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* Brexit fears make a comeback
* Pound takes a hit
* FTSE 100 gains on currency hedge
* STOXX 600 down 0.4%
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HOW FAR CAN AUTOS GO? (1303 GMT)
After a projected 16% decline in sales in 2020, the global
auto industry is gearing up to become a sweet spot in the coming
year, with Moody's forecasting a majestic turnaround for the
industry.
The pandemic led to a collapse of demand for cars and
production shutdowns around the world, but looking ahead, global
sales are now likely to see a 7.7% increase in 2021, the rating
agency predicts.
It will take time however for autos to return to 2018 peak
levels, after suffering steeper drop in 2020 than during the
global financial crisis in 2009.
See more below:
"While we expect global car sales to rebound from the trough
of 2020, the recovery will be uneven and take until mid-decade
to reach the previous cyclical peak recorded in 2018," Moody's
say in a report.
Here are some of Moody's bets for the sector:
- Autos will rebound faster in China
- Economic uncertainty could threaten the restructuring and
modernization efforts of the space
- Automakers, which issued debt to improve liquidity during
the tough lockdown months, will likely try to pay back their
debts quickly as sales rebound
- A resurgence of coranavirus is a top risk to the expected
recovery.
(Joice Alves)
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EUROPEAN BANKS WITH HIGH YIELD POTENTIAL (1233 GMT)
Dividend is one of the major issues for the battered bank
stocks, with many analysts trying to figure out the average
pay-out rate of next year.
Credit Suisse and Jefferies went a step further, assessing
which banks might have enough provisions to pay dividends
according to the ECB.
CS says the lenders with the highest yield potential are the
Swedish and the Dutch ones, plus KBC, Intesa Sanpaolo
and BNP Paribas.
Barclays, KBC, ING, Credit Agricole
, BNP Paribas and Intesa Sanpaolo will be permitted to
return to meaningful distributions, Jefferies says.
CS analysts expect the ECB to make the TLTRO more generous
at its Thursday’s meeting, in a move which will benefit “in
particular banks in Southern Europe.”
They expect the ban on dividends to be lifted but “there are
risks of a delay to payment until after the July stress test
(small negative) or a blanket cap on payouts.”
The ECB sent a letter to banks it supervises on December 4,
splitting them in 3 groups: ‘wait and see’ with low
provisioning; ‘overlay’ provisions without clearly identifying
the exposures subject to increased credit risk; adequate
provisioning, a CS research note says.
Besides the ECB noted that “conservatism in provisioning” is
key to restarting dividends, as some banks have to “convince
regulators that they are in a strong position to pay.”
In the chart below the Stoxx Bank index and the Euro
Stoxx bank index dividend future on 2021, during the
coronavirus crisis.
(Stefano Rebaudo and Joice Alves)
SUPER EU THURSDAY? (1108 GMT)
As noted in the post below, there's quite a lot of
expectations for the ECB to deliver additional firepower on
Thursday which could turn out to be a crucial day on at least
two other major issues: Brexit and the Hungary/Poland spat on
the EU recovery fund.
While Brexit talks are now clearly in extra time, the EU
summit this week might seems to have become the ultimate
deadline and could prove decisive even if many had hoped a deal
would have been struck by then.
"We are approaching pantomime season in the UK and we are
tempted to read the ups and downs of the 'deal negotiation saga'
as a succession of set pieces building to a last minute
denouement – possibly on Thursday’s European Council and our
baseline remains that if everyone is rational – which may well
be a strong assumption – a very mediocre Free Trade Agreement
will be signed within the next few days", writes Gilles Moëc,
chief economist at AXA Investment Managers.
Moëc doesn't sound very optimistic either on the EU recovery
fund and writes that "for now, it is not obvious that this
Thursday’s meeting will unlock the situation".
(Julien Ponthus)
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FOCUS ON ECB MACRO FORECASTS (1031 GMT)
With most of possible ECB policy measures from Thursday’s
meeting already priced in, investors’ focus will shift to macro
forecasts as they will provide the rationale for the central
bank’s further steps.
The ECB will come in at a number very close to our forecast
of 3% (in terms of 2021 GDP growth), “a down-revision that will
mean a stronger recovery in 2022 of 4-5%, also boosted by the
now more realistic outlook for the roll-out of effective
vaccines,” Unicredit’s chief economist says in his Sunday Wrap.
This would mean that “the eurozone will reach its pre-crisis
level only during the second half of 2022.”
