Last checked at 
* Travel stocks drag Europe lower
* STOXX 600 ends week higher
* Eyes on U.S. stimulus, U.S.-China trade talks
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) in Milan.
CLOSING SNAPSHOT: POSITIVE WEEK BUT MOOD IS CAUTIOUS (1533 GMT)
European stocks end the week in positive territory but in a cautious mood as investors are
aware there is still a lot to do to overcome the coronavirus crisis, despite hopes of a quick
economic recovery.
Virus trajectories are not clear nor is whether the economy will have to face a second round
of lockdowns.
The U.S. is still lacking a stimulus package as lawmakers were not due to reconvene until
next month.
Today the Stoxx 600 index closes 1.3% down with travel and leisure shares leading losses
down % as the UK government decided to impose quarantines on people returning France and the
Netherlands.
(Stefano Rebaudo)
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DOLLAR: PLENTY OF LIFE IN THE OLD DOG YET (1359 GMT)
The U.S. dollar's fallen by about 10% since it shot up unexpectedly in March, with plenty of
bears joining the speculative weave recently, pushing long euro contracts to a record high. Not
HSBC, though, who say they "do not believe this weakness will persist and in these tumultuous
times we find little reason to turn bearish on the dollar."
One thing is that everyone's focusing on what's happening now and not on the future drivers
of the greenback, which is a counterintuitive approach when taking a position on a currency,
HSBC analyst Dominic Bunning said in a note to clients.
Slower U.S. growth, negative U.S. real rates and the EU recovery fund are all "nowcasts" not
"forecasts" and so "we believe many of these forces seem unlikely to drive future dollar
weakness, even if they are prevalent right now."
Against a major wave of momentum traders, HSBC are holding onto their positive dollar view
because fundamentally nothing has really changed for the U.S. currency. "We continue to contend
that this is not a secular decline in the dollar," Bunning wrote.
(Olga Cotaga)
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AS REAL YIELDS DROP, WHY NOT POP DOWN TO SOTHEBY'S? (1310 GMT)
It's well-known that low yields drive investors towards gold, but senior Rabobank FX
strategist Jane Foley suggested that the recent decline in both nominal and real government bond
yields could be pushing investors towards more unusual assets.
Just as low interest rates in the years following the 2008 financial crash led to a rise in
the price of houses, classic cars and art, this week a pair of basketball player Michael
Jordan's trainers were bought for a record $560,000 in an online Sotheby's auction.
"It is likely that the trend in collecting rare but used trainers can probably also be
linked back to low interest rates," Foley said.
"Like gold the intrinsic qualities of some of these assets has allowed them to be seen as a
hedge against inflation," she added.
Consensus among economists is that the coronavirus crisis is more likely to cause
disinflation, or deflation, Foley noted.
But euro zone's inflation unexpectedly ticked up in July and the Fed recently got inflation
hawks worried in the United States by signalling that it could allow inflation to overshoot its
target.
(Elizabeth Howcroft)
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EU BANKS MIGHT NEED TIME (1144 GMT)
Worries about what is going to happen in terms of loan losses when government and central
bank stimulus will subside are keeping investors away from European bank stocks.
Many analysts are flagging the extreme low valuations of EU lenders, which, according to
Credit Suisse “offer good medium-term value.”
The EU banking sector is currently trading on just 0.55x tangible book value (TBV) for a
2022 Return on tangible equity (ROTE) at about 8%, a CS research note says, adding it expects a
ROTE to be closer to 9%.
But it might be better to wait before betting on a rise in lender stocks across Europe as
“two quarters of impairments and dividend uncertainty” are expected, the Swiss bank also says.
CS confirms its top picks, including UBS Baer and Credit Agricole
as Swiss and Scandinavian banks and asset gatherers still lead the post-Covid price
and earnings revision.
In the chart below the STOXX 600 and the Euro STOXX banks index since mid-February.
