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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 Danilo Masoni
(danilo.masoni@thomsonreuters.com) and Stefano Rebaudo (stefano.rebaudo@thomsonreuters.com) in
Milan.
SOFTBANK: SYSTEMIC RISK? (1428 GMT)
News of Softbank's large option bets have made investors somewhat more anxious
about the outlook of turbo-charged markets, adding to red flags that have accompanied last
week's tech rout.
Deutsche Bank's Jim Reid speaks of possible "unintended consequences" and makes an analogy
to LTCM, the hedge fund that nearly collapsed in 1998, risking domino effect.
"Experience tells you we haven't heard the last of this story and that unintended
consequences often happen around these type of events," he says in his morning note.
But does Softbank pose any systemic risk?
Saxo Bank's Peter Garnry does not think so, at least for now.
"There has been an explosion in nominal call option exposure from retail investors and the
estimated premium spend over the past month has been around $40 billion dwarfing SoftBank's bets
by a wide margin," he says.
Softbank's debt-servicing metrics look solid and its operations generate healthy cash flows,
Garnry points out, but there's a sort of grey area outside its operating business.
"The vast and complicated balance sheet outside the operating businesses makes the company
somewhat of a 'black box'" he notes.
That's why investors need to be on alert and monitor closely Softbank's 5-year credit
default swaps trading at 180 bps relative to Bloomberg's model of 60 bps, he says.
(Danilo Masoni)
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TOP GUN IN U.S. ELECTION YEAR (1342 GMT)
Sustainable? Ethical? Tech and work-from-home stocks? Amid all the hype around those, it's
easy to miss the fact that some of the top equity market performers in recent months have been
--- makers of firearms.
Last week, Smith & Wesson (familiar to fans of Dirty Harry and also the maker of the Walther
PPK pistol beloved of James Bond), reported a 140% jump in Q2 sales versus year-ago levels. The
company's CEO Mark Smith attributed that to "folks who are just fearful of their personal
protection", the FT reported.
And its shares? Up more than 270% in the past six months.
Other firearms manufacturers Sturm Ruger and Vista Outdoor have also seen
their stock rocket around 69% and 240% respectively since early-March. In contrast, Apple is up
81% in this period; the Dow Jones has gained 18% and an MSCI index of U.S. shares run on
ESG tenets has returned 28%.
True, it is a U.S. election year, the time many Americans tend to check they are locked and
loaded against the possibility of tighter gun ownership rules.
In a blog, crypto trading outfit Block-Builders.net notes that trend scores on Google
searchs for "Buy Gun" hit the maximum of one hundred several times this year.
It said searches overwhelmingly originated from the United States where "the explosive
mixture of issues is driving sales upwards: escalating racism debates and scenes of violence in
the wake of them, the fear of a deepening corona crisis and many citizens' concern about more
restrictive gun laws."
(Sujata Rao)
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UK REAL ESTATE IS STRONG, BUT WATCH OUT FOR BREXIT (1131 GMT)
Real estate stocks had a very good start today in the UK as well as in the whole continent
after Friday’s fall, but investors are concerned about what it will happen next with a hard
Brexit in the cards.
Europe’s real estate sector index is up 1.5%, while its UK peer rises
1.2%; both are below their session’s highs.
“The big risk is that we see this trend reverse when it comes to year-end and people begin
to consider the impact of a hard Brexit just as the stamp duty holiday draws to an end,” Joshua
Mahony, Senior Market Analyst at IG, says about the UK market.
British house prices jumped by the most since 2016 in August to hit a record high, mortgage
lender Halifax said, adding to signs of a post-lockdown boom in the country's housing market
even as fears grow of a sharp rise in unemployment.
But sterling today is falling against the U.S. dollar and the euro as Brexit talks plunged
into crisis following Britain's threat to override its European Union divorce deal.
(Stefano Rebaudo)
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CYCLICALS BET: AUTOS ON A HIGH (1038 GMT)
One sector in Europe is standing out this morning: it's autos.
While the region is showing a quite broad-based rebound, the STOXX Auto index is the
only one that has actually managed to break new ground, up over 2.3% at one point to its highest
since February 2020.
Why that? There's an ongoing "cyclicals bet", as one trader points out, and the tech rout
we've witnessed last week could add fuel to a rotation into the battered end of the market.
Autos are among the worst performers in Europe this year, down around 14%. So there's room
to catch up.
