May 19 US recovery not until 2021? Bill carnage ahead. India Pharma takeaway?


Markets trading mainly positive.  Helped by better than expected data from Japan and encouraging comments on CBS ‘Face the Nation’ Sunday evening from Fed Chairman Powell. US Futures +200pts on the broadcast.Europe is looking at opening higher as easing of lock-downs continues.
China looking relatively strong but much of it 'Team China’ working hard to ensure the at the markets stay up ahead of the NPC and CPPCC conferences at the end of the week. China housing data was surprisingly good considering the caution of Chinese investors.
DATA House Price Index Apr +5.1% YoY vs vs 5.3% Mar (F/cast was +4.8%)
HK saw a weak open but worked slightly higher on the good data but it may trail off through the PM session.
Japan and S Korea both worked slightly higher from initial lows. Again good preliminary data from Japan helping.
Taiwan down small, hurt by the US tightening up on supplier to Huawei and other Chinese tech companies.

FT today has lots about the implications from covid-19 on the global economy but the key key theme is that is going to take a long time for the recovery to occur, with or without a vaccine. That said there is a lot of money on the sidelines, I think investors should remain cautious and accumulate slowly the knock-on effect of bills being paid late or not at all will impact everyone at some point.

Powell warns that US recovery could take until the end of 2021. Whilst confident that the US will recover he thinks it will require the arrival of a vaccine and so expects that it will be end of 2021 with the large proviso that there isn’t a second wave but admits he doesn’t really know.
The article notes that a number of world leaders are doubting that a vaccine can be found quickly, if at all. Again underlying the lack of a global co-ordinated effort. It will be interesting to see if today’s WHO meeting addresses that?
I think again that this points to a longer road to recovery than the market levels are reflecting and hence the chance for a further pull back. With quarterly reporting nearly over investors are likely to focus more on the economic data. There seems to still be a lot of money on the sidelines limiting the downside but I would continue to recommend only cautious buying and at levels you are happy at, don’t chase.

New Nomura chief eyes shift towards serving private groups Looks at what might be announced by Nomura’s new CEO at tomorrows investor day. Key is moving away from listed securities into trading and management of unlisted ones. He thinks a number of Japanese companies will look to delist; seeing listings as a burden.
Other changes include potential ceasing to rely on hiring blocks of new graduates who would spend their working lives at the company and instead moving to more mid-career hirings.
Certainly a number of Japanese companies have recently resented shareholder action. Tomorrow is likely to be a interesting day for the share price, the stock sold down around Feb 20 and hit its low March 13. Since then its seen choppy trading and whilst up today, it's trading around its lows.
Investors I believe will want to see a change in culture that really puts clients first. A restructuring that removes the top heavy ‘friendly’ senior appointments.

India in pharma and chemicals drive. Looks at how the country is looking to set itself up as an alternative to China as countries look to diversify supply chains. They are being helped by government money but at present India relies on China of 70% of the active pharmaceutical ingredients (API) that it requires. As a result some companies are looking to increase in-house sousing of API’s. Another negative for China but worth noting that India is not the only country looking to boost pharmaceutical production.

Transforming telemedicine to combat a crisis. Looks at the ramp up in demand that lead to a requirement to increase the capacity of the routers to deal with the change. That will be good news for the hardware providers short term but having seen a big ramp demand peak it is difficult to see where the next big uptick is going to come from.

US businesses hit by unpaid bills ‘carnage’ Bad debt provisions surge as payables are stretched throughout supply chain. I am sure that it is not just the US where is this happening but globally. In the US companies have seen an accountancy change which means they now have to increase provisions not just when customers miss payments but also based on predictions about future creditworthiness. Asian companies that supply a lot of goods on credit will be hurting and as companies like J Crew and JC Penny file for Chapter 11 those bad debts will build quickly. Some companies only supply FOB but again in cases shipments are not be accepted leaving the excess inventory to be disposed of by the manufacturer. This is going to be a big problem throughout most businesses.
Read also FT BIG READ. RETAIL Stitching back fashion’s $2.5tn supply chain Shuttered shops in Europe and the US translate into closed factories in Bangladesh and Vietnam, as well as stockpiles of cotton in India. The industry fears consumer demand might take a long time to return. Outlines the difficulties as everyone tries to ’save themselves first’. As end demand dwindles, many retailers stop paying their suppliers in the belief they will not be sued because the 'supplier needs them’. Contracts are abused and its the shop floor worker and their family that pays the price. It’s not just in the garment industry but in many other industries too.
It calls into question the morals of those who call themselves industry leaders; will they do the honourable thing and pay their dues? Interesting to note that some companies have said they will; to quote the FT. 'H&M was one of the first global retailers to promise it would support manufacturers and the workers who make its clothes by paying for all ordered goods, including those still in production. “We want to ensure the future viability of the industry once the crisis has passed,” H&M said in a statement. Others such as Inditex, Marks and Spencer and Tommy Hilfiger-owner Phillips-Van Heusen have since pledged support for their supply chains.’
Everyone is suffering in the pandemic its to the shame of some of those in control not to pay their dues, whilst they remain insulated in their homes and offices those in families that already live on the bread line face even harder times.

