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* European shares rise for the fourth straight session
* Travel stocks continue to shine
* Cineworld jumps on cash boost, targets July to reopen theatres
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.
LOAN GUARANTEE SCHEME? LOW TAKE-UP (1427 GMT)
Pretty huge loan guarantee schemes are available across Europe as part of the fiscal
stimulus against the pandemic-induced recession, but to date the take-up is low.
At least for now, the programme aimed to provide loans to small firms doesn't seem to have a
major impact on the corporate credit-to-GDP ratio and, according to a UBS research note, there
is no need to increase it in the near term.
In Germany, the country which made available loans up to 37.5% of its national GDP, just
1.3% of GDP has been granted, compared to applications worth twice as much, says a UBS research.
France and Spain are at around 4% as a take-up-to-GDP ratio, while Italy and Switzerland at
2%.
We should consider that while Germany and Italy credit to GDP ratio stand at around 60%,
France stands at 153.1%, Spain at about 90%, Switzerland at 120%, UBS says citing BIS.
In Italy there are bureaucratic hurdles in the application process, according to a Bank of
Italy survey.
(Stefano Rebaudo)
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2020 EUROPEAN DIVIDEND SNAPSHOT (1250 GMT)
The COVID-19-induced economic downturn has hit earnings and dividends hard but after a wild
ride this year, EURO STOXX 50 dividend futures have risen from the lows and now imply "only" a
7% discount to aggregated Markit forecasts, while the FTSE 100 continued to fall in May,
according to Barclays new bi-weekly report.
Here is the UK bank's snapshot of the dividend evolution this year:
"This crisis is different for dividends in one important way: in a normal recession, profit,
cash flow, balance sheet and investor considerations are the main drivers of dividend policy,"
say Barclays analysts in a note to clients. This time, governments are pressuring companies to
cut dividends, "particularly if they are the recipients of state aid in any form".
As a result, banks have been the quickest to cut dividends, alongside cyclical and consumer
discretionary (auto, hotels, retail, luxury companies).
Here are the sectors that have cut dividends:
And here are the countries where companies cut most dividends:
(Joice Alves)
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THE ROTATION INTO CYCLICALS IS TAKING A BREATHER (1233 GMT)
One of the characteristics of the "hope rally", which has been driving European stocks
higher for 4 sessions in a row now, is the rotation into cyclicals as faith in a swift reopening
of the economy grows.
Barclays strategists had warned investors in a note yesterday that the rotation could
develop as a lasting trend, as many institutional investors have yet to adjust defensive
portfolios towards a more bullish stand.
Shares in banks and car makers have notably benefited from the trend but not today.
While the STOXX 600 is still rising a comfortable 1.1% on what some analysts, such as Jasper
Lawler at LCG, worry could only be "peak reopening optimism", defensives are stealing the show.
Real estate, telcos and healthcare are among the winners, with gains over 2% while cars and
banks are the main laggards.
For Emmanuel Cau, head of European Equity Strategy at Barclays, it's unlikely the rotation
is compromised or that U.S./China tensions are giving investors cold feet.
"Rather than Hong Kong I think it's rather the market digesting the rotation which has been
very strong these last few days with the same tail risks remaining", he told us just a while
ago.
It's funny to note that when you look at the sectors' performance today with defensives
overperforming, you would really think this is a clear risk-off session. But it's not:
(Julien Ponthus)
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BUT SOMEONE IS STILL UNDERWEIGHT ON CONTINENTAL EUROPE (1130 GMT)
While some analysts see a rally with legs for European stocks, others still rate the
continental market as underperform as fiscal stimulus is expected to be lower than in other
regions, including the UK.
According to a Credit Suisse research note, UK is 'overweight' since "fiscal-monetary
cooperation is among the best coordinated and most supportive globally and there is relative
political stability."
While continental Europe is expected to suffer from the North-South divide.
