Last checked at 
* European stocks up 0.6%
* UK blue chips underperform main European bourses
* EU talks in focus
* Italy's UBI surges after Intesa raises bid by 18%
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.
BECAUSE TINA (1320 GMT)
Between the global recession, political risk and the pandemic, it can somewhat be tricky to
come up with a solid reason to buy stocks.
Then again it can also be quite straightforward! "To earn positive real returns over the
long term, there is no alternative to owning equities", UBS GWM writes in its daily note this
morning.
The TINA (there is no alternative) rhetoric, in a world of super low interest rates, can be
a powerful one.
"Despite the rally, based on equity risk premiums, global stocks are still cheap relative to
bonds, trading in the 10th percentile of relative valuation since 1997", UBS analysts add.
Among other reasons listed by UBS to stay on the stock market are pent-up demand, massive
stimulus and the fact that full scale national lockdowns could likely be replaced by "less
economically destructive measures in containing new outbreaks, including mask wearing, contact
tracing, and social distancing".
(Julien Ponthus)
*****
EU STOCKS LAG EURO, BTPS AHEAD OF SUMMIT CRUNCH TIME (1210 GMT)
Optimism about EU leaders striking a deal later on today on the recovery fund is palpable in
midday trading: the euro and Italian government bond yields are back to where they were before
the coronavirus market crash!
The only asset class which is telling us a different story about the EU's stimulus plan
being a game changer are European stocks.
Sure they're now slightly up 0.4% and close to a four month high but they are still trading
about 14% below their mid-March highs. Moreover, EU bourses are still on average 10% lower than
their U.S. peers, suggesting the fund isn't price yet as a gamechanger to close the gap.
From top to bottom, the STOXX 600, the Italian 10-year yield and the euro versus the dollar:
(Julien Ponthus)
*****
TIME TO GIVE UK PLC A BREAK (1115 GMT)
There hasn't been much love for shares in UK PLC since, well... quite some time now.
Remember that Brexit referendum way back in 2016?
As JPM analysts recall in their latest global strategy note, the "UK has now lagged global
peers in each of the last 5 years, as well as ytd, and this underperformance is not just due to
the strong U.S. run".
Nope, as they stress, the "UK has lost out vs the rest of Europe by a cumulative 25% over
that timeframe".
As we speak, the FTSE 100 is the top underperformer in Europe today as investors wait for EU
leaders to deliver a deal on their stimulus plan.
With hard Brexit fears still running high and a somewhat underwhelming response to the
COVID-19 pandemic, this wouldn't look like the perfect moment for a change of heart but JPM
analysts believe it's time to give UK PLC a break.
"We now believe that the relative risk-reward for UK is finally starting to improve, and are
closing our UW", they announced this morning, noting how cheap UK shares are trading and how the
dividend fallout is less of an issue now that the dust is settling on pay-outs.
JPM analysts say however that they are not convinced the British stock market has yet become
a value trade but they identified interesting sectors such as homebuilders and utilities.
If the pound remains weak, mining, pharma, staples and tech could also prove good
investments.
Here are two charts from the report showing the underperformance of UK PLC and how cheap it
is trading:
(Julien Ponthus)
*****
IS BIG CASH FROM CENTRAL BANKS PROLONGING THE CRISIS? (1024 GMT)
Food for thought: could it be that the trillions central banks poured at struggling
economies are actually prolonging the time it will take for companies to bounce back from the
COVID-19 depths?
So seems to believe Swiss asset manager Pictet.
“Unless these interventions return economies to robust health, they won’t have eradicated
the corporate sector’s underlying vulnerabilities. They are merely distorting the market and
prolonging the time it will take companies to return to health," Pictet writes in a note.
In this scenario, the asset manager expects distressed investments to be booming.
"The vast gap between corporate fundamentals and the price at which companies’ bonds and
stocks trade" is opening big "opportunities for distressed debt and special situations investors
since at least the global financial crisis," Pictet says.
"It is when the economic clouds darken that distressed securities prove their worth."
(Joice Alves)
*****
TECH, HEALTHCARE, PLEASE WELCOME CHEMICALS AND UTILITIES (1010 GMT)
Very few sectors had managed to recover from the March financial crash and make their way to
positive territory so far in 2020.
