* European shares up 0.3%
* Mining stocks lift by recovery hopes
* Britain to announce green list of holiday countries
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EXPECT A DIP, BUT GET READY TO BUY IT (1118 GMT)
The tepid reception to one of the best earnings season of
the recent past is quite telling of a market mindset where
despite the recovery story is alive and kicking, more and more
people are starting to anticipate a short term correction.
JPMorgan is the latest to join the ranks of those predicting
a dip, but it also advises clients to be ready to buy into it.
"We believe that the medium-term fundamental picture remains
bullish for stocks, but note that some positioning and sentiment
tactical indicators are looking stretched," they say.
"There is a risk rising of some tactical consolidation
ahead...," they say.
"Further out, we do not expect any pullback to be sustained,
and would look to buy into the potential dip, for the next leg
higher into Q4," they conclude.
THE ESG SOLUTION: LIVING IN A PARIS OFFICE (1117 GMT)
Now that the WFH trend seems here to stay, with more offices
empty due to the pandemic, the next new thing could be
converting them into flats, especially in cities like Paris,
which struggles with a shortage of affordable and social
In greater Paris, office vacancy rate could reach
unprecedented levels by 2030, Barclays estimates. Hence the
highly ESG-friendly idea of converting your office into your
Sources of financing, totalling 650 million euros in France
are already available to fund sustainable office conversions.
But is it worth it?
Profitability is an issue as valuations tend to be higher
for offices than residential. Office rents would need to fall by
30% to break even with residential rents, but the gap seems to
be closing, Barclays says.
The cost of converting is the real deal breaker as
profitability will greatly depend on the capex required. Such
projects could make sense only in a scenario where capex is
around 1,000 euros/sqm, Barclays says.
As regulatory hurdles remain an issue, so far, only 10-20%
of the office vacancy currently has potential for conversion.
But overall, "we do believe the trend has the potential to
accelerate," Barclays says.
UPCOMING MARKET FEARS (1051 GMT)
COVID-19 challenges, supply chain constraints that might
slow the economic recovery, higher yields are all concerns that
equity markets already face.
But what about those fears which have been in the background
during the pandemic, such as geopolitical tensions, fiscal
policy concerns, or even a sell-off in equities driven by
Underlying tensions between the U.S. and China, which
contributed to market volatility in 2018 and 2019, remain,
according to UBS analysts.
Despite expectations of a more multilateral approach by U.S.
President Joe Biden, we could continue to see "sanctions or
restrictions on Chinese companies," and any potential disruption
in their bilateral trading flow will hurt markets.
If the period of fiscal stimulus is shortened, equity
markets could face repricing, UBS analysts say, mentioning a
possible return to austerity measures in Europe.
U.S. investors have added more than $600 billion into equity
funds, with daily average revenue trades up by around 50%
compared with a year ago, they recall.
The American Association of Individual Investors' monthly
indicator of bullish sentiment hit 56.9 this April, a level
reached on only two other occasions in the last 10 years.
"These developments make it is possible that markets could
experience a correction driven by flow-related factors, even in
the absence of a clear 'fundamental' catalyst," they add.
THE EU'S STIMULUS PLAN IS NO MINNOW (1028 GMT)
One dominant theme in the current financial markets'
narrative is that the European Union's stimulus plan lacks the
ambition and scale of the trillions Joe Biden plans to inject in
the U.S. economy.
Main implication is that this contributes to the old
continent's slower recovery pace.
But taking a closer look, Erik Nielsen, chief economist at
UniCredit, believes Biden's 4 trillions and the EU's 750 billion
plans are much more similar than what first meets the eye.
Stripping out social spending, education, research, and
healthcare, which are by large more funded in Europe, what
remains for U.S. investments is on the same scale.
"The remaining roughly USD 1.3 trillion (6% of GDP) of
Biden’s plans is earmarked for infrastructure projects, climate
change and digitalization which makes it broadly equivalent in
size to the NGEU’s 5% of GDP", he found.
Also to be noted, EU member states have also drafted
stimulus plans using their own national resources, which also
lifts the total spending.
BUBBLE EXPOSURE? IT'S NOT SO BAD (0908 GMT)
The risk of a bubble burst is at the top of investors'
concerns after massive stimulus fuelled an unprecedented equity
rally in addition to supporting the real economy.
But according to JP Morgan analysts, one shouldn’t be too
worried as valuations are not that stretched.
History also tells us that when extreme corrections occur,
sooner or later, prices go back to square one, namely to levels
seen before the bubble burst.
Data from the last 40 years indicate overshooting from
extreme valuations are common in all asset classes, and they can
“endure for an average of 9-12 months but sometimes for many
years’” JP Morgan analysts say in a research note.
But “80% of expensive markets that crash spectacularly
eventually make new all-time highs,” they add.
Then, “only a few markets (U.S. large and small-cap stocks,
Copper) even begin to meet this research note’s simple test of
But suppose you feel uncomfortable owning every expensive
assets. In that case, JP Morgan suggests focusing on those “with
a policy backstop that will renew the cycle – developed market
equities and credit -- rather than those which no policymaker
feels obliged to support – crypto.”
ITALIAN BANKS MERGERS: GAME ON (0837 GMT)
Dealmaking across the fractured Italian banking industry may
heat up again and with Rome looking at ways to further support
M&A, brokers have dusted off their spreadsheets to assess the
impact of potential deals.
According a draft decree seen by Reuters, Italy is
considering extending tax breaks to help tie-ups to mid-2022
while also boosting the size of the incentives.