The investment bank is 'underweight' on continental Europe because it sees "less
fiscal-monetary stimulus than in other regions, hence the euro area recovery should lag."
Then, despite the big step taken by the EU Commission with its proposal for a recovery fund,
addressing the North-South divide will "require a politically untenable level of transfers."
The euro now looks "abnormally cheap" and the expected better macro scenario "threatens a
much stronger" European single currency.
CS is 'overweight' on Germany's stock market due to its exposure to China and 'underweight'
on Italy's and Spain's.
(Stefano Rebaudo)
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LESSONS FROM CHINA AFTER LOCKDOWN EASING (1000 GMT)
As China is a few months ahead of Europe and the U.S. dealing with the pandemic, some
strategists and economists are looking carefully to what is happening in the country to see if
they can anticipate what's next now that Europe has started to ease its lockdown measures.
"Two months on from when mainland China started to re-open its economy, its experience
serves as a useful barometer for what might lie ahead for Europe and the U.S.," say economists
at UniCredit in a note to clients.
The Italian bank has identified five lessons from China and here they are:
1) There were no second waves of infections after the majority of travel restrictions in
most of mainland China had been lifted by mid-March.
The key to keep new cases under control was contact tracing, "keeping track of the infection
status of individuals and who is at risk", UniCredit says.
There has been a spike in the number of new cases on 12 April involving Chinese nationals
returning from Russia’s Far Eastern Federal District, but it was soon under control with local
movement restrictions.
2)Consumers are still reluctant to spend, for a number of reasons: fear of infection,
ongoing social-distancing measures, rising unemployment.
3) Industrial production rebounded strongly, but may prove temporary "unless we see a sharp
acceleration in demand".
4) Areas hit harder by the virus are slower to recover.
5) China's market for new cars is recovering but autos may not be a good indicator because
people are shifting to their own vehicles in order to avoid contagion on public transportation.
Google searches point that the same is happening in Europe and the U.S. too.
"This fear effect will probably gradually fade away should the health situation continue to
stabilize and a second wave of the virus be avoided".
(Joice Alves)
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LOW COST CARRIERS STILL THE BEST PICK (0945 GMT)
At the beginning it was a rout for airline shares due to lockdown measures across the world,
then a strong rebound as Europe decided to gradually ease travel restrictions. Now one of the
big questions is what has been priced in.
Today the sector is still in the spotlight with easyJet among the winners of the
STOXX 600 index, after saying it will cut up to 30% of its staff and that an equity
raising is not planned, at least for now.
According to a Morgan Stanley research note, comparing market cap change, year to date, with
the monthly cash burn, Ryanair and Wizz are still pricing in over 12 months of
full grounding, while Lufthansa and Air France just 3 months.
So low cost operators are still the best pick, although they have been the best performers
in the sector year-to-date, the investment bank says.
There is a "better risk reward in Ryanair and Wizz," while if the "recovery is faster than
our estimates, easyJet could be an attractive investment option too," it adds.
A different story for Lufthansa and AirFrance-KLM because they have
bigger exposure to long haul routes and corporate demand, which will be slower to recover. Then
they will need "profound restructuring to repay government loans."
(Stefano Rebaudo)
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OPENING SNAPSHOT: TRAVEL AND LEISURE, WHAT ELSE? (0732 GMT)
Once again, Travel and Leisure stocks are leading what looks like another risk-on session of
this recent "rally of hope".
While the STOXX 600 is rising 0.7%, the sector is up well above one percent with Cineworld,
who currently operates empty movie theaters, up a whopping 19%!
The company has secured an additional $110 million from lenders and a waiver on loan
covenants and looks to reopen all its cinemas in July.
Airlines are also enjoying big gains with Easyjet up 4% after announcing massive job cuts.
Investors aren't spooked by doubts surrounding Lufthansa's $10 billion government bailout
after the German airline's supervisory board refused to accept the conditions attached by
Brussels.