But there's also some good-looking newsflow out of Germany with a Volkswagen
executive telling Welt am Sonntag in an interview published yesterday that VW is in a position
to overtake Tesla in terms of e-car manufacturing by 2023.
That's "positive for sentiment", another trader notes.
(Danilo Masoni)
****
HERE ARE THE WINNERS OF POSITIVE VACCINE NEWS (1010 GMT)
Positive vaccine developments are probably propping up market sentiment today and protecting
global stocks from the U.S. tech selloff and concerns over Softbank's derivatives exposure.
UBS has taken a deeper look and has singled out the potential impact of a Covid vaccine on
European equity markets.
Among countries, Germany is the most affected, followed by the Scandinavian markets and
France, in a ranking that fits with their broader cyclical exposure and their performance since
the market low in March, a UBS research note says.
In sectors, the deep cyclicals and the parts of the market most affected by mobility
restrictions (Transport and Energy) are most sensitive, while banks have failed to get any
benefit and have lagged behind in terms of relative performance since the market low, it adds.
Transport, Tech Hardware and Semis have all outperformed more since the market low than
their beta to vaccine news would suggest.
(Stefano Rebaudo)
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OPENING SNAPSHOT: IN POSITIVE TERRITORY, BANKS FLAT (0756 GMT)
European stocks open higher and hold their ground in positive territory despite a fresh
selloff on U.S. tech stocks on Friday continues to worry investors globally.
The STOXX 600 is up 0.9%, in what seems a straight risk-on session with cyclicals
leading gains. The auto sector leads sectoral gains up 1.9%, followed by real estate
up 1.7% and industrial goods and services up 1.4%. The euro Stoxx volatility
index is down almost 3 points at 28.7.
Spain’s banking index turns negative after opening up around 2.7%, while the
European index is flat, after last week rally on M&A negotiations between Bankia
and Caixabank.
Dechra stocks are up 5.9% after its profit beat expectations.
U.S. markets will be closed today for the Labour Day holiday.
SoftBank Group closed down 7% as the conglomerate's bets on equity derivatives tied
to listed technology companies made investors uncomfortable.
(Stefano Rebaudo)
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ON THE RADAR: VACCINE DEVELOPMENTS, AB FOODS (0641 GMT)
European stocks are set to open higher as worries about a U.S. tech selloff eased after the
Nasdaq on Friday closed lower but well above its session low with Apple scoring a tiny gain for
the day.
More news on the vaccine front with Australia expecting to receive its first batches after a
deal struck with CSL to manufacture two vaccines - one developed by rival AstraZeneca
and Oxford University, and another developed in CSL's own labs with the University of
Queensland.
Meanwhile Sanofi's chief in France said a vaccine that Sanofi is developing with
Britain's GlaxoSmithKline was likely to be priced at less than 10 euros.
Associated British Foods expects full-year profit at its Primark fashion chain to be
at least at the top end of its previously guided range after trading in its latest quarter
exceeded expectations.
Italy's Treasury wants to find a buyer for Monte dei Paschi di Siena by the end of
the year to help the bailed-out bank to clean up its remaining problem loans.
Italy is close to reaching an agreement over the future of Atlantia unit Autostrade
per l'Italia, Prime Minister Giuseppe Conte said on Saturday in an interview. Progress has been
slowed recently by difficulties in agreeing a valuation for the unit with state lender Cassa
Depositi e Prestiti (CDP), which is due to take control of Autostrade.
Ryanair boss Michael O'Leary's proposed 458,000 euro annual bonus came under fire on
Friday, as an influential investor advisory firm urged shareholders to oppose the package.
(Stefano Rebaudo)
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MORNING CALL: IN THE BLACK DESPITE U.S. TECH LOWER (0533 GMT)
European stock futures are in the black despite a new selloff in tech shares on Wall Street
on Friday and Asian stocks on their back foot worried about high valuations.
The Nasdaq on Friday closed lower but well above its session low as selling eased late in
the session, with mega-cap tech companies paring losses though only Apple managed a
tiny gain for the day.
Investors are still uncertain about whether the U.S. is staging just some profit taking or a
massive risk-off move is on its way.
Some traders said a pile of red flags was building up, while mentioning Softbank. Its shares
fell 7% following media reports that the conglomerate made big bets on equity derivatives tied
to listed tech companies.
(Stefano Rebaudo)
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