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* European shares slid as Trump tests positive to COVID-19
* Paris set to be placed on maximum alert on Monday
* Madrid to become the first European capital back into lockdown
* Shares in engineering group ACS jump 20%
Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters. You can share your thoughts with Joice Alves (joice.alves@thomsonreuters.com)
and Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Stefano Rebaudo
(stefano.rebaudo@thomsonreuters.com) and Danilo Masoni (danilo.masoni@thomsonreuters.com) in
Milan.
STOXX UP 10% BY YEAR END? (1413 GMT)
While the number of coronavirus cases is rising across Europe and prompting governments to
add more restrictions, BofA is forecasting that the virus will fade and allow PMIs to rebound by
year end, triggering a 10% jump of the STOXX 600 by December.
But why expect European virus cases to fade?
BofA used a combination of data and concluded that in some countries after a resurgence of
the pandemic outbreak, "soft measures" like wearing a mask or reducing the number of people
allowed in gatherings, or "self-imposed consumer behaviour" changes meant that the number of
cases started to decrease within a few months, BofA investment strategist Andreas Bruckner just
told us.
"Any resurgence of the virus we have seen so far, including in the U.S., Japan, Australian
and Hong Kong, have tended to peak within two months because this is roughly the time it takes
for these sorts of soft restrictions to take effect and to consumers to adjust their behaviour
because of the virus".
Here is BofA's chart:
Bruckner says the reopening of schools and the flu season "could complicate the process,
but overall as of now we don't see conclusive evidence that these factors invalidate the lessons
learned from previous outbreaks elsewhere".
With this view, BofA sees:
- PMIs to rebound to 53 by year-end and 56 in Q1
- c.10% outperformance for cyclicals versus defensives
- a maturing global recovery to translate into higher bond yields, boosting banks and value
versus growth stocks
BofA reduced its cyclical exposure by adjusting its weighting on capital goods from an
overweight to a marketweight view, reduced its overweight view in autos, adjusted telecoms from
an underweight view to a marketweight view.
(Joice Alves)
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LUXURY GOODS: EYES ON LATE Q3 PERFORMANCE (1251 GMT)
Shares in luxury good companies did good with the sector’s index holding its ground during
the summer, but now the earnings season is about to start.
According to UBS, a stronger than previously anticipated recovery in Q3 is already priced in
so investors’ focus will be on “the exit rates into next quarters,” which means companies’
results in last week or weeks of Q3.
This will be important this year “given the expectation of a return to growth in Q4 for many
stocks, despite the lack of tourism and continued uncertainty,” a UBS research note says.
Another major issue for the sector is “the sustainability of the rebound of the U.S.
market,” which surprised positively in the Q3.
UBS continues to like Kering which is expected to be more resilient; it is
cautious on Burberry as the recent improvement in trends could be short-lived; while on
Moncler, which is likely to underperform the sector, it awaits a better entry point.
Here UBS’ most and least preferred shares.
(Stefano Rebaudo)
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DEAR STOXX 50, LACK OF TECH IS NO EXCUSE (1221 GMT)
The fact that Europe is a big tech underweight in comparison with Wall Street and its FAANGs
is a common explanation for the old continent's underperformance.
But it's a bad one according to Edmond de Rothschild analysts Sara Cattano and Jonathan
Kandin, who argue the underperformance is not limited to the tech segment.
"Looking at each sector’s performance over the last 10 years, we find that almost all of
them underperform relatively to the U.S.", they argue in a note which has this interesting
chart:
As you can see, underperformance is spread out with for instance European financials bearing
a delta of 7.7% annualised with the U.S.
The two analysts made a simulation of putting the S&P 500 sector weighting to the EURO STOXX
50 over the last 10 years.
They found that while the European blue chip index would have seen its performance improve
to 75% from 57%, "the performance differential with the S&P 500 (113%) would have been reduced
only by a sixth".
Another interesting idea in their note is that because the U.S. stock market is moved by a
few heavy digitilised companies, it's hard for stock pickers to win over the indexes, making the
case for ETFs a valid one.
"In Europe, the picture is very different: the changes in the economic fabric are only
accelerating now and active stock pickers should find more opportunities to beat their
benchmark".
(Julien Ponthus)
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MAYBE PELOTON'S RACE IS TELLING US SOMETHING (1133 GMT)
There's been quite a lot of buzz (literally, check this out:) lately on how
lockdown star stocks have gained from the resurgent pandemic.
Among them, exercise bike maker Peloton Interactive has jumped close to 500% (yes
500%) since March and reached a new record high yesterday.
Trading platform eToro says the stock is now the fourth most popular among retail investors,
ahead of Facebook, Google and Amazon.
But the perhaps gloomy underlying lesson from Peloton's race to the top is that investors
may actually be expecting a second wave of lockdowns.
"Retail investors clearly sense that a second lockdown could be on the cards and so they are
looking for firms that will profit under those conditions", eToro analyst Adam Vettese wrote in
a note.
True, the company's results released in September were most encouraging: it beat analysts'
estimates amid a surge in subscribers and demand for its fitness products during the coronavirus
pandemic when gyms and fitness clubs closed.