(Stefano Rebaudo)
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MORE GOOD NEWS FOR EUROPEAN EQUITIES (1010 GMT)
While this choppy Summer didn’t allow the STOXX 600 index to breach the 375-380 points roof,
opportunities might be about to emerge for European equities as August draws to a close.
BofA turns positive on the STOXX 600 and sees a peak in Q4, with a 15% upside, according to
a research note.
The key driver, according to BofA analysis, is the Euro zone PMI, which is expected to grow
from 53 to 58 by September and to peak “at unusually elevated levels in early Q4.”
The 34% rally from the March lows to mid-June was good for “higher quality and China-exposed
cyclicals,” while value cyclicals such as banks and airlines, the most exposed space to the
pandemic, lagged behind.
But BofA outlook now implies a 15% upside for the STOXX 600 to 420 points in November and an
11% further upside for European cyclicals versus defensives.
This scenario would be consistent with a 30% outperformance for banks and a 20% for
value/growth and autos, it adds.
A mild upside is seen for capital goods, while defensives such as pharma and utilities are
expected to underperform.
In the chart the STOXX 600 range since mid-June.
(Stefano Rebaudo)
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OPENING SNAPSHOT: QUARANTINE WOES FLYING OVER EUROPE (0748 GMT)
Travel stocks dragged European shares lower after Britain added more European countries to
its quarantine list, including top summer destination France.
Disappointing retail sales data from China also helped to spoil the mood, raising doubts
over the pace of economic recovery.
The pan-European STOXX 600 is down 1%. Travel and leisure stocks lead the
losses, down 2.9% after Britain decided to impose a 14-day quarantine on arrivals from France,
Netherlands, Malta and three other countries, beginning Saturday.
UK-based airlines and tour operators such as TUI, Easyjet, British
Airways-owner IAG all fell between 4% and 7%. In France.
(Joice Alves)
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ON THE RADAR: AUTOMAKERS, LEISURE STOCKS (0646 GMT)
Futures are pointing to a start of the day in the red for European equities ahead of EZ
employment and GDP data and amid a dire mood after disappointing economic data in China.
In terms of corporate news, Daimler will pay $1.5 bln to settle U.S. diesel cases
relating to investigations into software to cheat diesel emissions tests.
Another automaker, Volkswagen said it was expanding its Chattanooga factory in
Tennessee to make electric vehicle cells and battery packs in the U.S., alongside assembling
electric vehicles.
In the travel space, British low cost airline easyJet raised an extra $266 million
to boost its finances during the pandemic from the sale and leaseback of five aircraft. While
French casino company Groupe Partouche will join forces with Japan's Pixel Companyz
to develop a new resort in Japan.
Meantime, the Philippine unit of Royal Dutch Shell said it will permanently shut one of the
country's two oil refineries, blaming a pandemic-led slump in margins, with other regional
closures likely to follow, according to analysts.
Things looked good for German container shipping line Hapag-Lloyd, which nearly
doubled net profit in H1 2020 and kept its FY outlook intact but warned that the coronavirus
crisis bears indiscernible risks for its operations.
Maersk Drilling Q2 revenue rises to $305 million
(Joice Alves)
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MORNING CALL: THAT DISCOURAGING DATA (0535 GMT)
After a three-day rally, European equity markets ran out of steam yesterday and futures are
pointing to a lower start of the day on Friday ahead of key EZ data and as global sentiment is
risk off amid Chinese economic data and worries about a delay in U.S. fiscal stimulus.
A slower-than-expected rise in industrial production in China and a surprise fall in retail
sales are weighing on global investor sentiment. While the EZ employment and GDP data will be
out at 0900 GMT, giving more evidence of the scale of pandemic damage to the bloc's economy.
Meantime, data showed that the number of people seeking unemployment benefits in the U.S.
dropped below one million for the first time since the start of the pandemic, but this was not
enough to change economists' views that the job market is faltering.
Traders are also awaiting for a meeting between U.S. and Chinese officials about their Phase
1 trade deal on Saturday.
(Joice Alves)
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