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Corona Capital

4 June 2020 By Breakingviews columnists

Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.


– ZoomInfo

– U.S. trade

Zoom, the other one. Hot on the heels of Warner Music’s successful stock market debut on Wednesday, ZoomInfo Technologies did even better. Shares of the sales and marketing software company opened around 90% above the initial offering price of $21 per share on Thursday, their first day of trading. The pop deflated slightly later, but with IPO markets only now emerging from Covid-19 gloom and indexes slightly down on the day, it represents a hefty vote of confidence.

Unlike Zoom Video Communications’ product, ZoomInfo’s is not even a technology that intuitively fits with being stuck at home. The monthly U.S. jobs report on Friday is expected to show that 20% of the workforce is unemployed. Then there is the civil unrest wrenching the nation. ZoomInfo is further evidence that investors are optimistically looking past it all. (By Jennifer Saba)

Choose your frenemies. There are two possible responses to April’s dismal 25% month-on-month drop in U.S. goods exports – the biggest on record. One is to concede that it shows the need for closer trade ties; the other is to point the finger. The European Union, America’s biggest trade partner, may soon see which way the Washington wind is blowing.

Exports of goods to the whole of Europe fell one-third in April, and the resulting $24 billion deficit was the second largest ever, according to Datastream. These aren’t normal times. But relations were already sketchy, with President Donald Trump threatening auto tariffs and his administration now probing foreign taxes levied on U.S. tech giants.

If economic recovery is what counts, talks make more sense than punishments. There’s room to revive the bilateral Transatlantic Trade and Investment Partnership, which Trump formerly cast aside. In any case, making enemies in Europe will only ensure more dismal trade numbers to come. (By John Foley)

M&A blues. Wall Street’s independent advisers are starting to feel the pain of the pandemic-induced slowdown in deals. Perella Weinberg is laying off 7% of its staff, including senior bankers. Meanwhile, Evercore is offering its incoming crop of first-year recruits up to $25,000 to wait as much as a year before starting.

Having these novices start while working from home is hardly ideal in an industry based as much on relationships as spreadsheets. And the lull in mergers could last for some time – buyers usually want to know what a target’s business looks like for up to two years, Ken Moelis, chief executive of the eponymous investment bank, told investors in late April. In most industries, that will be tough to do for a while.

But there’s a downside to layoffs and hiring delays. Advisers risk being short-staffed when activity picks up. And an echelon of junior bankers will miss out on what could be some era-defining deals. (By Antony Currie)

Shrunken appetite. Grocers’ pandemic boom may be fizzling out, according to Eurostat data released on Thursday. Although sales of food, drinks and cigarettes surged more than 5% in March, demand slumped 5.5% the next month. It’s been easy for supermarkets to make money from couchbound punters. Hand sanitiser, pasta and baby formula all sold out and customers began hoarding cigarettes.

The reopening of economies is likely to bring shares back to earth. France’s Casino, Britain’s Tesco and the Netherlands’ Ahold Delhaize are all outperforming their national indexes. The former two grocers’ shares have also gained since the beginning of April. But packed terraces outside French cafes suggest punters are ready to brave eating out. This means grocers can no longer rely on captive audiences to drive sales. (By Aimee Donnellan)

Guardian angel. Bond markets are on tenterhooks to see if European Central Bank President Christine Lagarde will follow her U.S. counterpart Jerome Powell by hoovering up junk-rated debt, or at least bonds issued by companies that have lost their investment-grade status as a result of the pandemic. The case for buying so-called fallen angels has eased since the peak of the crisis. Markets are functioning better, and investors are keen to buy risky assets. The volume of investment-grade debt being downgraded roughly halved in May to 51 billion euros, analysts at Bank of America reckon.

Still, the difference between the yield on European corporate bonds rated BBB, the lowest investment-grade rating, and the highest junk ranking of BB is still 201 basis points, roughly 30 basis points above the five-year average. Sovereign downgrades would mean further pain for companies in indebted European Union countries. Lagarde has reason to ease investors’ anxiety. (By Neil Unmack)

Other side of the Coin(treau). Remy Cointreau is finding comfort in unexpected places. The cognac maker reported better-than-expected sales for the year ending March, with only an 11% decline. The distiller now thinks its revenue will decline 45% in the quarter to June 30, instead of previous guidance of 50%-55%, and is hoping for a “strong recovery” in the second half of the year. The good spirits reflect Remy’s high presence in Asia, which is recovering more quickly from the pandemic, and more favourable trends in the United States.

True, fears of further sanctions against European produce from U.S. President Donald Trump seem to have subsided. But it’s premature to discount the effect that demonstrations sweeping the nation could have on appetite for premium spirits. And, with pandemic-spooked consumers less likely to meet in bars, a V-shaped recovery is unlikely. The 9% rise in Remy’s share price in 2020 looks excessive. (By Dasha Afanasieva)

Bolt from the blue. Shares in German carmakers BMW, Volkswagen and Daimler all fell on Thursday morning after the government nixed proposals for a 5 billion euro industry-wide scheme to subsidise auto purchases. Instead, Chancellor Angela Merkel’s much anticipated stimulus only targeted electric vehicles – a mere 8% of total registrations in the first four months of the year, according to the German Association of the Automotive Industry.

Mercedes-Benz maker Daimler and BMW – not to mention Tesla – look particularly badly treated: the state’s proposed 6,000 euro subsidy, on top of a 3,000 euro manufacturer’s stipend, will mostly apply to e-vehicles costing 40,000 euros or less, thereby excluding their pricier rides. However, that should benefit Volkswagen, which is set to launch its first mass-market battery car – the ID3 – starting at less than 30,000 euros this summer. (By Christopher Thompson)

Campaign controversy. It’s not exactly a great promotion for Dentsu. The Japanese advertising giant is caught in the crossfire over a nearly $700 million government contract it was awarded to provide administrative services for the country’s programme to help virus-stricken small- and medium-sized businesses. The backlash centres on the use of a related company and subcontractors, which opposition lawmakers say is a waste of taxpayer funds that also could delay their distribution.

Finding efficient ways to get money to people in need has been a challenge for authorities around the world, but for $8 billion Dentsu the uproar is especially inopportune. Its performance and stock price already have been hammered by earlier fears of a cancellation of this year’s Tokyo Olympics, for which it rounded up domestic sponsors. Any public perception problems risk additional fallout. It sounds like an important spin job for a high-powered agency. (By Sharon Lam)


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