This will be important as according to the majority of
Council members "reaching the pre-pandemic GDP level would be
good enough to start a ‘normalization’ of policies via the
gradual unwinding of the exceptional COVID-related measures.”
It could mean that the Pandemic Emergency Purchase Program
(PEPP) as well as the Targeted Long-Term Refinancing Operation
(TLTRO) could be extended until mid-2022 on Thursday.
But the central bank is most likely to take the cautious
path on uncertainties about Covid-19 trajectories and the
approval of the EU recovery fund, Unicredit says.
The PEPP will be boosted by 500 billion euros and will be
applied through at least the end of next year, possibly until
mid-2022, while the ECB may fiddle the conditions for TLTROs,
but not materially, according to Unicredit.
(Stefano Rebaudo)
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BREXIT CALLING THE SHOTS AT THE OPEN (0845 GMT)
There's no doubt about what's on everybody's mind this
morning!
Brexit is left, right and centre with talks between Britain
and the EU at a very critical moment.
The pound is down over 1% amid many worrying headlines,
including one from The Sun, which says Boris Johnson is ready to
pull out of Brexit talks unless the EU budges on its demands.
The currency hedge is helping the FTSE outperform its
European peers but there's still a lot of losses among UK blue
chips, notably for homebuilders, with Berkeley, Barratt
Development, Persimmon losing between 5% and 6%.
British financials are also under a lot of stress with
Lloyds down 4.5% and HSBC losing 2%.
The mid-cap FTSE 250, much more exposed to Brexit through
its domestic constituents, is retreating by 1%.
The pan-European STOXX 600 is well in the red, with a 0.8%
hit.
There are just a few stocks making big gains, such as
Pandora, up 4.5% after the Danish jewellery maker confirmed its
outlook for 2020 on the back of strong sales.
Again, a vast majority of the biggest movers within the
index are British companies, exposing how the Brexit stress is
playing out today.
(Julien Ponthus)
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"LE CRUNCH" (0811 GMT)
With England beating France in extra time in "le crunch"
rugby game on Sunday, British diplomats will be hoping for
another win while playing away in Brussels this morning.
Post-Brexit trade talks continue but with a EU summit
scheduled for Thursday, time is running out to flatten
divergences between the two sides. The pound is outwardly calm
but options markets show some signs of nervousness.
European and U.S. shares are a touch weaker while broader
Asian markets are flat despite Chinese November trade numbers
showing the third monthly rise in imports and a 21% jump in
exports, the biggest in almost three years.
Chinese stock markets slipped, weighed down by the
escalating spat with the outgoing Trump adminstration. And will
the 46% surge in exports to the U.S., further irk Washington?
The dollar is taking a break after several weeks of
gradually weakening but much depends on the ECB's Thurday
meeting where it might signal its feelings about the euro's run
to 2-1/2-year highs.
And it is a time when economic stress is very palpable.
Germany's Lufthansa said it will have shed 29,000 staff by
end-2020 and plans another 10,000 cuts in Germany next year. And
with the COVID-19 deathtoll approaching 1.5 million globally,
regions from Bavaria to Seoul to California are imposing tougher
activity curbs.
Meanwhile M&A activity continues unabated. Cisco plans to
buy UK software company IMImobile in a $730 million deal. Real
estate firm Connells has raised its buyout offer for Countrywide
by 30% while buyout group EQT is selling facilities manager
Apleona for about 1.6 billion euros.
In the banking world, France's Societe Generale and Credit
du Nord are progressing with plans to merge retail banking
operations.
Key developments that should provide more direction to markets
on Monday:
-China trade/imports/exports and forex reserves
-German industrial output
-UK Halifax house prices
-Reuters Japan tankan index/household spending
-Chile central bank meeting
(Julien Ponthus and Sujata Rao)
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MORNING CALL: ERRING ON THE SIDE OF CAUTION (0633 GMT)
European futures are trading slightly in the red (-0.2%)
this morning, very much like their U.S. peers as Asian shares
close the day retreating from a record peak.
Among the factors putting pressure on equities, a Reuters
report on possible new U.S. sanctions on China and oil prices
falling on surging virus cases.
In Europe, post-Brexit trade talks are yet again at the top
of the news agenda with Britain and the European Union making a
last-ditch attempt to strike a deal and avert a chaotic parting
of ways at the end of the year.
Futures for London's FTSE are trading slightly in the black
(+0.15%) but that's also due to the fact that the pound is on
the backfoot this morning.
On the bright side Britain begins its vaccine programme this
week.
(Julien Ponthus)
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