It's up 2.7% and peers Ryanair and BA owner IAG are rising 1.7% and 2.1% respectively.
Worth to note that telecoms are also having a good start with Proximus leading the sector
with a 3.5% rise after an upgrade from Citigroup.
Here's a snapshot of the market action in the Travel and Leisure sector:
(Julien Ponthus)
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ON THE RADAR: EASYJET, AND A BIG SMELL OF COFFEE! (0642 GMT)
The airline industry is on the front page this morning with a big announcement from
EasyJet which said it planned to cut up to 30% of its staff and shrink its fleet to cope to from
the collapse in air travel due to the coronavirus.
Another bid headline is doubts surrounding Lufthansa's $10 billion government bailout after
the German airline's supervisory board refused to accept the conditions attached by Brussels.
Still in the industry, Norwegian Air announced a wider loss in the first quarter, days after
completing a financial rescue in which creditors took control of the carrier.
But for those who would be rattled by these headlines, others would say it's time to wake up
and smell the coffee.
Yet more evidence that equity capital markets are alive and kicking in the time of COVID-19.
JDE Peet, the world's No. 2 maker of packaged coffee has decided to bring forward to Friday
its IPO due to popular demand, proving that it's feasible to raise cash amid what's probably the
worst recession in lifetime. This is serious money as well: the company aims to raise 2.3
billion euros.
On a smaller scale and for a trickier sector, British office space provider IWG wants to
raise about 315 million pounds through new shares to benefit from future demand for flexible
workspace amid the coronavirus crisis.
British cinema operator Cineworld also secured an additional $110 million from lenders and a
waiver on loan covenants as the company looks to reopen all its cinemas in July.
On the M&A front, a possible cross-atlantic deal with FedEx Corp reportedly close to taking
a stake in German parcel delivery firm Hermes. Seems a reasonnable move as the industry is one
of the big gainers in these times of pandemic with home deliveries surging.
There seems to be no shortage of cash to finance big deals either. Banks offered to lend
Telefonica 9 billion euros for the planned O2-Virgin merger, the Spanish newspaper Expansion
reported. The amount offered by 32 lenders is twice as much as the 4.5 billion euros requested
by the company.
Of course, the fact that deals and IPOs haven't collapsed like in 2008 doesn't mean this is
a golden age for investment bankers.
Daniel Pinto, head of JPMorgan's corporate and investment banking division said fees in the
second quarterd for mergers and acquisitions will be "probably 15-20% down."
On the bright side though, pandemic market action means that second-quarter revenues for its
markets unit are on track to be up more than 50% higher than the same period last year.
(Julien Ponthus and Stefano Rebaudo)
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MORNING CALL: KEEPING THE FAITH IN THE "RALLY OF HOPE" (0540 GMT)
European stocks are set to open well into positive territory this morning as the recent
"rally of hope" shows that it not only has legs but also no shortage of followers keeping the
faith in a swift economic recovery.
Its army of believers have held the line on the S&P's 3,000 points on the Wall Street front
overnight and while U.S./China tensions over Hong Kong is testing the faith of Asian bourses,
Europe remains determined to reclaim levels unseen since the beginning of March.
As we stand now, the STOXX 600 is about 20% lower than its record close of February 19 and
23% higher than its March 16 bottom.
Having a look at the latest Reuters poll may nevertheless cause some faith wavering as the
consensus is that recovering from the coronavirus financial crash will take time with European
stocks expected to end 2021 around 10% below this February's record high.
Anyhow, here's some reading:
POLL-A long and winding road to recovery for European stocks
ANALYSIS-'Rally of hope': Why the S&P soared back past 3,000
And here's a chart to show where Europe stocks currently stand so far in the COVID-19
crisis:
(Julien Ponthus)
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(Reporting by Joice Alves, Julien Ponthus, Stefano Rebaudo and Thyagaraju Adinarayan)
