Last checked at 
Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters. You can share your thoughts Joice Alves (joice.alves@thomsonreuters.com) and
Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Stefano Rebaudo
(stefano.rebaudo@thomsonreuters.com) in Milan.
WHEN RETURN ON PAPER MONEY IS DEEPLY NEGATIVE... (1419 GMT)
Hard money appeals, SocGen analysts say. And, gold is "the closest thing to hard money we
have available". With real yields (yields on bonds minus inflation) falling the biggest FX
winner is gold.
"The currency that correlates best with real yields is the yen, but it is not doing a great
job of correlating with gold, nor is the Swiss franc," SocGen says.
Gold has risen more than 19% so far this year and today is trading close to its highest
since September 2011 hit last week.
"Nominal yields are very low, and more people need to hedge against higher inflation in the
long run, than need to hedge against permanent disinflation," SocGen says pointing to Treasury
Inflation Protected Securities (TIPS) trading at -0.8%.
"Everyone is petrified of the longer-term inflationary consequences of current central bank
policies," it adds.
What happens is that investors buy gold as TIPS yields fall.
(Stefano Rebaudo)
*****
ECB: NOTHING EXPECTED, NOTHING HAPPENED (SO FAR) (1213 GMT)
As widely expected, the ECB kept its policy unchanged, taking a pause after the burst of
monetary creativity which followed the coronavirus financial crash.
Euro zone banks edged down marginally, the euro rose just a tad while the yield on BTPs
slightly went down.
So far, this is exactly what investors were waiting for: a non-event.
"As the ECB switches to the 'wait-and-see' mode for the rest of the summer, the focus shift
towards the Recovery Fund and the long-term budget", commented in a note Anna Stupnytska, Global
Macro Economist at Fidelity International.
Not much is expected from the presser in less than half an hour but who knows? Maybe the
wise owl can surprise journalists and investors during QnA.
Here you can see the yield of BTPs lowering a tad:
(Julien Ponthus and Joice Alves)
*****
ASSET MANAGERS WELL SET WITH OR WITHOUT A VACCINE (1143 GMT)
It is kind of an obvious statement that one should avoid stocks of companies at high risk of
going bust, less self-evident is why would someone ditch companies that are gaining from its
exposure to COVID-19?
JP Morgan's Mike Bell points out that he is "looking for businesses which can survive with
or without a vaccine and where the valuation is not too stretched."
Bell says the asset management industry is one of the spaces he likes: not at risk if the
economy picks up but equally not too exposed if it doesn't.
"We're avoiding the stuff that's gone down the most because without a vaccine those
businesses are in serious trouble, but also avoiding the stuff that has gone up the most," Bell
says.
(Joice Alves)
*****
TOUGH YEARS AHEAD FOR EUROPEAN BANKS (1123 GMT)
Pandemic-induced non-performing loans (NPLs) and capital erosion are the main risks for
banks across the world, as the economy will take time to get back to pre-Covid levels while
stimulus measures might not be able to fully compensate the adverse impact of the virus.
According to rating agency Moody’s, damage on asset quality, profitability and capital will
persist through 2022 for many banks.
NPLs will be significantly higher in 2022 than in 2019, rising as much as “200 basis points
or even near 300 basis points at banks in Italy, Spain or the UK”, with Italy at above 11%
followed by Spain at around 6%, in terms of NPL to gross loans ratio.
In 2022 many economies will not have recovered pre crisis GDP levels, while most of the banks
under scrutiny by Moody’s will not regain the tangible common equity (TCE) to risk weighted
asset ratio they had in 2019.
The rating agency sees a moderate increase for Spain and the UK, given “stronger income
generation of the largest banks.”
Government schemes will support the economy and indirectly banks’ balance sheets, but the
Moody’s analysis shows “moderate loan-loss relief overall from bank specific support measures”.
(Stefano Rebaudo)
*****
ARE YOU PLANNING TO BUY EXPENSIVE HANDBAGS OR WATCHES? (0827 GMT)
The absence of deep-pocketed tourists has now turned attention to local demand for luxury
goods makers, given the re-opening trends in Europe has been so far so good.
BofA's analysts are upbeat on the sector and believe any commentary around European
re-opening trends would be one of the most important catalyst for the reporting season.
But dire numbers cannot be entirely ignored. Cartier maker Richemont is among the
top fallers in Europe today with shares sliding 5.2% to two-week lows after the company said its
Q1 sales nearly halved because of COVID-19's "unprecedented" disruption.