Healthcare and Tech have been one of the only safe havens in European equities for investors
to weather through the Covid-19 storm during the first half of 2020.
H2 seems a bit different on that front now with utilities and chemicals turning positive
year-on-year in July as you can see below.
That chemicals is pulling off a 2% rise is certainly a good omen for the bulls.
That being said, the STOXX 600 is still 10% down and as you can see on the table below the
chart, not a lot of sectors are even close to the floatation mark.
(Julien Ponthus)
*****
OPENING SNAPSHOT: RISK-OFF ON "MISSION IMPOSSIBLE" (0739 GMT)
European stock markets are clearly not feeling that optimistic on the chances of EU leaders
striking a deal today on what European Council President Charles Michel called "mission
impossible".
With healthcare being the only sector up and tech just barely hanging in there, it's clearly
risk off with the STOXX 600 down 0.7% and all European bourses in the red.
It's interesting to note that the euro is still up, which seems to indicate that there's
still some optimism on trading floors, just not for stocks.
The euro upbeat tone isn't helping euro zone banks. They're usually a bit of a proxy on EU
resilience and they are down 1.3%.
Of course, Natixis, which is losing close to 5% after its parent BPCE denied a buyback,
isn't helping. Julius Baer falling over 5% on its results also calls for some caution but then
gain, UBI Banca jumping 11% after Intesa raised its offer could have compensated somewhat.
Overall, the mood for banks in Europe just isn't positive.
But it's not only banks, other cyclical sector are deep in the red like Traval and Leisure,
down 2%.
Cruise operator Carnival, TUI, ICAG and Lufthansa are down all 5-3%.
There's some good news on the Q2 season front though with Philips, up more than 3%, seeing a
strong rebound in consumer demand in Europe during the second quarter as lockdowns were relaxed.
(Julien Ponthus)
*****
ON THE RADAR: JULIUS BAER, PHILIPS, M&S, HOMEBUILDERS (0651 GMT)
With EU leaders still negotiating terms of the recovery fund after three days of haggling
over a plan to revive economies, futures are pointing to a broadly flat open for European
bourses.
On the corporate front, active client trading during the pandemic helped Julius Baer
post a 43% rise in half-year net profit to 491 million Swiss francs ($523.01 million)
on Monday, a record result for the Swiss wealth manager.
Dutch health technology company Philips expects to return to growth in the second
half of the year, if hospitals and consumers were able to gradually overcome the first shock of
the pandemic.
Vaccine plans: Britain signs deals to secure 90 million doses of two possible COVID-19
vaccines from the Pfizer and BioNTech alliance and French group Valneva
. Meantime, UK company GSK plans to invest 130 million pounds ($163 million) in
German biotech firm CureVac for a 10% stake to work together on a novel type of vaccine.
And more reports on job cuts: British retailer Marks and Spencer Group Plc plans to
announce hundreds of job cuts in the coming week, Sky News reported on Sunday, citing sources.
Ted baker to cut 25% of its UK work force.
Eyes on homebuilders after British property website Rightmove said a mini housing market
boom was gathering pace after a tax cut by finance minister Rishi Sunak.
Shares of auction website Allegro seen up 20% by one trader, on owners' Warsaw listing plans
in September.
Airbus Signs contract with UK Ministry Of Defence for Skynet 6A Satellite.
(Joice Alves)
*****
MORNING CALL: EU STIMULUS CLIFF-HANGER (0530 GMT)
Who would have thought? EU summits often drag on for days but this is close to
unprecedented!
Among all the scenarios for which investors had prepared themselves for, one where EU
leaders would still be negotiating the stimulus package as markets opened on Monday morning was
clearly an unlikely one!
Anyhow, there it is: progress is being made after three days of haggling but Dutch Prime
Minister Mark Rutte has warned the discussions could still fall apart.
Forex traders seem more optimistic than stock investors at this stage: the euro is trading
at a handsome $1.4390, close to a four-month high while stock futures are broadly flat.
This cliff-hanger is going to be a long one with the meeting was adjourned until 1400 GMT.
(Julien Ponthus)
*****
