fears about a global recession. The Dow Jones plunged 12.9% yesterday, with other headline US indices close behind. The FTSE 100 is now at its lowest level in nine years, having fallen more than 30% since February 19, less than a month ago. 

European markets are somewhat quieter today, but the Euro Stoxx 50 volatility index -- the fear index for eurozone stocks -- has surged to a record level, above the peak of the financial crisis. European countries are planning to ban entry in to the Schengen zone, while President Macron has told France that “we are at war”. Macron also pledged an extra €300bn to support companies affected by measures of social distancing. 

Elsewhere, the Bank of Japan has pledged to ramp up purchases of exchange-traded funds and other risky assets in a bid to soothe markets. Rishi Sunak, the UK's new chancellor, is reportedly working on a bailout for businesses hit by coronavirus, after advising people to stay away from pubs, clubs, theatres and other gatherings. 

Data released at the beginning of the week painted a clear picture of the economic impact that is to come in the near future. In China, factory production plunged at the sharpest pace in 30 years at the start of the year. Industrial output fell by a much larger than expected 13.5% in January and February, compared to the same time a year earlier. 

Stock focus

Airlines are perhaps most obviously at risk during the global outbreak and all of the consequential restrictions on populations' movement. British Airways, for example, is grounding 75% of its fleet over the next two months. Shares in its owner, IAG, fell 27% yesterday alone. The Centre for Aviation has said that “most of the airlines in the world will be bankrupt” by May 2020. 

Associated British Foods has had to temporarily close a fifth of its stores due to the pandemic, putting its revenues directly at risk. Shops in France, Spain, Italy and Austria are shut as the governments banned non-essential shopping. 

Compass Group has warned that the coronavirus could erode first-half profits by as much as £225m. The world's largest catering group warned that the associated restrictions of the virus could lead to revenue growth being flat for the first time in over a decade. 

Amid the widespread threat to businesses and jobs everywhere, news emerged this morning that Amazon is hiring an extra 100k workers in the US to handle the spike in online orders. It warned customers at the weekend to expect delays and potential shortages, but has acted fast to maximise output. Next month, Amazon is due to increase hourly wages by $2/£2/€2 for US/UK/EU warehouse and delivery staff. 

Cineworld's shares have been down as much as 27% today amid fears that its £1.4bn merger with Cineplex might collapse, with customers being dissuaded, or in an increasing number of countries banned, from heading to the cinema. Both cinemas have closed sites in North America. 

Dixons Carphone announced this morning that it will close the group's 531 standalone Carphone Warehouse stores. It did not cite COVID-19 as a factor, rather explaining that customers have changed the way they buy technology. It hopes to deploy 1,800 staff into the larger Curry PC stores. The market has taken the news well this morning.

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