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* European shares rebound
* Banks lead sectoral gainers, up 4%
* Eyes on William Hill after bid proposal
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.
WORRIED ABOUT A STRONGER DOLLAR? BET ON DRUGS (1041 GMT)
Over the last 15 years there looks to have been an inverse correlation between global stocks
and the dollar, and if history is any guide, the recent signs of the greenback bottoming out may
not be a good omen.
"This is especially if the USD rebound is coupled with stalling PMIs, as seen last week in
Europe, a rollover in EPS revisions, weaker oil price, peaking inflation breakevens, as well as
bond yields remaining stuck in a range," JPMorgan says.
But of course there are exceptions, namely EU exporters, and at this point it time,
strategists at the U.S. bank say they're "particularly bullish" on healthcare.
European healthcare makes 71% of its revenues abroad, its performance has historically been
closely aligned to the dollar, and currently the sector is enjoying cheap valuations and strong
earnings momentum, JPMorgan notes.
(Danilo Masoni)
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GOLD MIGHT BE READY TO SHINE AGAIN (0954 GMT)
It doesn’t seem to be the case this morning with European stocks showing strong resilience
after the banking index hit an all-time low on Friday, but some analysts say risk sentiment is
low and suggest adding gold to portfolios.
According to UBS, gold staged a temporary correction but it could reach the $2,000/oz mark
by year end.
The investment bank mentions three reasons, which will favour the yellow metal while
weakening the U.S. dollar in the near future.
First with U.S. election looming and after the battle over the Supreme Court nomination the
chances of approval of a fresh stimulus package are abating and this will push the Fed to keep
interest rates low for longer.
Then a contested outcome is possible in the U.S. election “which could add to further
volatility and result in safe-haven flows, though more into gold, the Swiss franc, and the
Japanese yen than the US dollar,” a UBS research note says.
Since gold is priced in U.S. dollar, a greenback fall supports the yellow metal.
Besides central banks are ready to tolerate higher inflation and gold offers an hedge
against it “as a ‘real asset’.”
Below gold and dollar moving the opposite direction during summer
(Stefano Rebaudo)
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TACTICAL ON CYCLICALS (0928 GMT)
Looking at cyclicals rallying this morning across Europe, the idea to cool off exposure
might sound rather counter-intuitive.
But according to Sylvain Goyon, a strategist at Oddo, "it not absurd to consider a tactical
pause" given that the market might start worrying about the resurgence of the pandemic and the
curve of the V-shaped recovery losing steam amid disappointing PMIs.
Say you actually fear the economy is losing momentum and feel it is indeed time to sell some
exposure, what should you do with the cash?
Why not buy a long position on the VIX which would stretch beyond the U.S. November
election, asks Goyon who nevertheless stresses that the thing about a tactical retreat is that
it is, by definition, a temporary move.
"Neither the pandemic nor the electoral suspense in the U.S. invalidate the drivers behind
our call on valuation convergence in favor of cyclicals versus defensive and value versus
growth".
(Julien Ponthus)
*****
BANKS REBOUND FROM RECORD LOWS, BARGAIN HUNTERS BUYING THE DIP (0839 GMT)
European equities are staging a broad bounce-back this morning with all sectors trading in
the black, as it seems investors are hunting for bargains following Friday's sell-off.
And talking about bargains, banks spring to mind, so it's not a big surprise to see
them leading the advance with a 4% surge.
But if you put today's rally in the context of the sector hitting its latest new record low
on Friday, there's much less to rejoice about. And with the prospect of interest rates staying
lower for longer, any quick reversal in the industry's fortunes just looks highly unlikely.
And here you can see how cheap are European banks, currently trading at a record low
price-to-book value of less than 0.5.
(Danilo Masoni)
*****
OPENING SNAPSHOT: STRONG REBOUND, BANKS SHINE (0739 GMT)
European stocks are higher as newsflow on the M&A front as well as on some banks is
supporting a rebound after recent falls.
ArcelorMittal shares are up 6% after striking a deal to sell its U.S. assets, while
shares in Commerzbank are up 4.8% as the nomination of the new CEO paves the way for
an overhaul that could close hundreds of branches and shrink its foreign operations.
HSBC stocks, up 9.8%, are following the gains of Hong Kong listed shares,
after the bank’s biggest shareholder Ping An Insurance Group Co of China bought additional
shares in the British bank to take its stake to 8% from 7.95%.
The STOXX 600 is up 1.5%, with banking stock index up 4.2%, after hitting a fresh
all-time low on Friday.
Almost a mute reaction by Suez shares, up 0.8%, after Veolia said it would improve
its offer.
William Hill stocks are down 10% after Friday’s jump, as Caesars Entertainment
said it was in advanced talks about a possible cash offer that values the British
bookmaker at about 2.9 billion pounds.
Risk sentiment is showing some resilience as investors focus on stimulus plans by
governments and central banks.
(Stefano Rebaudo)
*****
ON THE RADAR: M&A ON THE FRONTLINE, COMMERZBANK (0640 GMT)
European stocks are poised to open higher supported by a tech shares rebound on Wall Street
on Friday and strong Chinese data during the weekend.
Risk sentiment continues to show some resilience as investors are focused on stimulus plans
by governments and central banks.
Cleveland-Cliffs, the largest U.S. producer of iron ore pellets, said it had agreed
to buy the U.S. assets of world's largest steelmaker ArcelorMittal for about $1.4
billion.
U.S. casino operator Caesars Entertainment said it was in advanced talks with
William Hill about a possible cash offer that values the British bookmaker at about 2.9
billion pounds.
French utility group Veolia will improve its offer to buy the bulk of Engie's
stake in smaller rival Suez by September 30. Veolia last month offered 2.9
billion euros for a 29.9% stake in Suez owned by Engie, with a view to subsequently taking full
control of Suez by buying up more shares.
Shares in Commerzbank are up 4.4% in early trade after the nomination of Manfred
Knof as chief executive of Germany's bank, which paves the way for an overhaul that could close
hundreds of branches and shrink its foreign operations, though any major changes may still take
months to formalise.
Investors welcomed former Daimler chief executive Dieter Zetsche's decision to
forego his role as chairman of the German carmaker, announced at the weekend and starting a race
to find an independent head of the company's supervisory board.
Rio Tinto is willing to continue talks with the New Zealand government on
extending operations at its Tiwai Point aluminium smelter.
Sonova expects to return to growth in the second half of the year.
Eyes also on Diageo which said its business was performing ahead of its
expectations.
(Stefano Rebaudo)
*****
MORNING CALL: RESILIENT AFTER RECENT FALLS (0533 GMT)
European stock futures are well in the black showing some resilience after recent falls and
a tech shares rebound on Wall Street on Friday, though broad sentiment remain cautious.
Asian stocks are higher after profits at China’s industrial firms grew for the fourth
straight month in August, but concerns about surging coronavirus cases in Europe and risks of
new restrictive measures continue to weigh.
However there is more going on as investors’ focus is on UK-Europe post-Brexit trade talks
and a fresh U.S. stimulus package, which by the way seems increasingly unlikely to be approved
before the November presidential election.
(Stefano Rebaudo)
*****
