Last checked at 
* Major U.S. averages up modestly; early close 1300 EST/1800
GMT
* Tech leads major S&P sector gainers; utilities weakest
group
* European shares up ~0.1%
* London stocks underperform, down ~0.5%
* Dollar slips; spot gold, crude down
* U.S. 10-Year Treasury yield ~0.86%
Nov 27 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
WHO IS HOLDING ESG BACK IN Q4? (0926 EST/1426 GMT)
ESG funds have been investors' darlings for quite a few
years, but they are lagging so far in Q4 as the surprise
November rotation has created some distress for such vehicles.
"The risk-on rotation in markets appears to have indeed
shaved off some ESG outperformance," write strategists at
Barclays.
Take a look at the MSCI Europe ESG index, and how the
surprise outperformance of "bad" sectors - banks, energy and
materials - hurt ESG funds:
But despite the hit in the quarter, ESG investing continues
to be a keeper, the strategists add.
"We believe ESG investing is here to stay given its secular
drivers such as increasing actions to mitigate climate change,
improving diversity, inclusion, etc", they say, adding that
European and the U.S. governments will likely continue to
provide support to the theme.
(Joice Alves)
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EUROPEAN BANKS: EVER ELUSIVE CROSS BORDER MERGERS (1337 GMT)
Of course, BBVA and Banco Sabadell calling off their merger
talks is a setback for those hoping for a consolidation wave to
prop up the battered banking sector.
But as far as Spain and Italy are concerned, there seems to
be quite enough of deals brewing in the pipeline to keep that
narrative alive in these markets.
Looking at the euro zone market as a whole though, it's a
different story.
Years of speculations of deals involving the likes of
Italy's Unicredit, Germany's Deutsche Bank or France's BNP
Paribas remain just that: speculation.
In a note published this week, analysts from the rating
agency Scope argue that while there's a real rational supporting
deals in domestic market, they remain sceptical about
pan-European mergers.
In comparison to two domestic banks joining forces, "the
benefits of cross-merger deals are less obvious as cost
synergies tend to be limited", they write.
"Customer acquisition, including cross-border, can be as
cheap as offering a better product at a competitive price,
rather than acquiring outdated distribution networks that may
end up burdening the business in the longer term", they add.
There's a good case to invest the war chest within the
business itself rather than outside, Scope analysts also argue.
"However attractive a deal may look on paper, the question
remains as to whether banks would be better off investing excess
cash in best-in-class scalable technology, given the secular
trends towards digitisation".
(Julien Ponthus)
*****
A TARGET 75 BPS FOR ITALIAN-GERMAN BOND SPREAD (1240 GMT)
What the EU recovery fund really means for the financial
future of the euro zone is up to debate. But analysts see more
tightening in government bond spreads as the believers that the
EU move is a game-changer seem to prevail.
Commerzbank analyst Michael Leister expects the 10-year BTP
spread to tighten to 75 basis points, to pre-debt crisis lows,
which means to levels not seen since 2010. It's currently at
1.15%.
“The NGEU (Next Generation EU recovery fund) agreement means
more than just numbers and is being perceived as a German u-turn
on fiscal integration by investors and rating agencies,” he says
in a research note.
“In addition, Lagarde has made clear that she will do
‘whatever is needed’ to live up to her statement that ‘debt is
not the problem at the moment’,” he adds.
“Hence, for the first time since the start of the debt
crisis in 2010 the ECB is no longer the only backstop for
markets and picking up the pieces left by politicians, but it is
instead receiving comprehensive policy support.”
In any case, the “ECB steamroller” should make "downgrades
unlikely for now despite deteriorating fiscal metrics".
In line with the BTP-tightening he expects semi-core spreads
to outperform further versus the core and Bunds.
In the chart below the spread between Italian and German
sovereign bond yields in percentage points.
(Stefano Rebaudo)
*****
HOW IS LENDING HOLDING UP? (1154 GMT)
So far, so good. But things could change...
By taking a look at the next couple of charts from UBS, you
can see that recently things haven't been bad at all for private
sector loans, with lending levels remaining strong during the
pandemic-hit 2020.
But UBS analysts flag that the figures from the ECB released
this week fail to show that in recent months things have started
to change.
"The year-on-year data masks a sharp slowdown in recent
months, which we think needs to be monitored carefully," says
UBS in a note to clients.
"We firmly expect the ECB to extend its TLTRO
funding-for-lending programme on 10 December and think more
governments might come under pressure to extend their loan
guarantee schemes, as the French and German governments have
already done."
(Joice Alves)
*****
U.S. PANDEMIC-INDUCED PROFIT BOOST? (1045 GMT)
Many analysts have been wondering why U.S. stocks did not
crash after a pandemic-induced GDP contraction broke all records
since World War II.
It might sound strange, but the truth seems to be that
profits of corporate America were not really impacted.
Oddo BHF economists highlight that, according to national
accounts, corporate profits hit a new high in Q3.
In the U.S. for every point of GDP decline “profits fall ten
times more,” so after the crash in the second quarter the
correction in profits should have been off the chart, an Oddo
research note says.
But the decline didn't happen because of public support,
starting from the Paycheck Protection Program (PPP), starting
from Paycheck Protection Program (PPP), which grants loans that
become subsidies if the payroll remains stable. “Without this
the fall in profit would have been much worse than during the
financial crisis in 2008,” it adds.
According to estimates from the U.S. Bureau of Economic
Analysis (BEA) these subsidies represented around $180 billion
each time in the second and third quarter, in addition to $525
billion of PPP loans.
With these numbers in mind, we understand why investors are
looking forward to the next stimulus package in the U.S.
“Without a new stimulus plan it would see a return to the
classic recession sequence whereby the adjustment of employment
and investments is extended over several quarters,” Oddo
economists say.
(Stefano Rebaudo)
*****
TEPID OPEN: EDF AND BANCO SABADELL STAND OUT (0845 GMT)
Much as it was expected, European shares are roughly flat at
the open with the Thanksgiving holiday in the U.S. discouraging
traders from going wild due to expected lower volumes.
The pan-European STOXX 600 is down 0.2% at the moment but
much of the negative market price action seems to come from
London where the FTSE 100 is retreating 0.9%.
It seems the government's plan to ease the lockdown and
ongoing Brexit uncertainties is not helping. While the pound
can't be blamed for the bulk of the underperformance as it's
flat.
Life insurers, homebuilders, real estate are among the worst
hit sectors among UK blue chips, with sectoral falls getting
close to 2%.
Milan is outperforming other trading centres in Europe,
rising 0.5% with most of the gains coming from financial and
utilities.
In terms of individual stocks, EDF clearly stands out with a
6.5% jump after a target price raised by Citigroup and a lot of
interest on the government's planned overhaul of the group.
Another stock in the spot light is Banco de Sabadell, down
over 10% after its merger talks with BBVA were called off.
Here are the top movers on the STOXX 600:
(Julien Ponthus)
*****
MORNING CALL: MORE OF THE SAME (0640 GMT)
European futures are flat again this morning after
yesterday's unchanged close when U.S. financial markets were
closed for Thanksgiving.
Not much action is anticipated at the open today either
meaning that if things continue as they stand, European stock
markets may very well score their best ever monthly performance
this November.
The status quo is actually a good thing for the bulls as the
session in Asia showed overnight.
Asian shares stalled but remained in striking distance of
their record highs.
One thing's for sure: the fact that the efficacy of
AstraZeneca's coronavirus vaccine is now facing more intense
scrutiny isn't helping sentiment.
(Julien Ponthus)
*****