Richemont's numbers came in a day after Burberry warned it will cut 500 jobs as it
sees slow demand recovery, particularly from deep-pocketed tourists.
BofA, which prefers LVMH and Burberry over Kering and Hugo Boss
, says local demand in Europe is driving the recovery as lockdown measures are lifted.
"Our Luxury Demand Indicator fell 53% in Apr-May, but initial Jun-July data is encouraging.
China and Korea continues to accelerate," BofA says.
It sees European luxury revenue down 57% in Q2.
Europe's top asset manager, Amundi, is also keen on the sector as it sees demand rising in
China. More here: LIVE MARKETS-What's hot and what's not in post-lockdown world
Next week, investors will be watching if Christian Dior and Moncler have
anything to say that will help get a picture of what the recovery will look like.
Here is how shares in some major European brands have bounced back nicely since the March
slump.
(Joice Alves)
*****
OPENING SNAPSHOT: HEINEKEN, A BITTER Q2 AFTERTASTE (0742 GMT)
European stocks opened down and are now falling 0.8% with an unscheduled trading update from
Heineken giving a bitter aftertaste to the beginning of the Q2 earnings season.
The Dutch brewer lost over 5% after announcing first-half net revenue fell 16.4% as the
impact of coronavirus-related lockdowns intensified in the second quarter.
No sign of a dynamic V-shaped recovery here even if the end of the quarter saw some
improvement: "After a low point in April, volume started to gradually recover into June as
lockdowns were lifted around the world and customers restored depleted inventories".
Anyhow, the tone ain't particularly merry with another big name, luxury goods group Richemont
giving no sign of a V-shaped recovery - actually no outlook at all - and reporting
"unprecedented levels of disruption" from the COVID-19 pandemic.
Not that Getinge won't cheer up the mood that much: the Swedish medical equipment maker is
up about 4% but that's on a jump in core profit due to high demand for...ventilators.
Another group in the healthcare space jumped: Germany's Sartorius which raised its forecast
for the year.
Among other big losers, there's Ladbrokes owner GVC down 6.5% after announcing that Kenneth
Alexander will step down as chief executive officer after 13 years at the helm.
(Julien Ponthus)
*****
ON THE RADAR: ANOTHER EARLY BATCH OF Q2 EARNINGS (0636 GMT)
European shares are seen opening in the red as risk appetite took a hit by concerns about
deteriorating U.S.-China relations. Investors also have to digest a slew of earnings reports,
which show the size of lockdowns damage.
France's Alstom reports a 27% slump in Q1 sales while Richemont Q1 sales nearly halve after
COVID-19 disruption. Richemont shares are down 4% in pre-market trading.
On a brighter note, Norway's Telenor Q2 earnings beat estimates and the company said it
expects a single-digit decline in its subscription and traffic revenues this year. Experian
first-quarter revenue falls less than feared.
Germany's Zalando shares are up almost 5% in pre market after the online fashion retailer
raised full year guidance as more people shop online.
Global miner Anglo sticks to most of its 2020 output targets but Q2 hit by COVID-19.
Swedish medical equipment maker Getinge also reported a jump in core profit and
order intake in the second quarter as demand for ventilators and other life support equipment
surged.
More news about COVID-19 treatment and vaccine: Early-stage human trial data on a vaccine
being developed by AstraZeneca and Oxford University will be published on July 20, The
Lancet medical journal said. Novartis's Sandoz division says will not make a profit on
15 generic drugs it is making available to developing countries to treat symptoms of COVID-19,
the Swiss drugmaker said on Thursday.
(Joice Alves)
*****
MORNING CALL: U.S.-CHINA TENSIONS HIT ONE MORE TIME (0540 GMT)
European shares are seen opening in the red as risk appetite weakened by growing concerns
about deteriorating U.S.-China relations.
Worries about a dispute between the world's two largest economies over the control of
advanced technologies and the protection of civil liberties in Hong Kong pushed Asian stocks and
U.S. futures down.
Even news that China's economy rebounded more than hoped in the second quarter from a record
slump was not enough to cheer investors up. A surge in coronavirus cases, which is prompting
some governments to reimpose containment measures, is also not helping sentiment.
After touching a one-month highs yesterday on vaccine hopes, European markets are set to
follow Asia lower. Investors will also have to digest a slew of earnings, which will show the
size of lockdowns damage.
Financial spreadbetters at IG expect London's FTSE to open 20 points lower at 6,273,
Frankfurt's DAX to open 97 points lower at 12,834 and Paris' CAC to open 26 points lower at
5,083.
(Joice Alves)
*****