Also on the theme of recovery Flood of bankruptcies must not slow recovery For companies to survive, policymakers need to enable restructuring; not just for the US but in other countries too. Being able to facilitate restructuring rather than liquidation will be important for what sort of society we have in years to come.

In a similar view Editorial US relief should help those who need it most. Warns that past mistakes should not be repeated. It notes talking about the last crisis ‘ ..millions of Americans lost their homes because they could not make mortgage payments. Many of these were in turn bought cheaply by private equity groups who made big money selling them once the recovery began. Some of those groups are now asking for handouts themselves.’ Care needs to be taken that actions taken to help the people really do help 'the people' both in the crisis and after, rather than just ’some people’.

US food banks battle to satisfy demand as jobless rate soars. One group reports a 70% rise in people seeking help since crisis began.
The theme remains a lot of low income jobs have been lost along with other jobs. Re-opening the economy is going to take time and bearing in mind those huge job losses it suggests a long draw out recovery. Read also Opinion Why the US jobless surge is worse than in Europe

Opinion The EU is spooking itself with Grimm fairy tales. I would apply the same lesson here to how people treat China and for that matter the US and Russia.
He focuses on three things;
1. Failure to speak truth to power. People say only part of the what they know, focusing on what supports their case rather than being willing to also admit the good points that do not support their case.
2. Grandstanding rhetoric. Big set piece statements and addresses
3 Scaremongering tales of what might happen if…. And also the disruptive nature of ‘fanboys’.


Big Tech’s viral boom may be its undoing. Looks at how at the moment Tech is being given lots of freedoms on the basis that it is helping to combat the spread of covid-19, finding a solution and ensuring essential supplies get delivered. BUT will those freedoms continue once covid-19 is under control? Especially with regard to the amount of data they are able to access. Three area are examined
1. Privacy; Data collected for fighting/controlling the virus, legislation is likely to ensure that is the case.
2. Content moderation the fact that big tech companies have been able to remove misinformation about covid-19 from websites, show that they can moderate content when they want to and in the future they are likely to be forced to take a greater role in policing; even though that will be a threat to the advertising revenues of Google, Facebook and even Amazon, it is required.
3. Antitrust. Both in terms of the market dominance but also in terms of how they treat their workers.
It notes that different countries are likely to react in different ways. But change is coming. America is likely to lead but the EU has been on the front line of this too. The only place that you shouldn’t expect change is in China the likes of Tencent and Meituan are unlikely to change in the short term, although as Tencent expands into overseas markets it will present it more of a dilemma. Alibaba and JD.Com are more exposed to Western government legislation already and so could be forced to adapt. I still like the stocks and would accumulate on pull backs.

Scientists probe prolonged Covid symptoms an interesting article on how a small percentage of people suffer ongoing effects after the virus. My personal medical knowledge ends at visits to my GP, military first aid and casevac and watching the TV series ‘House’. But what strikes me from what is being reported is that this virus is unlike anything we have seen before both in how it ‘fools’ our body’s defence protocols and in some cases seems to adapt to specific people and in the wider sphere how it quickly mutates. Many articles speak about mutation but I haven’t seen much reported why some people are left with lingering symptoms; again under lines how little we know.

Republicans join criticism of Trump for sacking watchdog both parties critical of the dismissal for two reasons; not providing adequate justification reasons or written reason. Just saying that he no longer had “the fullest confidence” in the senior civil servant was not enough. It is latest in a series of Trump firings of those who have been critical of his administration and in this case Steve Linick was said to have just synced an investigation into Sec of State Pompeo who had come under scrutiny during Trump’s impeachment proceedings. Another example of Trump undoing the fabric of the American constitution. Inspector Generals are there to ensure accountability of the administration, Trump’s perchance for firing those critical undermines accountability and highlights Trump’s disregard for accountability. The damage he is doing to America will last far longer than his time in office regardless of whether or not he is re-elected in my view.

I hope you enjoyed the read.