Sainsbury’s shares rose 11%; Morrisons’ were 10% better. Even in the midst of crisis, investors think they know how to price up a business rates giveaway from the chancellor.
Morrisons on Wednesday announced underlying pre-tax profits of £408m for the past financial year. Add the £290m of store-related business rates that the company won’t be paying this year (at least according to the natural reading of Rishi Sunak’s emergency plan) and, hey presto, Morrisons could be looking at a year of bumper profits, runs one line of thinking.
Unlike pubs, clubs, restaurants and theatres – Sunak’s main intended beneficiaries – the doors of supermarkets are wide open and punters are rushing in, to the extent that restrictions are being placed on what they can buy.
Yet the idea that investors are poised to enjoy a pandemic bonanza is very silly. Supermarkets were not included in the business rates holiday so that shareholders could pocket the difference. The Treasury, one assumes, was trying to incentivise behaviour that the chains, to their credit, are adopting anyway.
David Potts, Morrisons’ chief executive, gave a few examples: paying small suppliers immediately; extending sick pay to staff who would not normally be eligible; adding cleaners; hiring more staff to cover absences; extending online deliveries. Such “feed the nation” policies cost money.
If there’s anything left from the business rates freebie, it’s unlikely to find its way to shareholders. A bonus for staff would be a far better use of surplus funds. The Treasury might even want a few quid back if things turn out better than expected.
None of which alters the fact supermarkets remain supremely defensive stocks. But they, in common with about 99% of consumer-facing businesses in the UK, are also exposed to an economy where medium-term damage to confidence, employment and discretionary spending could be severe.
Bank boss should get tougher on short selling
The new governor of the Bank of England, Andrew Bailey, says his “strong preference” is to keep stock markets open. Quite right: closure would look panicky and deprive some ordinary savers of access to their investments, even if the value of those investments has plunged.
What’s more, the stock market’s fumbling daily assessment of points of stress can be useful to policymakers. The signals are mostly showing red for danger, but the shades of red also matter.
Bailey, however, sounded weak when he called for short-sellers – those betting on share prices to fall – to behave themselves. “Anybody who says, ‘I can make a lot of money by shorting’, which frankly might not be in the interests of the economy, the interest of the people, just stop what you’re doing,” said the governor. An appeal for everybody to play nicely is probably not going to cut it.
A ban on short selling would be controversial, and is generally only adopted by policymakers when there are specific dangers, such as runs on banks. But, if the Bank judges that short-selling is making a bad situation harder to manage, just implement a ban. “Please stop” is not a message that is likely to be universally obeyed.
Why the ECB should mind the bonds gap
Over in the government bond market, the European Central Bank ought to be worried. The gap in yields on eurozone countries’ bonds is widening. In short, there’s a rush for the safety of German bunds, with the debt of the likes of Italy, Greece and even France being shunned, relatively speaking.
The situation is a long way from being a rerun of the eurozone debt crisis of 2011. Nor did the position worsen notably on Wednesday versus Tuesday. One would also expect market gyrations – investors can see a tidal wave of new government IOUs coming down the track as countries rip up borrowing pledges.
All the same, the ECB cannot afford to let this run too far. The new chief, Christine Lagarde, started badly last week when she had to clarify her remark that the ECB was “not here to close [bond] spreads”. A nervous market now wants to see what ammunition the central bank is prepared to unleash, and in what form – general purchases of eurozone debt, or specific countries’ debts?
This subplot could quickly become significant. Last time around, the ECB eventually managed to foster a greater sense of eurozone harmony out a crisis. This time may be different.