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UK INSURERS: WHO TO PICK?(1059 GMT)
UK insurers are a hot topic today, after a profit warning from Direct Line sent shares down 12.5% and to the bottom of the STOXX 600, with peer Admiral following suit, dropping 6.5%.
At BofA, analysts have trimmed valuations across the board for UK insurers, reflecting higher equity costs and challenging markets affecting earnings, they said in a note.
However they remain constructive, with a 40% average total return potential for the sector.
Despite robust portfolios and solvency positions at near all-time highs, UK life insurers' share prices have been hit by increased concerns of a credit default cycle, the BofA analysts said in a note. Though with sales solid, some high quality names could be available at "exceptionally attractive valuations.".
The story is different for property and casualty insurers such as Direct Line and Admiral, with BofA allocating an 'underperform' grade to both. Normalising claims frequency, higher claims inflation and weak pricing are impacting results.
Meanwhile UK asset gatherers are under pressure as retail investors shy away from decision making. Weaker bond and equity markets have also hit assets in H1, the analysts said.
Phoenix and Legal & General are their top picks.
"We think both have been unduly impacted by concerns over a UK corporate credit cycle," they said.
ITALY: THE CAVALRY'S ELUSIVE ETA (1010 GMT)
Investors watching the yield on Italian BTPs rising and the spread with Germany widening yet again this morning are in no doubt quite eager to hear more about the ECB's anti-fragmentation plan on Thursday.
But for Gilles Moëc, Chief Economist at AXA Investment Managers, it might be premature to hold one's breath on this one just yet.
"Our concern is that what will come out on Thursday could still be too vague, or too narrow in scope, to signal the market that the 'cavalry is coming' quickly to shore up the Italian bond market", Moëc wrote in a note this morning.
One key concern is whether the hawks would agree to see the central bank intervene if it's the lack of structural reforms the market is actually concerned about rather than a knee jerk reaction to recurrent political instability.
"Would the ECB be legitimate in countering a spread widening if it was triggered by a change in the intrinsic risk profile of a member state brought about by domestic political choices?", the economist asked.
(Julien Ponthus)
EUROPE WARMS UP (0750 GMT)
European screens are flashing green, with the STOXX 600 rising 1.1% so far.
All sectors are making gains, with oil and gas leading the way with a 3.3% rise.
Food and beverages is the worst off but still enjoying a 0.3% lift.
But it's a painful day for British insurers.
Shares in Direct Line are at the bottom of the pan-European index, falling 14.5% after it lowered its profitability outlook for the year and delayed the second leg of a share buyback.
The news is also weighing down shares in main peer Admiral Group; the second worst performer of the STOXX 600 with, down 9.5%.
Delivery companies Just Eat Takeaway.com and Delivery Hero are up 6.1% and 5.7% respectively.
Haleon pulled off the biggest London listing in a decade this morning after being spun off from GSK. It debuted with a market cap of about £30.5 billion.
MAJOR EARNINGS INCOMING: (0620 GMT)
European markets are set to rise at the open, but nerves are frayed as investors gear up for major earnings reports and an expected 25 bps hike from the European Central Bank this week.
Future contracts for the pan-European stock index are rising 0.63%.
A raft of financial reports over the coming days will provide some much needed visibility on the health of corporate earnings amid soaring inflation and an economic slow-down on the continent. Among the companies set to report earnings are Swedbank, Volvo Car, ASM International and Ocado.
Finland's Nordea kicked off with a rise in second-quarter operating earnings, despite customer activity slowing down due to economic uncertainty.
The same uncertainty is dominating traders' minds as data out of the world's major economies continues to be worrisome.
Latest economic data shows New Zealand's consumer prices rising at their fastest pace in three decades, while asking prices for British homes advertised for sale this month were 9.3% higher than a year earlier
The ECB will convene on Thursday to decide on its next move to tackle inflation in Europe, and is expected to deliver its first interest-rate hike since 2011.
