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* European shares pull back from 3-month highs
* Banks, oil and gas stocks edge higher
* AstraZeneca slides after Gilead merger report
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.
DOWNSIDE RISK MANAGEMENT (1212 GMT)
It is true that everything seems to be going well and investors do see the light at the end
of the coronavirus crisis tunnel, but world stocks are already just 7% away from setting new
record highs.
Most analysts are assessing whether it is time to go on buying or not, assuming obviously
that economy re-openings continue.
"Investors may also need to consider downside risk management, or, for those looking to add
exposure, defensive entry strategies," a UBS research note says.
The UBS scenario includes some restrictions in place until the end of 2020, no large-scale
production of a vaccine until 2021, no new lockdowns and recurrences of the virus that the
healthcare system can manage.
Bottom line, UBS suggests diversifying globally across asset classes and using options to
reduce downside exposure while retaining upside exposure.
(Stefano Rebaudo)
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TECH IMMUNITY? (1100 GMT)
Tech stocks have shown strong resilience during the COVID-19 crisis. After a brutal fall in
March when most countries announced lockdown measures, the space recovered almost 60%.
Take a look the incredible recovery of the sector this year:
Sunil Krishnan, head of multi-asset funds at Aviva Investors says from now on it would be
the case to watch the space "very closely" as investors may have been putting too much faith on
tech's resilience.
"One thing we need to understand is that these companies are not immune from the standard
spending cycle and one of the areas that particular focus and concern for big tech is
advertising spending," he says.
Tech stocks are among the worst performers this morning, down 1.5%.
(Joice Alves)
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WHO'S GOING TO RAISE CAPITAL? (0941 GMT)
The worst seems to be over, with no second wave of infections so far and authorities
committed to doing whatever it takes to soften the expected pandemic-induced recession.
But for some big corporations, despite they did everything they could to keep their cash
through dividend cuts, capex delays and disposals, it will be difficult to avoid tapping
investors for fresh capital.
According to a BofA research note, equity issuances for Stoxx 600 companies were of 5
billion euros in March and of 14 billion euros in April, still far from a peak of 28 billion
euros of October 2008, during the global financial crisis.
After the German government stepped in to support Lufthansa, a sizeable equity issuance
"could be on the horizon for Air France," Bofa says.
While Fraport is benefiting from access to favourable financing terms, thanks to
its government ownership.
Manufacturers of planes or plane engines, such as Rolls Royce and Airbus,
will see deliveries below production, "resulting in working capital headwinds and cash
draw-downs," it adds.
Fortum, Centrica and BP dividends "are at risk," because existing
balance sheet pressures exacerbated by the crisis.
Auto suppliers with low margins could see a meaningful cash burn, BofA says citing Valeo
.
Banks are more solid than during the past crises, thanks to regulatory reforms, insurers
solvency is set to remain robust, most miners are less leveraged than they were post the 2015/16
commodity slump, big telecoms are well placed to weather the crisis.
(Stefano Rebaudo)
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ON THE RADAR: AND NOW MEGA DEALS? (0648 GMT)
The thrust of the "rally of hope" is leaving many investors scratching their heads as
earnings expectations plummet.
The Nasdaq being up 12.5% year to date can certainly come across as good old 'irrational
exuberance' given the pandemic-induced global recession and the civil unrest but there's more to
it than that.
It's not just PE ratios rising like there's no tomorrow, there's also plenty of symptoms
ticking the box of a buoyant equity market out there:
IPO appetite? Check out JDE Peet's 18 billion market cap: tick the box!
Private equity appetite? Check out the 3 bln takeover offer for MasMovil: tick the box!
Mega deals? Well merger talks between AstraZeneca and U.S. rival Gilead Sciences would
certainly tick that box too!
The fact that Credit Suisse is banking on risk-taking billionaires to drive revenue growth
at its wealth management division also tells you something about the state of the
market.
But ticking the box for deep structural trouble for the underlying assets of the stocks
market is equally easy this morning.
See our in-depth report about how badly the pandemic has already hit the home of Airbus in
the South West of France or how Volkswagen is considering even more cost cuts to
cope.
A call for a strike at the ArcelorMittal steel plant in southern Italy is also a reminder of
the thousands of jobs being cut and not necessarily coming back.
BA, Ryanair, and easyJet fearing the UK quarantine plan will deepen the wounds of their
struggling industry is another warning signal.
Still in the UK, the anti-globalisation trend is also palpable with the government preparing
tough laws to prevent foreign takeovers.
On the bright for those still hoping history has ended somewhere in the beginning of the
90s, Munich Re's Ergo unit entering China's property and casualty insurance market with a 24.9%
stake in Taishan Property & Casualty Insurance can provide some comfort.
Some upbeat report with Husqvarna, the world's biggest gardening power tools maker, saying
market conditions have improved as pandemic restrictions in many markets have been eased.
In terms of immediate market action, Wirecard should provide traders with decent volatility
due to the ongoing investigation over market manipulation.
(Julien Ponthus)
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MORNING CALL: WHERE'S THAT U.S. JOB DATA BOOST GONE? (0540 GMT)
European futures are trading lower this morning, suffering from a mild hangover after
Friday's surprise U.S. job data boost.
While the unexpected recovery in U.S. employment lifted global stock markets and helped euro
zone shares post their best weekly gains since 2011, it's not exactly clear what could fuel the
"rally of hope" much higher than this.
Faced with the worst recession in a lifetime, the pan-European STOXX 600 is less than 10%
down year to date.
True, on Wall Street the S&P 500 is only down 1.1% and the Nasdaq is actually up over 12%!
But still, with the sharp fall in earnings to come in the next three quarters, it's hard to
see what in terms of fundamentals could justify higher stock prices.
"You can't keep pushing up multiples forever," Masaru Ishibashi, joint general manager of
trading at Sumitomo Mitsui Bank was quoted as saying in our last Global Markets.
Anyhow, at the time of writing, futures for EZ blue chips were down 0.7% but U.S. futures
were slightly in positive territory.
(Julien Ponthus)
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