"If approved, the rule would provide further impetus to the
consolidation process in the sector," says Andrea Lisi at
Italian brokerage Equita.
And Citi is upbeat too.
"We expect further consolidation to come in the Italian
banking market, following the ISP/UBI and CASA/Creval deals,
with more clarity possibly in coming quarters," they say. "Most
banks could be involved either as consolidator or as target".
Among possible combinations, analysts at both houses cite
UniCredit/Monte Paschi and UniCredit-Banco BPM.
In the snapshot, simulated merger scenarios by Citi.
Reprinted with permission of Citi Research. Not to be
AIM: AN UNEXPECTED SUCCESS STORY (0822 GMT)
London's junior market has weathered the pandemic storm
quite gracefully, with only seven companies leaving AIM due to
financial stress or insolvency in 2020, while businesses have
become attractive M&A targets.
According to data from UHY Hacker Young Group, the figure is
a record low and an astonishing success compared to 82 during
that left after the global financial crisis in 2009. (See UHY
data in the chart)
"The pandemic year has turned into an unexpected success
story for AIM," Daniel Hutson, Partner at UHY Hacker Young.
This is because, compared with the previous financial
crisis, more AIM companies are in the later stage in their
development and in the position to ask for support from
shareholders during stressful times, UHY says.
Better corporate governance also played a role in keeping
these companies away from trouble, UHY adds.
Another sign that the AIM market managed relatively well
during the pandemic is the fact that M&A deals are staging a
In the six months to March 2021, 15 AIM M&A deals were
completed, compared to just seven in the previous six months,
UHY data shows.
Big deals in 2021 included the 650 million pounds
acquisition of Applegreen by a Blackstone-led consortium, and
the 860 million pounds purchase of game developer Codemasters by
"It is also encouraging to see that the M&A deals in recent
months have been growth acquisitions by PE and trade buyers
rather than purchases of distressed assets".
EUROPE SUPPORTED BY RECOVERY BETS, LONDON CATCHES UP
European shares open in positive territory with economy
sensitive sectors leading the way on hopes for recovery, while
London outperforms after an extended weekend.
Investors are betting on a strong global rebound helped by
massive stimulus and ongoing vaccination programmes in developed
Heavyweight oil majors BP and Royal Dutch Shell
are providing the biggest boost to the FTSE.
The pan European index started the day slightly up
and was last flat, with miners and oil and gas
indexes rising 0.6% and 0.8%, respectively.
Among top performers, travel and leisure sector rose
as it is benefiting from Britain's expected announcement of a
green list for countries that people can travel to on holidays.
DRIVING DOWN THE RECOVERY HIGHWAY (0658 GMT)
With the U.S. economic recovery story firmly entrenched into
the market mindset, Monday's softer-than-expected U.S.
manufacturing report pushed Treasury yields lower and toppled
the dollar from multi-week highs. On the other hand, there were
upbeat earnings, news of cities reopening, and a dovish Federal
Reserve, all of which are keeping the tone relatively positive.
What's more, the data from the Institute of Supply
Management (ISM) showed that rising costs and capacity pressures
undermined output rather than any hit to demand. South Korean
export data and German retail sales figures have broadly
confirmed that trend.
Until U.S. services data and monthly payrolls numbers offer
further guidance later this week, markets are scratching around
in well-worn ranges; the dollar is a touch firmer and U.S. stock
futures are treading water.
Meanwhile, Australia kicked off a busy week for central
banks. It kept policy rates unchanged but upped economic
forecasts. Norway, UK, Turkey and Brazil will also announce
monetary policy decisions this week, with many expecting the
Bank of England to announce a cut to its bond-buying QE.
In corporate news, Italy's Mediaset and its second-largest
investor, Vivendi ended years of legal sparring, agreeing for
the French group to cut its stake in the Italian broadcaster.
Shares in travel and leisure firms such as TUI, Carnival and
EasyJet are up in pre-market on news the EU will ease travel
curbs on vaccinated holidaymakers.
But don't forget the virus. India's infections caseload
surged past 20 million, the second nation after the United
States to pass the milestone. And a sudden spurt in Taiwan's
infections numbers pushed shares there 3% lower.
Key developments that should provide more direction to markets
-Corporate news: Verizon is ditching its media businesses
that include iconic brands Yahoo and AOL for $5 billion; German
meal-kit delivery company HelloFresh grew its active customer
base by 74% in Q1; Norway's Telenor has written off the value of
its Myanmar operation.
-UK April final PMI readings
-Bank of France Governor Villeroy speaks
-U.S., Canada March trade data
-Dallas Fed President Robert Kaplan to speak. He caused a
stir on Friday by calling for a conversation about tapering.
-China Caixin PMI final
-US durable goods/factory orders
-US earnings: Thomson Reuters, Pfizer, ConocoPhilips,
Western Union, Herbalife, Prudential
EUROPEAN BOURSES LOOKING FOR RECOVERY SIGNALS (0538 GMT)
European bourses are seen open little changed mirroring
Asian shares as investors look for signs of recovery as major
economies around the world reopen.
The mildly positive tone in Asia was broadly in line with
that on Wall Street overnight, where upbeat earnings, news of
cities reopening and a dovish Federal Reserve helped offset a
disappointing report on manufacturing activity.
In the corporate news, Italy's Mediaset and its
second-largest investor, Vivendi, on Monday ended years of legal
sparring with an accord under which the French group will
drastically cut its stake in the Italian broadcaster.