Here's some reading:
BUZZ-Stay-at-home stocks gain amid soaring COVID-19 cases
UPDATE 1-Peloton revenue beats as pandemic boosts demand for fitness equipment
And here's Peloton's shares this year:
(Julien Ponthus)
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LET’S WAIT FOR WALL STREET (0940 GMT)
Worried but let’s wait for the U.S. market to open before taking position.
That seems to be the general idea in the stock market across Europe as it started the
session in the red after the U.S. president Donald Trump and his wife tested positive for
coronavirus.
Investors see more volatility but not a clear direction yet.
“It was already looking as if markets had entered choppy waters and the latest development
just means the waves could be a little larger,” Rupert Thompson, chief investment officer at
Kingswood, says.
“This is U.S. stuff, let’s wait for Wall Street to open before doing anything today,” a
stock trader in Milan says.
The STOXX 600 is down 0.5%
Trump in a tweet this morning said they will begin their “quarantine and recovery process
immediately,” adding more uncertainty to the U.S. political scenario ahead of the Nov. 3
presidential election.
(Stefano Rebaudo)
*****
FTSE OVER MIDCAPS (0844 GMT)
Taking a look at how Britain's blue chips and midcaps are performing today,
both down about 0.6%, one wouldn't think that some asset managers could have divergent opinions
on the future of those indices.
But Aviva's Sunil Krishnan, head of multi-asset funds says blue chips have better tools to
survive the pandemic and Brexit as a transition period ends in December.
He says his team expects a "skinny Brexit deal", so things will be tougher for UK companies
overall, but especially smaller ones.
"You might not crash out with a no deal but you might still be putting quite a lot of
challenges in the way of the UK because essentially the UK will be leaving one of the tightest
international trading clubs in the world."
"Within the UK equity market, we prefer the larger companies so essentially the FTSE 100, to
smaller companies," he says.
Domestically exposed midcaps might find it harder to face trading bureaucracy once the UK
leaves the single market for good.
"Bear in mind that they (FTSE 100) are multinational in terms of their production as well as
their sales, and they probably have better ability to manage the contingencies".
Additionally, as Aviva underweights sterling over the euro, it expects FTSE companies to
benefit from a cheaper pound.
(Joice Alves)
*****
OPENING SNAPSHOT: RISK-OFF AFTER TRUMP TESTED POSITIVE (0737 GMT)
It's a risk-off day after Trump said he and his wife tested positive for coronavirus, adding
uncertainty to an already complicated political scenario in the U.S.
But it is not just that: the euro zone core inflation, which will be out this morning, is
expected to hit a new record low. The index of consumer prices should not come as a major
surprise after the lower national data seen earlier this week.
The U.S. job data from September is also on schedule, following the weekly jobless claims,
released yesterday. The weekly numbers fell but remained at recession levels.
The STOXX 600 sank 0.6% with chemical and automotive sectors leading losses down about 1%.
Among single stocks, ACS shares are the best performers of the pan European index,
up 13.3%, after Vinci submitted a non-binding offer in order to negotiate the acquisition of the
company’s industrial unit.
Centamin shares are down 19.1% as the company's production outlook was hit by delays
at its Sukari mine.
Korian stocks fall 8.7% as the company is in exclusive talks to buy psychiatric
care firm Inicea from investment company Antin Infrastructure Partners.
(Stefano Rebaudo)
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ON THE RADAR: AIR FRANCE-KLM, GRENKE, LOCKDOWNS (0638 GMT)
The news that U.S. president Donald Trump and his wife tested positive for coronavirus is
rattling investors across the globe as uncertainty increases about U.S. presidential elections
and a rescue package which would help the U.S. economy recover from the coronavirus crisis.
Meanwhile the pandemic continues to concern European countries as Paris is set to be placed
on maximum COVID-19 alert while the worst hotspot, Madrid, will go into lockdown in the coming
days. Italy's prime minister will ask parliament to extend the state of emergency to the end of
January, to avoid the kind of surge in cases seen in other European countries.
On the corporate front KLM, the Dutch arm of Air France-KLM submitted a plan to
restructure operations to the Dutch state, a condition of the 3.4 billion euros package in aid
it is receiving to avoid bankruptcy.
Brazilian federal and state prosecutors have asked a court to re-open a multi-billion-dollar
civil action lawsuit against miners Samarco, Vale and BHP for damages caused
by the Fundao dam burst in 2015.
Shares in Grenke are up 4.2% in early trade after the company said new business
fell slightly less than expected in the third quarter as it said it would fight the fraud
allegations, which have seen it temporarily suspend its founder.
Korian is in exclusive talks to buy psychiatric care firm Inicea from investment
company Antin Infrastructure Partners and expand in the mental health sector.
(Stefano Rebaudo)
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MORNING CALL: DOWN AFTER TRUMP TESTED POSITIVE (0533 GMT)
European stock futures are well in the red along with their U.S. peers amid worries about
the U.S. politics.
Trump said he and his wife tested positive for the coronavirus, triggering a selloff in
stock futures as risks of a contested presidential election increase.
The U.S. House of Representatives approved a $2.2 trillion Democratic package to provide
more economic relief from the pandemic, but a deal before the Nov. 3 election remains unlikely.
Meanwhile the number of Americans filing for new jobless benefits fell last week but remained at
recession levels.
(Stefano Rebaudo)
*****
